Section 106 has played an important role in delivering affordable homes, but as the uptake among the sector declines, Paul Butterworth, legal director at Foot Anstey suggests it may be time for a new approach
The provision of affordable housing via section 106 agreements has been one of the most significant factors in bringing forward new affordable housing dwellings.
There is no doubt that section 106 agreements do play an important part in the delivery of affordable homes, but it is worth stepping back and considering that in 2021-22 44% of affordable homes were delivered through section 106 agreements, which is probably less than would be thought to be the case.
Furthermore, this was a decrease from 51% in 2019-20, meaning that section 106 homes coming forwards are decreasing rather than increasing.
Does the section 106 system for affordable housing work?
By forcing developers to provide affordable housing as part of a development, it provides a baseline for provision of affordable housing.
As a planning requirement, and depending on what provisions agreements include, developers are constrained in bringing forward open market dwellings unless they have entered into a contract with an affordable housing provider.
This will always only ever be as good as the demand for these types of deals from affordable housing providers.
As the number of section 106 homes is reducing for a variety of reasons, there is no doubt that this will impact on the immediate supply of affordable housing. Whilst the primary reason for pulling back from section 106 purchases is financial, it has likely made housing associations look more carefully at other ways of developing affordable homes, which gives greater control over design and quality.
We have seen an increasing move towards housing associations acquiring land in their groups, enabling them to procure building works to their specification, rather than taking what is given via the section 106 system.
There is also some evidence in addition that section 106 homes have been constructed and are being left empty as developers increasingly struggle to find housing associations willing to acquire from them.
It is difficult to find any detail of numbers where this is the case, but it does provide anecdotal evidence that the section 106 system is not necessarily working as well as it once did.
Does additionality increase the supply of affordable homes?
Additionality is discussed widely in the current climate. This relates to the provision of affordable homes “additional to” the provision of section 106 units.
The question of whether they increase overall supply of affordable homes is complex. At first glance it would have to be said that they do increase supply. There is no numerical evidence for this, but it does seem logical that if extra homes are offered to housing associations then it will help increase the supply of new affordable homes.
However, if housing associations are withdrawing from acquiring section 106 affordable homes, then it seems to us that the demand for additionality units will not be there, and consequently will not add to the supply of new affordable homes.
Can developers do anything to improve this situation?
There are a few reasons why housing associations are pulling away from the section 106 route and which developers might want to consider if they wish to offload more section 106 units and any additional units:
- Upgrade the quality of the homes delivered so they more accurately reflect what housing associations are required to provide
- Improve snagging and defects procedures. This aligns with the push for greater customer service which housing associations are subject to themselves
- Enhance energy efficiency and sustainability standards
- Work more collaboratively with housing associations to see how homes can be future-proofed beyond current building regulations and work to achieve more bespoke solutions with them looking at what their focus is. This may include, for example, looking at district heating or other energy efficient solutions to assist their residents with cost of living issues
- Reduce prices to alleviate viability pressures on housing associations
New government proposals
The new government has stated that it is targeting building 1.5m homes during this term of parliament. It is setting mandatory targets in local authority areas.
There are proposals to extend development into the green belt with a set of “golden rules” which for example would provide that at least 50% of dwellings built should be affordable housing with a focus on higher numbers of social rented homes.
If the current section 106 system is beginning to fail it will be interesting to see if the policy proposals are sufficient to unlocking the planning system to deliver greater numbers of affordable homes.
There are some clear issues to address if the government is to get anywhere near the 1.5m homes projected:
- Speeding up the planning process on its own won’t be sufficient to deliver affordable homes; to make sites viable there needs to be significant public investment primarily through housing associations
- How will homes be built to the quality required by housing associations with huge pressures on numerical targets?
- How will supply chain and skills shortages be addressed? It is no good speeding up the planning system if there are not enough material or people to get homes built
- Will the proposed changes give rise to more legal challenges against planning consents as the granting of consents in controversial green belt areas gives rise to community rancour
- How up to date is the assessment of housing need in each area? This is a key component in bringing forward local plans and never seems to be current when planning numbers and types in each are
- How can the UK make off-site manufacturing work where it has failed to date?
Conclusion
There can be no argument that there needs to be significant change to deliver the housing which the country needs.
There is a complex web of issues to be resolved from how the planning system works and how to fund construction in sufficient numbers, through to getting homes built with enough people and materials.
The section 106 system has served a purpose in ensuring that developers bring forward affordable homes. This is not the answer to delivering the affordable homes which are so badly needed, and perhaps will play a smaller role in the future solution to delivering new affordable homes.
Main image: Paul Butterworth is legal director, affordable housing team at law firm, Foot Anstey
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