Demand for Section 106 homes has dropped off sharply, primarily driven by severely constrained financial capacity amongst Registered Providers and a renewed emphasis on investment in existing stock. Not only does this impact affordable housing delivery but also has the potential to significantly disrupt wider housing delivery. Urgent resolution is required to prevent a more prolonged impact on housing supply.
Section 106 has been the single largest method of delivering affordable homes since 2015-16 and also accounts for a significant share of total new home delivery. Without Section 106, the development pipeline is at risk of shrinking considerably. The impact will not be felt uniformly across the country and will have a disproportionate impact on local authorities which make the greatest contribution to overall new home delivery.
As Registered Providers are scaling back development more generally, Section 106 delivery is set to see the biggest reduction, with providers either no longer intending to acquire Section 106 or reducing their requirements. There does remain some appetite but from a limited pool of providers.
Larger Registered Providers are prioritising other routes to development, mainly land-led grant funded development, where they can have greater influence over design and the type of homes built. Grant funded delivery is expected to contribute over half of the future development pipeline for affordable housing over the next five years.
Restoring the financial capacity of Registered Providers is key. But is unlikely to be a short term fix. Substantial long term support around future social housing rents and grant levels for new and existing homes will be required.
In the short term, there is an urgent need for planning flexibility that enables housebuilding to keep going, even if that has a short term impact on affordable housing supply. The new Government will need to make interventions that are simple, targeted and fast.
Given the limited pool of buyers for Section 106, Registered Providers have become much more selective on which opportunities they pursue. There is a clear mismatch between what developers are building and what Registered Providers as regulated landlords are looking to buy, whether that’s the type and specification of new homes, build standards or sustainability credentials. A more collaborative approach, with Registered Providers engaged earlier in planning and development, would provide greater assurances around stock quality.
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