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New models of affordable provision needed for housing

by: Steve Goodall, managing director of Legal & General Surveying Services
  • 03/09/2015
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New models of affordable provision needed for housing
While the political parties in Westminster debate whether the government’s vision will ever be able to deliver enough new homes, at a local level, councils of opposing political persuasions are celebrating a shared victory.

West Berkshire and Reading councils – one Tory, the other Labour – have successfully challenged planning guidance that removed affordable housing contributions on small sites and converted vacant buildings. The High Court ruling on 31 July means that the government has had to withdraw two of its controversial planning policies, less than a year after they were introduced.

The case highlights a key aspect of the housing debate dear to brokers’ and lenders’ hearts – where should the extra finance needed to support the delivery of much-needed affordable homes come from? Planning obligations under Section 106 of the Town and Country Planning Act 1990, (known as S106 agreements) are one of a small number of ways to secure financial contributions towards essential infrastructure and the supply of affordable housing.

Critics, including West Berkshire and Reading councils, felt that both the Vacant Building Credit and the impact of reducing S106 contributions on sites of fewer than 10 homes, would undermine their ability to deliver on affordable housing plans. But many developers are resentful, claiming that the small firms that build out small sites have proportionately higher costs and say it will put them off using many well-placed, viable plots.

DCLG appeal

The Department for Communities and Local Government (DCLG) is planning to appeal against Mr Justice Holgate’s decision, but the disagreements between planning authorities and developers over S106 agreements will continue to rumble on. Because even though the landmark judgment has been widely welcomed among local authorities, the S106 is still a negotiation pressure point for the financing of affordable housing.

It is estimated that the social sector in England requires 83,000 more homes per year, but only 16,193 homes were completed through S106 in 2013-14, compared with more than 32,000 in 2006-07. Also, many of these homes were earmarked for affordable rent – which is classed as 80% of the market rate and is unattainable for the poorest.

Where S106 is implemented innovatively (for example reviewing agreements in the later phases of a scheme that has exceeded expectations, or employing viability officers within the planning team), planning obligations can be an effective mechanism to maximise the provision of affordable homes. This is especially true where local planning policies apply a realistic definition of what is ‘affordable’ to those with the lowest incomes.

But even in areas with strong housing markets, S106 contributions alone will never be able meet the affordable housing need. Local authorities and their partners must be supported in developing strong, tailored affordable housing and investment strategies, including the formation of Special Purpose Vehicles (a subsidiary company that isolates risk) around publicly-owned land.

In the larger cities, devolution may provide the finance and leadership skills to facilitate this. At a sub-regional level, if areas with viable strategies were able to increase their capacity through borrowing or accessing national funds, we may be able to identify new models of affordable provision, for these challenging times.

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