There is an affordable housing crisis in England: asking prices for homes rose a record amount in February. Almost half of all affordable housing in the UK is provided through section 106 (S106) obligations: requirements that local authorities place on housing developers when they grant planning permission. But developers can use financial viability assessments to argue that they will not turn a profit if they are required to provide affordable housing. This means not enough affordable housing is being built, so private developers can make bigger profits.
The threat of financial viability assessments
Fortunately, some innovative local planning authorities across England have started to tackle the threat of financial viability assessments. These approaches can be replicated in other areas or integrated into national legislation. Local authorities can make substantial changes to the way they provide affordable housing. Across the country, this would add up to a healthier planning system.
With S106, affordable housing is delivered via the success of private developments. This ties the existence of affordable housing to the market and dependency on local housing demand. Within a local authority, areas with higher house prices can host more profitable developments, while developing challenging sites like contaminated brownfield means higher development costs and less profit for developers. Despite this, councils still set a single level of requirements for the whole area, often based on areas with lowest demand. So they neither take advantage of the potential of higher value areas to provide more affordable housing, nor accommodate for the challenge of difficult sites.
An innovative approach
But councils such as Eastbourne, Leeds and Ashford use a different approach: a ‘zoned’ policy, with different levels of affordable housing required in different areas. This capitalises on areas with high demand and makes allowances for areas with low demand. It is therefore harder for developers to use viability assessments to challenge requirements, and improves the amount built.
“… not enough affordable housing is being built, so private developers can make bigger profits.”
Typically, S106 negotiations take place behind closed doors so no-one can hold the local planning authority accountable for its decisions. Planning authorities should release the details of viability assessments and negotiations, as in councils like Ealing.
If developers become concerned about the amount of profit they might gain from a development, they will try to renegotiate S106s to provide less affordable housing. Even though the allowance for a developers’ return in viability assessments factors in the risk of underperformance, there is still a culture of reneging on S106 commitments. But what happens when developments over-perform, after developers have argued for lower levels of affordable housing? The developer usually pockets the extra profit. However, planning authorities can attach a ‘clawback’ mechanism to S106 agreements, as done in Salford. The clawback captures the financial gains of over-performance to spend on affordable housing. Not only does this encourage developers to be accurate in their initial viability assessments, but it also protects against S106s based on unrealistic assumptions.
Enforcing affordable housing policies
Another option for planning authorities is to enforce affordable housing policies universally, leaving no scope for negotiation or viability assessments. Cambridge has used this approach effectively, refusing applications that do not comply with affordable housing obligations. New norms between developers and landowners develop, where affordable housing contributions become expected, rather than perceived as optional. Land values begin to reflect this by lowering and, in turn, developers return to the local planning authority with schemes that comply with policies. Of course, these norms take time to develop and, in part, rely on high demand for market housing
Encouraging affordable housing development
So far, the majority of solutions hinge on empowering planners in the dynamic between planning authorities and developers. The Mayor of London has opted for a different approach: forge positive relations by privileging developers who want to provide affordable housing. London offers a fast track through the planning system if a scheme can demonstrate compliance, in this case by providing 35% affordable housing. For developers, the development process becomes easier and less risky, as well as removing the cost of the viability process. A positive culture of compliance has begun to emerge, improving delivery in London.
Policy-based solutions such as zoned affordable housing can only be implemented when local plans are being created or amended, which typically only happens every five years. Non-policy solutions, like creating a culture of compliance, can be implemented whenever, but may be slow to embed.
Local authorities can innovate and hold developers to account
There is space for local authorities to innovate and hold developers to account. Once implemented, the positive evidence of these changes should boost demand for national reform, paving the way for wider improvements across England. Ultimately, the only sub-set of affordable housing that is genuinely affordable is social housing.