Implications for private as well as affordable housing

Given Section 106 has been the single largest method of delivering affordable homes since 2015-16, this clearly has an impact on affordable housing provision. But the sharp drop in demand has wider implications too, with the potential to seriously disrupt housing delivery as a whole.

Planning obligations typically require affordable homes to be occupied before the private offering on a development can be completed. In some instances, private developers are unable to access development finance, progress on site, or even seal a land deal without a Section 106 partner in place.

Our recent report examines in more detail the reasons behind falling housing association interest in Section 106 housing stock and its likely result.

The impact will not be uniform

Regionally, the highest volumes of Section 106 have been built in markets across the south of England – representing more than 11% of net additional homes in London and more than 15% in the south-east over the past five years.

For areas further north, where development viability is more challenging, Section 106 delivers far less housing. With some exceptions, the local authorities with high levels of Section 106 are those with the highest overall volumes of housebuilding. This suggests diminished demand for Section 106 will have a disproportionate impact, with locations that make the greatest contribution to housing supply facing the most disruption.

The emergence of the for-profit RP sector plays a vital role in delivery of affordable housing, but those RPs are also limited in capacity, and don’t have the experience delivering the more complex or higher-risk affordable housing projects that the traditional sector has taken on in the past.

Government intervention required

The issue is unlikely to resolve itself any time soon, and the government will need simple, targeted and fast interventions to strengthen planning obligations in order to deliver more affordable housing, and to make sure the current problems do not present a barrier to private development.

Potential solutions fall into three main categories:

1. Supporting demand – restoring financial capacity in the housing association sector should be a government priority in order to produce a long-term fix. Grant funding at the current levels won’t solve the problem alone. One short-term solution could be for Homes England and the Greater London Authority to acquire Section 106 affordable housing and hold it with a view to selling it to local authorities and housing associations when financial capacity allows. There are a number of possibilities, but all require additional investment from the public sector.
2. Planning flexibility – detail around the delivery of Section 106 is key and flexibility is required. This could include cascade mechanisms so that if the policy-compliant mix of tenures is not deliverable because there is no demand from Registered Providers, other options, such as Discounted Market Sale or Rent, are available instead to ensure the scheme can go ahead.
3. Improving the nature of supply – the need to prioritise investment activity has shone a spotlight on a mismatch in Registered Provider and developer expectations – on price, for example. Registered Providers are also seeking property with greater energy efficiency and sustainability credentials. There is limited evidence of a green premium for new homes sales, as most buyers are heavily constrained by affordability, so there are implications for viability here. However, a more collaborative approach could provide assurances over design and stock quality.

Further information

Contact Emily Williams or Gareth Turner