HC 1652 Communities and Local Government CommitteeWritten submission from Professors Tony Crook Professor ADH Crook is Emeritus Professor of Town & Regional Planning at The University of Sheffield. and Christine Whitehead, Professor Christine Whitehead is Professor in Housing in the Department of Economics at the London School of Economics. Drs Ed Ferrari Dr Ed Ferrari is Lecturer in Town & Regional Planning at The University of Sheffield. and Gemma Burgess Dr Gemma Burgess is a Research Fellow at the Cambridge Centre for Housing & Planning Research, the University of Cambridge. and Ms Sarah Monk Ms Sarah Monk is Deputy Director of the Cambridge Centre for Housing & Planning Research, the University of Cambridge.

Summary

In many ways S106 has proved to be a very effective means of helping to finance affordable housing as well as to ensure land is available and mixed communities.

Planning obligations for affordable housing are now agreed on almost all “above threshold” residential sites.

Nearly two thirds of all new affordable homes are delivered on S106 sites.

A large proportion of the new homes agreed are delivered.

This success has been significantly associated with the buoyant private market of the late 90s and mid “noughties” but also with the clearer policy and better practice of local planning authorities (LPAs) and the increased numbers of shared ownership homes (which require less subsidy).

More recently the numbers agreed and completed have fallen whilst there has been an increase in the proportion which are social rented homes, but the numbers are still much higher than at the beginning of the last decade.

Despite significant financial contributions by developers the successful delivery of affordable housing on s106 sites also needs significant public subsidy, RP debt funding and reserves.

The introduction of CIL, allied with less favourable market conditions, new approaches to funding affordable homes and new policies in the draft National Planning Policy Guidance, may combine to reduce the numbers of new affordable homes secured through planning obligations.

The big issue is how to maintain the delivery of affordable housing in the new very different environment. It is important not to lose local skills and commitment that have taken 20 years to build up to provide for local people. The new environment is challenging. But it remains a very useful tool especially linked to the affordable rents regime and the emphasis on intermediate housing.

Introduction

The Committee is inquiring into how new housing supply can be financed, especially within the new economic and financial environment facing private and public sectors. We are pleased to respond to the Committee’s Inquiry and our memorandum looks specifically at the role that planning obligations have played to date in providing private finance as well as land for new affordable housing. It also looks forward to assess whether, in the light of recent changes, such as Community Infrastructure Levy (CIL), the funding made available for housing through planning obligations in the past can be maintained and indeed enhanced in the future.

Background

S106 planning obligations have a long history. Initially they were confined to site mitigation and off-site infrastructure, but their use grew significantly in the 1980s because of reduced public expenditure for traditional public sector off site responsibilities and because using obligations to require developers to pay for the social costs of their new schemes (eg off-site roads) was seen as legitimate. Moreover, given the risks that developers could also be asked to pay for needs that were not “caused” by new development, government policy required obligations to meet specific tests of reasonableness. Using obligations to secure new affordable homes came later. Following limited experimental use by LPAs in the late 1970s and early 1980s, the government endorsed this, initially in 1989 for rural exceptions schemes and later in 1991 on all large (ie above threshold) residential development sites. This endorsement has been included in all subsequent government planning policy guidance on housing.

Provided LPAs establish the need for new affordable homes in local plans they can seek contributions from developers of all above threshold sites (and for smaller ones if their plans specify), provided the sites remain viable. Where developers are not prepared to make the provision, LPAs may refuse permission for the whole of the proposed development. They can set plan wide and site specific targets for the numbers of new affordable homes and sometimes also specify financial contributions, typically either free land for the subsequent provider of the affordable homes (usually a registered provider [RP] like a housing association) or specifying the price at which completed dwellings should be sold, usually the price that RPs can pay without public subsidy. However, not all LPAs negotiate financial contributions and many only specify the numbers of dwellings required (see Monk, et al, 2008).

Although developers can provide contributions on sites other than the ones for which they seek permission or make commuted payments to enable LPAs to secure provision on other sites, policy has been closely tied to governments’ mixed communities agendas. Thus on-site provision of affordable homes on private sector development sites has been much preferred. Policy permits LPAs to negotiate a wide range of affordable homes for rent and for intermediate tenures (such as shared ownership) but no longer includes low cost market housing, partly because of the difficulties of securing the latter in perpetuity (Monk & Whitehead eds, 2010).

If the “burden” of funding obligations reduces the price developers are willing to pay for land, obligations are a de facto method of “taxing” development values. Landowners receive less for their land than if no obligations had been placed on developers and developers use this financial benefit to defray their obligations to LPAs. Because obligations are usually secured after negotiations between developers and LPAs they are, in effect, are locally negotiated levies hypothecated for local needs (in contrast to national levies on development values where the tax rate is set nationally and collected by a national agency with no hypothecation).

Whether planning obligations are an efficient and fair way of funding new affordable homes depends on a number of factors. Negotiations can impose additional costs on developers which can be seen as deadweight while the obligations to provide a mix of private and affordable homes may impact on the total private sector output and the types of homes produced.

In equity terms, obligations transfer responsibility for supply side housing subsidies from tax payers to owners of (mainly) above threshold development sites. Justification for this can be placed on the “taxing” of “betterment” (the land value increments that arise when planning permission is granted) earned where the supply of new homes is constrained, resulting in higher house prices and higher land values than in an unconstrained planning context. Low income households lose out whilst owners of development land benefit and RPs have to pay high prices for land. Hence using S106 to secure affordable homes can be seen as the pursuit of equity, taxing the beneficiaries of constrained planning policy to improve the housing circumstances of the low income households resident in these areas.

Planning Obligations and Affordable Housing Secured: 19992010

In this section we summarise the findings of the research we done over the last decade examining planning obligations in general (Crook et al, 2006, 2008, 2010) and its use to secure affordable housing in particular (Crook et al, 2002, 2006; Crook & Whitehead, 2010; Monk et al, 2005, 2006, 2008; Monk & Whitehead, 2010; Whitehead et al, 2005). Where possible, we have also used readily available data to update some of the findings.6

The key findings

While only 7% of planning permissions have planning agreements, the vast majority of large sites generate significant affordable housing—it is the small sites under ten units that rarely have contributions.

Well over half of all planning agreements are for affordable housing—and in value terms there has been an increase of almost a quarter since 200506.

The majority of provision is in the southern regions where pressure is highest.

There has been a large shift to shared ownership and equity where little or no government subsidy is required.

Total numbers of planning agreements and obligations

Until this century planning agreement obligations were tied to very small proportions of planning permissions. While surveys in the 1990s noted a growing use, the numbers of agreements still covered only 1% to 2% of all non-householder7 permissions (see sources quoted in Crook et al, 2010).

This century has seen a marked increase. Surveys from 2003–04 to 2007–08 (Crook et al, 2006, 2008, 2010) showed that between 6% and 7% of all non-householder planning permissions had agreements for obligations. The upward trend since the 1990s is due to the growing use of obligations for affordable housing having a knock-on effect in securing more obligations to meet other needs such as education (Crook et al, 2008, 2010). The average number of agreements made annually by each LPA in England rose from 25 in 2003–04 to 30 in 2007–08 with major variations between and within different types of local authority, despite otherwise similar market pressures and socio economic circumstances (see below).

The majority of the S106 agreements are for housing developments rising from 18 per LPA in 2003–04 to 22 in 2007–08. Although this represented only 14% of all housing permissions over the period, the proportion was much higher for major developments (10 dwellings or more), rising from 40% to 51% over the five years. They also cover almost all large housing ones (in 2007–08 this included over 90% of those with more than 50 dwellings). The proportion was much higher in southern England than elsewhere, covering over two thirds of all major dwelling permissions in these regions compared with about one third elsewhere. This is because development pressure, development values and affordable housing needs are greater in southern England than elsewhere. Almost all (90%) were delivered in kind and not as commuted payments.

Since 200708 the global economic recession has been reflected in a fall in planning applications received and permissions given, albeit with a slight upturn in 2010–11. This reduces the opportunities for LPAs to negotiate obligations for affordable housing. In 2007–08 planning permission was given for 6,300 major residential applications, falling to 3,800 in 2009–10, with a small upturn to 4,200 permissions in 2010–11.

Numbers and tenure of new affordable homes secured through planning obligations

Table 1 shows the increase in new affordable homes approved through S106 obligations, rising from just under 14,000 in 1998–99 to over 48,000 in 2007–08. Increases occurred in all regions but especially in the four southern regions, accounting for over 70% of new approvals. Permissions fell to 35,500 in 2008–09 but then recovered to just over 38,000 in 2009–10. Despite this being lower than the peak year of 2007–08, it was still much higher than in 2003–04 when land values were approximately the same as in 2009–10 (see below). This suggests that local authorities were managing to sustain the numbers of affordable units delivered through s106 agreements despite the economic crisis.

Our evidence suggests that 80% of what is agreed with developers is ultimately delivered (Monk et al, 2006; Crook et al, 2010). Where delivery fell short of the agreement, this was generally related to changes to large residential schemes and also to the recent slower pace of development (usually provided for in “cascade” clauses in agreements). Table 2 shows that completions have risen from just over 9,000 dwellings in 1999–2000 to just over 32,000 in 2008–09 but falling to 29,000 in 2009–10, consistent with the fall in approvals a year before.

Table1

APPROVALS OF NEW AFFORDABLE HOMES ON SITES WHERE PLANNING PERMISSION HAS BEEN SUBJECT TO A S106 AGREEMENT

Region	1998–99	1999–2000	2000–01	2001–02	2002–03	2003–04	2004–05	2005–06	2006–07	2007–08	2008–09	2009–10
North East	452	286	609	287	348	388	326	791	922	992	754	813
North-West	716	1,013	1,168	834	1,533	1,242	1,211	1,817	1,668	2,699	1,570	2,245
Yorks/Humber	555	691	356	835	962	1,427	1,996	1,914	1,860	1,980	1,482	1,982
East Mids	845	1,021	1,566	1,418	2,433	1,653	2,795	2,888	3,190	3,956	2,623	3,745
West Mids	1,759	1,032	838	1,099	1,532	3,242	3,148	2,933	3,621	3,264	2,655	2,294
East	1,637	1,978	1,814	1,895	3,598	5,008	4,857	5,696	8,135	5,362	3,915	4,963
London	2,662	3,508	3,648	6,433	5,853	9,374	9,701	14,061	13,357	14,376	11,099	10,270
South East	3,806	3,917	3,064	4,013	5,483	6,223	8,363	7,951	8,978	9,977	7,875	6,804
South West	1,460	2,083	1,705	1,666	1,985	3,078	4,219	5,326	5,437	5,539	3,530	5,022
ENGLAND	13,892	15,529	14,768	18,480	23,727	31,635	36,616	43,377	47,168	48,145	35,514	38,138

Source: CLG HSSA statistics.

Table 2

COMPLETIONS OF NEW AFFORDABLE DWELLINGS ON SITES WHERE PLANNING PERMISSION HAS BEEN SUBJECT TO A S106 AGREEMENT

Region	1999–2000	2000–01	2001–02	2002–03	2003–04	2004–05	2005–06	2006–07	2007–08	2008–09	2009–10
North East	442	290	206	160	133	186	269	594	450	504	871
North-West	550	777	785	733	812	631	1,097	624	998	1016	1,145
Yorks/Humber	289	336	502	515	760	681	1,039	797	1,009	878	437
East Mids	691	778	761	1,155	898	1,294	1,914	2,089	2,605	2,601	2,471
West Mids	1,029	660	985	1,117	1,199	1,672	2,046	1,610	1,950	2,314	2,046
East	1,194	1,103	1,511	1,780	2,426	2,710	3,229	4,018	4,236	4,216	4,607
London	1,842	1,958	1,904	3,153	3,895	3,725	4,981	7,468	6,774	9,851	8,212
South East	2,553	2,298	2,394	2,923	3,577	5,327	6,168	5,569	5,884	7,439	5,912
South West	654	1,097	1,255	1,056	2,680	1,949	3,126	3,069	3,204	3,476	3,366
ENGLAND	9,244	9,297	10,303	12,592	16,380	18,175	23,869	25,838	27,110	32,286	29,067

Source: CLG HSSA Statistics.

Figure 1

COMPLETIONS OF ALL NEW AFFORDABLE HOUSING AND S106 AFFORDABLE COMPLETIONS

Source: CLG HSSA statistics

Figure 1 shows that the majority of all new affordable homes completed are now delivered through S106 obligations, increasing from 21% in 19992000 to a peak of 65% in 2006–07, though falling back slightly afterwards. This increase is as much the result of a fall in completions on other sites (“non S106 sites”) as it is to the increase in S106 completions, which suggests that S106 was replacing, rather than adding to, the total of completions of affordable homes in the early years of the last decade.

Table 3

TENURES OF AFFORDABLE COMPLETIONS ON S106 SITES BY REGION

Tenure	Rent					Shared ownership					Other tenures(1)
Year	2001–02	2005–06	2007–08	2008–09	2009–10	2001–02	2005–06	2007–08	2008–09	2009–10	2001–02	2005–06	2007–08	2008–09	2009–10
North East	83	73	80	73	66	13	24	17	24	9	4	3	3	3	25
North West	63	46	29	57	67	11	37	49	37	20	26	17	22	6	13
Yorks/Humber	88	63	54	66	71	9	24	39	26	10	3	13	7	7	19
East Mids	59	54	50	64	59	13	40	43	32	23	28	6	7	4	19
West Mids	69	50	49	62	67	6	34	41	31	19	25	16	10	7	14
East	90	65	64	67	68	5	27	33	28	25	5	8	3	5	7
London	75	68	63	49	63	20	29	37	41	34	5	3	<1	10	3
South East	78	57	57	55	66	20	35	41	38	30	2	8	2	7	3
South West	82	60	55	65	65	9	35	34	31	16	9	5	11	4	19
England	77	60	57	59	65	13	33	38	35	26	10	7	5	7	9

⁽¹⁾ Other tenures include discounted market sale units (up to 2007–08), local authority units and units of unknown tenure.

Source: CLG HSSA statistics.

Table 3 shows the tenure of new affordable homes delivered through S106. The proportion of social rented units fell nationally from 77% in 2001–02 to 57% in 2007–08 with a revival in 2008–09 and 2009–10. Meanwhile, the proportion that was shared ownership initially rose, although with a slight drop in 2008–09 and a bigger drop in 2009–10.

The proportions of shared ownership (and other intermediate tenures) rose for four reasons. First, central government wanted subsidy to lever in as much private finance as possible and to increase the overall numbers of affordable homes. Shared ownership has required much less Social Housing Grant (SHG) (Table 4). Second, LPAs faced targets to increase site densities, resulting in smaller flatted accommodation, best used as intermediate homes for smaller households (Whitehead & Crook, 2010; Bibby et al, 2011). Third, developers were happier to provide intermediate tenures because they regard key workers, and more generally employed households, as good neighbours for market purchasers. Finally, in a rising market, RPs found intermediate tenures highly profitable with sales proceeds being recycled into additional development. Many also cross subsidised their bids to provide social rented housing, so intermediate housing played an important role in increasing the overall supply of affordable housing.

In 2008–09 and 2009–10 these trends were reversed with greater proportions of rented than intermediate homes being completed in almost all regions. The economic crisis has made shared ownership units harder for RPs to sell, whilst stair-casing has also slowed down. Both have reduced RPs’ capital receipts and impaired their assets, making it much more difficult to fund new shared ownership and to cross subsidise rented homes on S106 sites. At the same time the HCA’s counter-cyclical “Kick Start” programme increased funding for social rented housing.

The value of obligations for affordable housing

The total nominal value of all obligations (including affordable housing) rose from £1.9 billion in 2003–04 to £3.9 billion in 2007–08. If the value of land contributions (apart from affordable housing) and for obligations related to minerals and waste is included, the total rose from £3.9 billion in 2005–06 to £4.9 billion in 2007–08 (data on these latter obligations were not collected in 2003–04).

Approximately half was for affordable housing, rising from £1.2 billion in 2003–04, to £2 billion in 2005–06 and to £2.6 billion in 2007–08. Extrapolating for the two years not surveyed, the total value of the affordable housing agreed between 2003–04 and 2007–08 was £10.3 billion (at 2007–08 prices). This was worth on average £54k per dwelling in 2007–08.

Despite these contributions, they have not wholly replaced the need for public funding, nor for contributions from RPs’ reserves. Affordable dwellings are funded by a combination of developers’ contributions, SHG, loans and reserves. The proportions vary considerably between sites, depending on market factors, the clarity of planning policy, the extent of other obligations sought, negotiating strengths of the parties involved and the type of affordable housing agreed—with shared ownership generally requiring considerably less SHG (Crook et al, 2002; Crook & Whitehead, 2010; Monk et al, 2008; Whitehead et al, 2005). In 2005, the range of developer contributions for social rented housing on s106 sites ranged from 32% to 55% of the total development costs (Whitehead et al, 2005). Developer contributions are generally at their greatest where LPAs’ affordable housing policies require that completed dwellings are sold to RPs at prices that reflect dwellings’ discounted net rental streams (Monk et al, 2008).

Three quarters of affordable homes on S106 sites have needed SHG since 1999–2000 and market factors have been keys to the need for public subsidy. Most S106 sites are in areas where land values are at their highest. Despite the size of developer contributions, SHG is still required to ensure that dwellings are truly affordable. S106 sites are in areas where RPs did not, in the past, build new homes because land prices were too high (Crook, et al 2006). S106 brings down these prices to what RPs can afford within subsidy cost limits (Whitehead et al 2005).

Another key factor has been the tenure of the affordable housing (Table 4). Shared ownership has required less public subsidy than social rented housing. Subsidy also varies by region, regardless of the tenure involved. Where “zero grant” on s106 sites policies have been pursued (eg Yorkshire & Humberside) large proportions of affordable homes have been delivered without subsidy. The overall economic environment is crucial and the proportions delivered without public subsidy fell in 2009–10, with falling development values.

Table 4

PROPORTION OF NEW AFFORDABLE HOMES COMPLETED BY RPS ON S106 SITES WITHOUT PUBLIC SUBSIDY

Region	Rented 2005–06	Rented 2007–08	Rented 2008–09	Rented 2009–10	Shared Ownership 2005–06	Shared Ownership 2007–08	Shared Ownership 2008–09	Shared Ownership 2009–10
North East	0	8	13	0	91	28	3	0
North West	20	28	26	9	47	52	32	4
Yorks & Humber	42	62	69	77	80	77	88	93
East Mids	15	14	13	12	24	29	23	13
West Mids	45	58	38	20	66	73	51	13
East	12	22	25	8	30	33	31	4
London	13	12	2	6	16	19	3	7
South East	9	5	3	3	25	19	15	10
South West	16	20	24	13	29	32	33	12
England	16	18	12	9	32	31	18	9

Source: CLG HSSA statistics.

Variations in Local Authority practice

As well as variations in market context between different LPAs there are also differences in local policies and practices. Such variations reflect differences in formal and informal policy between authorities, and the skills and negotiating experience of staff (Crook et al, 2006, 2008, 2010).

A series of good practice studies (eg Audit Commission, 2006; CLG, 2006) and our own evidence shows that the growing formalisation of policy and adoption of good practice increases LPAs’ abilities to successfully negotiate obligations. By 2007–08 almost all authorities had formal policies on planning obligations in place and there were statistical relationships between the adoption of commonly accepted good practices (eg standard charges) and the numbers of agreements, obligations and their value. “Good practice” local authorities also had more obligations delivered (Crook et al, 2010).

This all suggests that by adopting good practice, LPAs were in a strong position to take advantage of the buoyant market during the early and mid 2000s, hence the growing (but still modest) significance of market factors in explaining differences. It also suggests that good practice has been a key factor enabling new affordable homes to be secured through s106 even in the more difficult market circumstances of the latest economic crisis and that local policy and practice will be as critical a factor as market factors in determining outcomes under the new CIL and scaled back s106 regime.

The Future: Changes to the Market and Policy

The changes

Two crucial changes (to the market and to policy) will impact on the ability of S106 to deliver affordable homes in the future—the market down turn and policy change.

The big issues here are:

Will there be any planning gain to use to support communities given the decline in land values? The answer is yes, when the economy starts to move, expectations will improve and values will allow some contributions—though not as much as in the past; and

The shift to CIL as the major means of delivering planning gain could reduce the amount of affordable housing as other local priorities dominate—however LPAs have the experience to use S106 and it directly helps meet the “sons and daughters” issue.

The private market has experienced a downturn following the global economic crisis, reflected in a significant reduction in residential land values (see Figure 2).

Figure 2

AVERAGE BULK (2 HECTARES) RESIDENTIAL LAND VALUES IN ENGLAND & WALES (OUTSIDE LONDON) 2000 TO 2009

The average reached by January 2009 then stabilised at that figure for both January 2010 and 2011. Although values have thus fallen considerably from their January 2008 peak, they are still higher than in the Spring of 2000 (Figure 2) and it was over the subsequent period of rising values that LPAs were able to extract significant amounts for planning obligations. There has also been a fall in planning applications received and permissions given since 2007–08, albeit with a slight upturn in 2010–11, reducing opportunities for LPAs to negotiate obligations for affordable housing. In 2007–08 planning permission was given for 6,300 major residential applications, falling to 3,800 in 2009–10, with a small upturn to 4,200 permissions in 2010–11

Second, we are moving into a period of significant policy change—and the uncertainty it brings. Despite reforms to planning obligations policy being regularly mooted in the recent past, the “noughties” was a period of some stability in the ruling policy and legal framework for planning obligations. During this period critics of S106 argued that planning agreements lacked transparency and accountability, that negotiations were slow and made outcomes uncertain, that there was a growing disconnect between the obligations sought by LPAs and the development proposed and that there was a problem of free riders (ie the first developer of a new residential area risked paying for all the infrastructure required, with developers of subsequent stages benefiting from this at no cost to themselves).

Some of these concerns were addressed by putting s106 policies into statutory plans (making them more transparent and accountable), by standard charging (reducing negotiations and increasing certainty), by the five tests of reasonableness (ensuring legitimacy), and by allowing pooling of obligation receipts, but there were also consultations about more fundamental reforms, including a move to a tariff style system and a Planning Gain Supplement.

In the end a Community Infrastructure Levy (CIL) was introduced, coming into operation in April 2010 and giving “charging authorities” (primarily LPAs) a discretionary power to raise a levy on all new development to fund sub-regional and local infrastructure. If a LPA chooses to charge a levy, it will decide on the charge itself, subject to public examination, taking account of the infrastructure needed, what funding is available from other sources and the viability of development in its area. CIL will then run alongside S106, scaled back to address site mitigation and affordable housing, and this scaling back will happen everywhere after 2014, regardless of whether a LPA had adopted a CIL by then.

These new provisions explicitly accept that gains in development value should be used to fund infrastructure, that a close “rational nexus” between a specific development and its specific infrastructure needs is no longer necessary to do this and that an “averaging” approach to charging for infrastructure is desirable. This represents a considerable break with the S106 system described above. It increases equity, certainty, speed, transparency and accountability in using development value to fund infrastructure. But a key concern is whether the new provisions will hinder the use of scaled back S106 to secure new affordable homes.

There are also six other changes relevant to the potential impact of CIL on affordable housing provision:

1.First, CIL was introduced by the previous government and the Coalition government has modified the approach by requiring LPAs to give some of the CIL proceeds to the local communities where development takes place (hoping this will overcome some of the objections to new development).

2.Second, it has removed Regional Spatial Strategies from the hierarchy of planning policy and plans and placed all responsibility for local planning policies about meeting housing need (including affordable housing need) in the hands of LPAs.

3.Third, and in the hope that it will incentivise LPAs to grant more housing permissions, the Coalition has also introduced a New Homes Bonus for LPAs in the form of a fiscal incentive paid as additional council tax income for six years for each new home built (and 125% of the tax income for each new affordable home).

4.Fourth, although the substantial simplification of national planning policy guidance continues the existing endorsement of using planning obligations to secure affordable housing, it proposes to remove the national site threshold, to allow rural councils to permit an element of market housing development where this would facilitate the provision of more affordable homes, and to enable LPAs to decide on appropriate definitions of affordable needs when preparing their plans.

5.The Homes & Communities Agency (HCA) has stated that in future no grant will be paid on S106 schemes. This considerably strengthens its recent “default” policy of “zero grant” with strong justifications needed for any payment, for example because of exceptional costs or special circumstances (such as the extra costs of building in conservation areas, small rural sites or on sites needing substantial remediation).

6.Finally the adoption of the new affordable housing funding model with RPs letting new homes funded with subsidy at up to 80% of market rents changes what it may be possible for RPs to acquire from developers on S106 sites.

The impact of Community Infrastructure Levy: a preliminary assessment

It is difficult to predict impact because of the changed economic environment as well as the policy change but there are risks to securing contributions for affordable housing because, where CIL is charged, it will be fixed, not negotiated, so only the residual development value left over will be available for negotiating site mitigation and affordable housing contributions. LPAs are required to take the viability of sites to support affordable housing obligations when fixing the levy, but because of continuing concerns that not enough will be left over for affordable housing the Government has indicated that it would consider permitting CIL funds to be used for affordable housing (legislation would allow this but currently it is prohibited by the CIL regulations—and changes to these are currently subject to consultation).

Recent research with LPAs (Burgess et al, forthcoming) found that whilst CIL is broadly welcomed, there is a lot of uncertainty about the interface with s106 and the impact on how much affordable housing will be secured. Most LPAs were concerned about the overall funding gap for infrastructure, as what is collected through CIL will not be sufficient to meet all costs, and given this recognised that there will be a trade off between what can be secured through CIL, and what can be secured for affordable housing. This will be a balancing act and the balance between what is sought for infrastructure through CIL and what affordable housing is sought through s106 will come down not simply to viability, but to local political priorities. There is not only a trade off between what it is viable to secure through both the CIL and s106, but an opportunity cost in that the greater the proportion of affordable housing sought, the less can be secured through the CIL as it cannot be charged on affordable housing. There have been suggestions of using the CIL to collect contributions for affordable housing, but this was largely criticised by LPAs, mainly because it would not deliver on site affordable housing and would not support the development of mixed communities.

There will also be uncertainty while authorities decide whether or not to introduce CIL, at what level and how it is split between local neighbourhoods and sub regional and other infrastructure. If insufficient goes to the latter this may undermine provision of the infrastructure needed to support new homes. On the positive side, drawing in all sites to pay CIL should in principle enable more funds to be raised than was secured by s106 on only large sites in the past. This may allow a lower charge for CIL than the de facto “s106 rate” used on a much smaller number of large sites with planning agreements. If so, the amount left over for affordable housing may not be so badly reduced.

But given that development values have fallen so substantially since the credit crunch, it may well take a significant recovery in the market before scaled back s106 can deliver the amounts of affordable homes secured in the past. But as our evidence also shows how important to securing obligations it is to have effective policy and practice in place as well as to have high land values local policy and practice will be as crucial in the future as in the past. This may become more challenging and uncertain in the future because the draft National Planning Policy Framework removes the thresholds above which affordable housing should be required and gives LPAs much more autonomy in deciding on needs.

If the new market environment and new policy arrangements reduce the funds available for affordable housing, there will be pressure to secure more intermediate housing, and also demands on SHG to support contributions in the areas of greatest pressure. So we may have witnessed the end of an era when large amounts of funding was secured through S106 for urgently needed social rented housing. But it is still too early to be certain and a recovery in the market with an increase in development values should enable continued production of new affordable homes through S106 to continue.

Conclusions

S106 has been very successful in a growing economy. It is still in place and helping to ensure social rented housing is produced.

The affordable rents regime should make it easier to ensure S106 or CIL affordable housing contributions which even without financial contributions help mixed communities and ensure land is available.

As the economy improves there should be greater opportunities both through S106 and CIL. There is a need to simplify the system but not to dismantle it.

References

This is a list of the research reports on which this memorandum has been based:

Bibby P R, Brindley P, Crook A D H, Ferrari E T, Jones M, Monk S M, Tang C, Whitehead C M E & Tunstall, R (2011) New affordable homes: what, for whom and where have registered providers been building between 1989 and 2009? London, Homes & Communities Agency.

Burgess G, Monk S & Whitehead C (forthcoming) Capturing planning gain—the transition from Section 106 to the Community Infrastructure Levy Royal Institute of Charted Surveyors.

Crook A D H & Whitehead C M E (2010) Intermediate housing and the planning system, In Monk, SM & Whitehead, CME (eds) Making Housing More Affordable: The Role of Intermediate Tenures Oxford, Wiley Blackwell.

Crook A D H, Curry J, Jackson A, Monk S, Rowley S, Smith K & Whitehead C (2002) Planning Gain and Affordable Housing: Making it Count York Joseph Rowntree Foundation.

Crook A D H, Henneberry, J M, Rowley S, & Watkins C A with the Halcrow Group (2006), Valuing Planning Obligations in England London Communities & Local Government

Crook A D H, Henneberry, J M, Rowley S, Smith R S, & Watkins C A (2008) Valuing Planning Obligations in England; Update Study London Communities & Local Government.

Crook A D H, Dunning R, Ferrari E T, Henneberry, J M, Rowley S, Watkins C A, Burgess G, Lyall-Grant F, Monk S, & Whitehead C M E (2010) The Incidence, Value and Delivery of Planning Obligations in England in 2007–08, London, Communities & Local Government.

Crook A D H, Rowley, S, Monk S & Whitehead C (2006) Planning gain and the supply of affordable housing in England: understanding the numbers Town Planning Review 77(3): 353–373

Monk, S & Whitehead, C M E eds (2010) Making Housing More Affordable: The Role of Intermediate Tenures Oxford, Wiley Blackwell.

Monk S, Crook A D H, Lister D, Rowley, S & Whitehead C M E (2005) Land and Finance for Affordable Housing: The Complementary Roles of Social Housing Grant and the Provision of Affordable Housing through the Planning System York, Joseph Rowntree Foundation.

Monk S, Crook A D H, Lister D, Lovatt R, Ni Luanaigh A, Rowley, S & Whitehead C M E (2006) Delivering Affordable Housing through Planning Policy: Outputs and Outcomes, York, Joseph Rowntree Foundation

Monk S, Whitehead C M E, Burgess G, Crook A D H & Rowley S (2008) Common Starting Points for S106 Affordable Housing Negotiations London, Communities & Local Government.

Whitehead C M E, Lister D, Monk S, Short S, Crook A D H, Henneberry, J M & Rowley S (2005) Value for Money of Delivering Additional Affordable Housing through S106 London, Office of the Deputy Prime Minister.

October 2011