Though some councils are doing what they can, thousands of homes are standing empty as a result of pressures on housing associations
Over the past decade, councils have quietly become key players in affordable housing delivery.
Working behind the scenes, they’ve successfully secured the delivery of hundreds of thousands of affordable homes through section 106 planning deals which see developers building the homes before selling them on to registered social landlords to manage. Last year, more than half the 58,000 affordable homes built in England were thanks to this legal planning power; since 2015-16, these deals have been the “single largest method” of affordable housing delivery in England, according to consultancy Savills.
But something is going seriously wrong with section 106 and it’s left thousands of brand new homes empty, held up tens of thousands more, and is threatening to slash this once-reliable supply of cut-priced rental and homeownership products in councils across England.
The latest snapshot survey of 31 house builders by the Home Builders’ Federation in October found that 17,432 affordable homes with detailed planning permission were held up because they were unable to find a purchaser for their section 106 affordable homes. While these respondents include some of the biggest house builders, they represent a fraction of the whole industry. HBF’s executive director David O’Leary says this indicates that “tens of thousands of new affordable homes” are not being delivered. Barratt Homes director of planning Philip Barnes estimates “thousands of completed affordable homes” sit empty.
So what is going wrong with section 106 and how what can councils do about it?
The root of the problem can be traced to the financial difficulties faced by the housing associations which previously purchased them from house builders. Like many council landlords, associations face huge bills to fix unsafe cladding and rid their homes of damp and mould at the same time as their income has been constrained by government caps on rent rises.
As a result, many associations consider the purchase of section 106 homes as “not viable”, according to the National Housing Federation, which represents them. More than half of the 30 top associations have cut or completely stopped buying them, a Savills’ survey found in June.
Councils at the centre of this crisis are doing what they can to keep this critical source of supply going and are deploying a variety of tactics to do so.
Southwark LBC which has 60 to 80 empty homes in the borough has purchased 380 s106 homes itself after developers could find no other buyer. “The majority of s106 affordable housing in Southwark is bought by a registered providers but housing associations face the same mounting pressures as London councils,” says Helen Dennis (Lab) its cabinet member for new homes and sustainable development.
Thanet DC in Kent agreed to buy 31 affordable homes on the Nash Road development in Margate from house building giant Bellway because it had been “unable to secure an affordable housing provider”, council papers say.
But councils’ capacity to purchase section 106 homes is obviously limited.
Worcester City Council, which is party to high-level discussions about the crisis with the Ministry of Housing, Communities, & Local Government, its agency, Homes England, and the LGA said it only had capacity to buy two section 106 homes itself. “Many authorities have seen a significant drop in the take up of section 106 sites,” its officers told councillors in recent council papers. “There is a concern at the local authority level that the mechanism for affordable housing delivery are increasingly failing to deliver on meeting local authority housing needs.” Worcester’s capacity to buy section 106 homes relied on “external grant to support borrowing on the back of the rental income”.
An alternative to purchasing the homes is to agree cash payments with developers known as a “commuted sums” in lieu of the affordable housing specified by section 106 deals. Swale BC , which reported having 500 homes held up by the crisis in April, accepts such payments when builders prove the affordable housing is “not deliverable”, a spokesperson confirmed.
But as the crisis continues, councils are coming under pressure to re-write key parts of their section 106 requirements which developers say they can no longer meet.
“Councils have all the legal tools they need to remedy this; they just need to use them.”
Jonathan Cox, a partner at law firm Anthony Collins
In one case seen by LGC, these negotiations have proven beneficial. In what appears an unusual move, Medway Council secured more social rented homes by removing the requirement for affordable housing from a s106 deal. This allowed the housing association Moat to use affordable housing grant to deliver 17 socially rented homes on a development which was originally required to provide more costly “affordable rented” homes. This beneficial move would not otherwise have been possible as Homes England does not allow the use of grant on section 106 deals.
But the Medway cases is an exception to the rule, according to planning experts.
Annie Gingell, associate director at Tetlow King Planning says many developers are asking councils to switch social rented homes to homeownership products such as shared ownership or discounted market sale. “Councils are resisting. They really need those rented homes for homeless families, yet they can’t be delivered in the current climate.”
Bartlett School of Planning professor Janice Morphet says some councils are actively asking developers to reduce affordable housing in agreements. “If they had negotiated 40% affordable housing they are asking house builders to reduce that to 20%,” she says. “If this kind of practice becomes more widespread then the number of affordable homes delivered through section 106 could drop significantly.”
Jonathan Cox, a partner at law firm Anthony Collins, says councils can fight back against such demands. “Local authorities could consider taking a tougher line in the interests of the local community,” he adds. “Councils have all the legal tools they need to remedy this; they just need to use them. They could set the price that section 106 homes are sold for to housing associations rather than leaving it to developers.”
But housing consultant Dick Mortimer believes that without some kind of government intervention, such as a financial bailout, the pressure on councils to cut affordable housing requirements can only increase. “If local government can’t afford to buy these homes and not-for-profit housing associations are saying they haven’t got the borrowing capacity how will that gap in the market be bridged? This could mean a long-term loss to the sector of rented homes.”
A spokesperson for the Ministry for Housing, Communities & Local Government, said it had set up a “clearing service” with its agency Homes England to “help unlock delivery of these vital homes”. “We know developers have reportedly faced issues selling section 106 affordable housing, and this government has taken decisive action to fix this.”