The government’s housing and growth initiative may have hammered another nail in the coffin of the traditional means of paying for affordable housing

Christopher Proudley

The housing and growth initiative announced by the government on 6 September includes a package of financial measures and proposed changes to the planning system, designed to get Britain building again.

Does the proposal in respect of residential developments that have stalled, due to unviable affordable housing requirements, spell the end of the Section 106 agreement?

There has already been a fundamental change to planning obligations as we have become used to them over the past two decades with the introduction of community infrastructure levy (CIL). In the past, Section 106 agreements for large housing developments have included considerable financial payments to the local planning authority for off-site infrastructure such as schools, medical centres and highway improvements, on the basis that these are all needed as the result of the increased number of people who are to occupy the new houses. This was seen to be an unsatisfactory system with a prolonged and difficult negotiation for each site, and the development industry therefore lobbied for a tariff system. What has resulted is the CIL, where each local planning authority sets a tariff for certain types of development in certain areas of its borough, payable on implementation of a planning permission, with those monies being used for schools, medical centres and highways. Those payments are not now to be included in Section 106 agreements, the scope of which is therefore reduced.

Will the inspector hold a public inquiry into the developer’s request and, if so, what will be the delay and the cost?

The housing and growth initiative recognises that Section 106 agreements covering residential developments completed in more profitable times are now being renegotiated (though often as much in respect of the financial payments referred to above as for the level of affordable housing), but suggests that this is not happening fast enough.

Therefore, it is proposed that, in early 2013, the government will introduce a system whereby housebuilders will be able to appeal immediately to
the Planning Inspectorate (over-ruling the current five-year embargo in doing so) to see the level of affordable housing in the existing Section 106 agreement reduced to make the project viable.

This is a welcome initiative, but the following points should be considered:

  • Will the inspector hold a public inquiry into the developer’s request and, if so, what will be the delay and the cost?
  • There are resource implications for the Planning Inspectorate, and they will need to ensure that there are sufficient suitably qualified inspectors to deal with these appeals so as to avoid delay.
  • If an existing affordable housing obligation is reduced, this will only be for a three-year period and, after that, the original requirement will come back into force, assuming that the planning permission has been implemented/extended.

It is recognised that, currently, there are many local and national standards used when discussing viability, and it is a very welcome suggestion by the government that the industry needs to agree a uniform standard. There is also the hint that, if agreement cannot be reached by next spring, legislation will be brought in to introduce such a standard. This should be of assistance to housebuilders as and when they submit new applications.

The question is whether there is a role for the Section 106 agreement in those new applications where:

  • Viability will be argued on a standard approach
  • CIL will cover off-site infrastructure
  • Affordable housing provision will be the only element of viability available for negotiation and, in the extreme, the provision might be zero

On-site matters can largely be dealt with by conditions on the planning permission.

The Section 106 agreement may not be dead yet, but it is certainly reducing in importance. Whether this will see the kick-start to the economy that the government hopes, remains to be seen.

Christopher Proudley is a partner at Trowers & Hamlins