There is a quick fix to get house houses built: Reform Section 106 to make it more viable for developers to sell affordable housing, says Jonathan Seager
Housing has been one of the top issues during this general election campaign, with political parties jostling to one up each other in their pledges to tackle a key concern for voters across the UK and, particularly, London.
The capital needs to build at least 66,000 new homes a year but is falling considerably short of this target.
The rhetoric from the major political parties is seemingly pro-development. Commitments have been made about the number of homes that will be delivered accompanied by differing strategies about how this will be achieved. But these manifesto commitments are largely focussed on the long-term. In the short-term, what will get spades in the ground is finding ways around log-jammed systems such as the delivery of affordable homes through Section 106 agreements.
These agreements, made between a developer and a local planning authority, require the developer to mitigate the impact of their development on the local community. They act as a mechanism by which large residential developments provide a specified amount of affordable housing, with this affordable housing generally sold to and managed by a Registered Provider, which is typically a housing association.
To secure planning permission and start building, the affordable housing component must be secured through a Section 106 agreement, but the system isn’t working. Most of the largest housing associations that have traditionally bought Section 106 affordable homes are currently not pursuing these deals. The feedback from many developers in London is that this has now reached a critical level of concern.
What lies behind this lack of activity is a combination of factors curtailing the level of investment that housing associations can allocate to new homes. The same issues that have beset housebuilders are also impacting housing associations: high build cost inflation, regulatory uncertainty and an under-resourced and convoluted planning system. Additionally, housing associations are having to focus on improving their existing homes through a renewed focus on repairs and maintenance, upgrading energy efficiency and addressing fire safety concerns.
If that wasn’t enough to grapple with, over the past 10 years housing associations have had to contend with lower levels of grants to support their construction programmes and changes to agreed rent settlements. Both of which have necessitated savings to be found by reducing capital investment into new development.
Developers need housing associations to buy their Section 106 affordable housing, but associations are not in the market for such development. Historically, developers would tender these affordable homes, choosing a partner from a competitive process. Running such a process now generates, at best, a small number of interested housing associations which are struggling to pay a rate that is viable for the overall scheme or, at worst, no responses.
Recent years have seen the rise in for-profit registered providers coming into the market but their appetite for significant additional investment is currently limited due to the wider economic environment.
Pragmatic, short-term solutions could help kickstart delivery. In some instances, it makes sense for local authorities to receive the cash equivalent of the affordable homes from the developer, using this money to support their own affordable housing schemes. In other instances, simply expanding the list of registered providers that a local authority deems acceptable in their area may also help.
These quick fixes must, however, be supported by structural reform. A new Government should provide long-term certainty about both a future social rent settlement, ensuring its reflective of the costs that housing associations are facing, and its Affordable Housing Programme, ensuring the money is provided flexibly to reflect the cyclical nature of development. This long-term certainty would have the added benefit of also attracting more private investment into affordable housing, bolstering the limited amount of public funding that is currently provided which, when the economy allows, must ultimately be increased.
So, beware of headline grabbing, five-year manifesto solutions. Greasing the wheels of the existing system is vital to unlock new homes and development in the short-term, which will in turn support London and the UK to build, baby, build.
Jonathan Seager is policy delivery director for research and impact at BusinessLDN