"They rushed yours through. I asked to change the colour of my front door in 1546 and I had to re-equip the English navy, discover the North-west Passage and cut off both my ears before they'd take delivery of the proposal …"
Yes, when housebuilders get together and the conversation turns to section 106 agreements, the scene can become reminiscent of a certain Monty Python sketch. But now it seems the government has become more sympathetic to housebuilders' plight. Of course, taxes still have to be paid, but the Planning and Compulsory Purchase Act, which takes effect next month, gives developers alternative ways to pay their debt to society (see below). Meanwhile, proposals in Kate Barker's report could have a big impact on the scope of S106 and pave the way for a development land tax.
The aim of these tax changes is to find a more efficient way of extracting money from developers to pay for infrastructure, particularly in areas such as the Thames Gateway. With a working group drawn from the Office of the Deputy Prime Minister and the industry hammering out the detail of the act's proposal for a planning tariff, the industry is unsure how these new taxes will operate. However, many housebuilders – and not just those in Yorkshire – fear a heavy price.
Would a land development tax work?
Private housebuilders have made it clear that they don't think much of Kate Barker's recommendation for a "planning-gain supplement" to pay for local amenities other than social housing. This is effectively a development land tax, and it would be levied on the increase in a site's value triggered by planning approval. Four previous attempts to initiate such a tax have failed after proving too bureaucratic. Smarter developers avoided them, and landowners stopped selling. "To put a tax on the increase in value won't work. It's nonsense. If there's a tax on the land, the landowner may not sell," is the popular view, voiced by Andrew Wiseman, chief executive of Telford Homes.
A planning-gain supplement could be levied not only on private housebuilders, but also on registered social landlords, who already find it tough to compete with deep-pocketed private developers. "I've been involved in S106s where we've bought land, had to make all sorts of payments and been prevented from progressing the project," says Tim Holden, assistant chief executive at Network Housing Group.
Holden says that NHG prefers to develop its own sites, like the recently completed Pimlico Village, near London's Victoria Station. He regards S106 as a mixed blessing: it provides homes for RSLs, but at a cost to them and the broader built environment (see "Passport to Pimlico Village", right). "It is perceived as a fast way of delivering affordable housing. But developers take a lot from the system," he says.
An alternative to section 106
Private housebuilders point out that fulfilling the S106 aspirations of the local authority and the landowner can be a delicate balancing act. "Most local authorities in London are moving to 35% affordable housing, but now that the market is not marching ahead, land prices are being pushed down, and so owners don't part with land. We have a site where 25% affordable housing just works, but at 35% affordable housing, the landowner won't part with the land," says Telford Homes' Wiseman.
The act gives housebuilders the option of paying a more structured planning tariff or charge instead of individually negotiating a S106. The optional tariff is attractive in theory, says Wiseman. "A tariff will be fine if it's as clear as increasing planning fees. We want certainty."
Others in the industry, however, have less faith in the ability of local authorities to set a sensible tariff. "Based on bitter experiences, local authorities will see this as an opportunity to secure money for community facilities. But they lack real commercial awareness: they could set charges too high and choke development," says Gary Day, land and planning director with retirement housebuilder McCarthy & Stone.
Even in areas with a history of tough negotiations, support for S106 can be strong. In Oxfordshire, demands for up to 50% affordable housing and a lack of supply prompted the county council to set up a working group on affordable housing delivery (see "Tackling the impasse", page 49). "S106 is still the best way, so long as it is used properly and sensibly," says Bob Langton, the group's spokesperson. "Problems arise when people want affordable housing, plus education, plus roads."
Mary Power, planning director with FPDSavills, points out that tariffs already operate in some areas, including the east London borough of Tower Hamlets. Office developers there know that they will pay a charge based on floorspace. "It has quite a sophisticated approach, but the developers negotiate their way around it," says Power. "Developers half want certainty, but then there's no flexibility to negotiate a deal."
Power does not think that there will be widespread take-up of the tariff option once it becomes available. "People criticise S106 but it has delivered. It's the time it takes that is the problem." Which leaves one wondering which proposal is the dead parrot …
Tackling the section 106 impasseIn April 2003, Building’s Homes supplement reported how local authorities in Oxfordshire were imposing high affordable housing demands to tackle a shortage of low-cost homes – but threatening to suffocate development in the process. The county has now established an ambition group on affordable housing, bringing together the four district councils, the county council, Oxford’s city council and private sector representatives.
The group has commissioned research into housing need and the housing pipeline, and will talk to employers to try to define the elusive term “key worker”. “About 60% of the employed population of Oxfordshire is in the public sector of some kind, but the definition of a key worker could be wider than the obvious nurses, teachers and firemen,” says Bob Langton, the group’s spokesperson. The aim is to build a better working relationship between the councils and housing providers.
Passport to Pimlico Village
Network Housing Group’s Pimlico Village is the kind of mixed-use, mixed-tenure project our cities are seeing more of. It has a Sainsbury’s store and eight shops at ground level and 160 flats for shared ownership, rent and sale above. As an RSL-led project with 50% affordable housing, S106 was “not an issue”, says NHG assistant chief executive Tim Holden. NHG had the flexibility and the financial power to develop sites, so it set up a development company and brought in Sainsbury’s as retail partner. “We’re masters of our own destiny. We’ve got better quality of finish and we’ll have lower maintenance costs,” says Holden.
Understanding the taxesWhat is section 106? An agreement with the local authority, individually negotiated on a scheme-by-scheme basis, that contributes towards affordable housing and other local amenities.
Pros: It is flexible, so canny developers can negotiate good deals.
Cons: It can take many months to do a deal. Housebuilders argue that some local authorities demand too much from them, particularly when it comes to affordable housing quotas.
What’s its future? Kate Barker would like to confine it to affordable housing. Under the Planning and Compulsory Purchase Act, developers will be able to opt to for a negotiated S106 or pay a fixed charge.
What is planning tariff? An alternative to S106.
Pros: It is fixed in advance by local authorities, so developers know how much they will have to pay.
Cons: There will not be the flexibility to horsetrade to reduce payment.
What’s its future? It is coming, under the Planning and Compulsory Purchase Act. The Office of the Deputy Prime Minister and the industry working group is due to report on how the tariff could work in the autumn.
What is a planning-gain supplement? A tax on the uplift in land value gained by the landowner once planning approval is granted. The tax will help contribute towards local infrastructure works, such as providing public transport for the residents.
Pros: It allows government to raise funding for infrastructure works – desperately needed in the Thames Gateway.
Cons: It could slow down development if landowners opt to hold onto land rather than sell.
What’s its future? It is proposed in Kate Barker’s review of housing supply. The Treasury is consulting, but action on the idea is unlikely until after the general election.