Historically, section 106 (s106) affordable housing has been a major contributor to the delivery of affordable housing accounting for around 47% of all affordable homes. The Home Builders Federation confirmed that in the past 5 years alone, almost 140,000 new affordable homes have been delivered by the private sector with developers contributing around £10.8 billion each year towards affordable housing, infrastructure and amenity enhancements. Unfortunately, the future of s106 affordable housing is under threat primarily due to the perfect storm created by the economic challenges to both developers and registered providers resulting in thousands of s106 affordable housing units not being delivered.
Negotiation of a s106 agreement is never as straightforward and quick as it should be, particularly the negotiation of the affordable housing provisions. A key area of negotiation is viability reviews – many schemes are unable to deliver the required affordable housing. In London particularly, that means negotiation of early stage and late-stage reviews.
For the early-stage review mechanism, if substantial implementation (usually meaning construction of the foundations up to ground or first floor slab) of a development hasn’t taken place within two years of the planning permission being granted, the early stage review mechanism is triggered. This is increasingly challenging in the current economic climate where it is difficult for developers to get funding and following the introduction of the Building Safety Act regime it is even more challenging for higher-risk buildings (given how long the gateway two stage approval is taking).
Additionally, the late- stage review mechanism (often with its unknown liability) also adds considerable delay to the process and prevents occupation of a certain percentage of market housing units until the late-stage review is completed and any contribution paid.
Increasingly, the review mechanisms are not acceptable to funders in this current economic climate where funders require certainty above anything else.
Flexibility with the viability reviews would be welcomed by developers and funders. The Greater London Authority (GLA) published the Accelerating Housing Delivery paper in December 2024 which dealt with early stage and late stage review mechanisms but only went a very little way towards offering creative and practical solutions to help this issue. Extension of time for early-stage reviews is now desperately needed.
In terms of late-stage reviews, some flexibility is also required, perhaps granting developers an extension to the timetable for completion of the late- stage review thereby allowing all market housing to be occupied.
The second area of challenge is the transfer of the affordable housing units to a registered provider. Traditionally the trigger for a transfer to an RP has been 75 per cent market housing but we are increasingly negotiating this so that developers can occupy 90 or 95% of market housing before transferring units to an RP. Also not having a prescriptive list of RPs and having flexibility with which provider to transfer the affordable homes to is also critical. Cascade mechanisms are increasingly being used for situations where an RP cannot be found for s106 units although these are by necessity detailed and at times complicated but do save the developer from having to go back to the local planning authority for every change where the s106 is too prescriptive This is increasingly unworkable because quite simply registered providers are not buying the s106 affordable housing units.
Without a contracted s106 purchase from an RP, some developers are unable to secure development finance to start a development, whilst larger sites are being stalled because the s106 requires the affordable element of the site to be transferred to an RP by a certain trigger point resulting in both market and affordable housing being stalled and ultimately delayed and at worst not delivered.
Wider issues impacting delivery
Funding
In terms of the wider issues facing the delivery of s106 affordable housing, a major issue for RP's is funding. There is a lack of funding available for development and the maintenance of social housing homes which has been further exacerbated by public funding spending cuts and the lack of government subsidies. RPs have been hit with build cost inflation, rising labour costs, material availability, building remediation issues and the duty to support tenants through a cost-of-living crisis all at a time of reduced funding. This prevents investment in new homes.
In addition, RPs have had higher spending on existing housing stock because of damp and mould repairs, investment in energy efficiency to meet government targets, building safety works (following the BSA) and inflationary costs.
Grant funding or the lack thereof is also a major issue for RP's who have multiple demands and purchase of s106 units without funding is not possible.
There has also been a growing concern within the market that the quality of s106 housing has been a reason that housing associations and registered providers are less interested in s106 developments. These concerns include energy efficiency, design and size. Whilst improving the standards of s106 developments is important, this also comes with higher costs and therefore has an impact on viability. Earlier involvement from housing associations and registered providers has begun to happen and this needs to continue so they will be more willing to take on the affordable housing after the s106 agreements are entered into.
Resourcing
Lack of Resourcing and funding in the planning departments as well as with the building safety regulator is also slowing down development considerably. The government has already promised to provide 300 new planning officers but more are needed.
Building Safety
Planning has historically been the main issue for developers but the Building Safety Act requirements are having a significant impact on the sector and is now seen as one of the key challenges for delivery of the 1.5 million homes so resourcing and funding for the Building Safety Regulator is critical. We also have a dwindling construction industry. The government is now clearly aware of the issues facing the sector with the Building Safety Regulator as an inquiry has been opened by the House of Lords to investigate the delays to scheme approvals.
With the Chancellor's announcement in the June spending review of a £39 billion investment for a new 10 year Affordable Homes Programme, there is much anticipation and hope that this funding will play a crucial role in delivering the 1.5 million homes in this parliament
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