CIH responds to the inquiry into Delivering 1.5 million new homes: Land Value Capture

1. How effective and efficient are current mechanisms of land value capture in England?

The current mechanisms for land value capture in England operate successfully to ensure that all new developments contribute to affordable housing provision. Yet, reforms are needed to ensure these mechanisms are working to their most effective potential. As a sector, there was a general rejection of the proposed Infrastructure Levy under the previous government, and it was positive to see that this will not be taken forward under the recent National Planning Policy Framework. However, this means that we must ensure that the current system for land value capture works and delivers on building the right homes in the right places representing local needs. This is vital to achieve the government's target of 1.5 million homes in this parliament, particularly for truly affordable social rented homes.
We also note the government’s recent consultation on compulsory purchase orders (CPO), with our full response outlined here. The removal of hope value for social housing is vital to ensure that land prices do not inhibit the development of necessary affordable housing.

Section 106

A significant proportion of land value capture relates to developer contributions or Section 106 agreements (S106), which are a tried and tested approach to ensure that affordable housing is delivered through new developments. The upcoming UK Housing Review 2025 outlines that 44 per cent of affordable housing delivery in 2023/24 was delivered through S106, demonstrating the system’s effectiveness. This is also a key delivery method which does not use government grant. It is therefore vital that this mechanism for land value capture is supported to be used effectively.

CIH, along with other sector bodies, has been undertaking work on understanding the current obstacles related to S106 housing delivery, following concerns from members raised over the last year. In summary, our recent survey of the sector found that there is a “perfect storm” of issues that are prohibiting S106 delivery. These issues have been flagged from all actors within the process, with developers not having anyone to take on the homes built, local authorities struggling to find registered providers to take the homes, and housing associations with less appetite for S106 homes.
It is important to note that we have found that there are a range of experiences and appetites related to S106 by housing associations, particularly on a regional basis. For those who are finding difficulties with S106, they have noted a range of reasons for not wanting to take on S106 homes, including:

• Competing financial priorities (building safety, net zero, repairs) – please see Question 3 for more on this
• Quality of S106 builds
• Properties not meeting needs (size, tenure, accessibility etc)
• Number of homes provided
• Land prices or competition for sites
• Relationships with developers/inclusion in decision-making/control over delivery timings
• Location of sites

From discussions with our members, we have found that the primary solution for improving S106 delivery is to involve all interested parties early in the process, as well as wider capacity support outlined in Question 3. This requires developers, local authorities and registered providers all to be involved and engaged with earlier in the process, building stronger relationships and facilitating better communication on expectations from all parties. This will require developers to ensure that the homes built meet providers’ needs (such as in quality, sustainability requirements, and type and tenure), and for there to be clear understanding of the costs expected. This would also improve viability negotiations, which members have outlined can be difficult with a gap in expectations between developers and local authorities’ local plans. Whilst there are genuine circumstances for viability to be negotiated, it is important that these late-stage negotiations are not used to reduce affordable housing delivery to increase profitability. All involved parties must work together in good faith with the shared goal of increasing the supply of housing, particularly focusing on the need for social housing.

It is crucial that the S106 process is reformed to facilitate the development of new affordable housing. The current issues outlined are prohibiting delivery outcomes, with a survey finding around 13,000 new homes were held up in March 2024. Ultimately, limitations in the effectiveness of S106 agreements mean less affordable housing is delivered and is available for those who really need it, at a time of record levels of homelessness and people living in temporary accommodation.

Community Infrastructure Levy

Another element of land value capture is the Community Infrastructure Levy (CIL). Whilst this focuses on funding essential infrastructure, it plays a significant role in housing developments.
Members have raised concerns with us around CIL prohibiting the delivery of affordable housing. There have been instances (such as the Stonewater v Wealden District Council 2021 case), where CIL relief has not been granted for additional or 100 per cent affordable housing schemes, which ultimately leaves the scheme not viable or delivered with less affordable housing. Due to the restrictions around grant funding not being used for sites with S106 homes, providers can struggle to provide additional affordable homes on the same sites.

Our members have outlined some potential solutions to these issues, such as implementing an Option A/Option B clause as standard across all local authorities. More broadly, it is important that there is more guidance by both government and Homes England around CIL for local authorities and registered providers, to ensure a clear and consistent approach to CIL across different areas, and to remove barriers for more affordable housing delivery. 

2. What alternative methods of land value capture might be most suitable for England?

Please see our response to Question 5.

3. What are the economic and practical opportunities and challenges of pursuing land value capture policies in England?

Difficult operating environment and investment

The biggest challenge for land value capture policies is the broader restriction on the financial capacity of the housing sector. The Regulator of Social Housing notes there is ‘reduced financial capacity’ in the sector, due to a combination of increased expectations and regulations (such as decarbonisation, building safety, and repairs and maintenance) and restricted income through years of policy change around social rents, as outlined in our commissioned analysis by Savills.

As noted in our survey responses on S106 in Question 1, these competing financial pressures are one of the main reasons that many housing associations are reducing their appetite for S106 properties. This follows with an overall drawback of development pipelines, as providers shift focus to improving existing homes and preparing for expected changes, such as Awaab’s Law and the updated Decent Homes Standard.  Adding to this pressure is the uncertainty around upcoming policy developments for new homes, such as the new Affordable Homes Programme and Future Homes Standard. Due to this overall reduced interest in developing new homes, providers that are continuing to develop are being more particular and rigorous in the standards expected from S106 properties. Therefore, providers are not taking up those that fall below expectations, such as properties with gas boilers which do not match their sustainability business plans, and have limited financial capacity to meet high developer selling prices. Alternatively, some providers are focusing on land-led opportunities where they can use government grant, to subsidise development costs in a difficult financial environment.
It is imperative that the government understand that planning reforms and other mechanisms can only be useful in reaching the 1.5 million homes target when the sector has the financial capacity and investment to increase development initiatives. Planning reforms can only go so far in boosting the delivery of social homes, and this must come with government investment. This must be implemented through a long-term rent settlement at CPI+1 per cent with rent convergence, as well as more investment for the sector with the Affordable Homes Programme and other necessary mechanisms, as outlined in our Spending Review submission. We look forward to seeing the government’s commitments and investment in the upcoming long-term housing strategy and Spending Review.

Planning capacity

A further challenge in pursuing land value capture policies is through the lack of capacity in planning departments. As outlined in our response to the NPPF consultation, local authority planning departments are under resourced and lacking capacity and expertise. A recent MHCLG report found that 97 per cent of planning departments reported planning skills gaps, with around half reporting skills gaps specifically in CIL, S106 and viability assessments. This lack of expertise and personnel in planning departments is a crucial barrier in the land value capture process, and it must be actioned before examining if a new system would be more effective.
Whilst the government’s commitment to planning reform is welcomed, it is necessary that planning departments are resourced and supported so that these reforms can be effective in boosting the delivery of affordable housing.

4. What mechanisms of land value capture have been effective internationally?

Not applicable.

5. Should reforms to land value capture be pursued through changes to the current section 106/Community Infrastructure Levy regime, or by introducing a new mechanism?

We would argue that the current system for land value capture should remain, with the necessary reforms (outlined in Question 1) to ensure it is working effectively and efficiently. To implement a new method of land value capture would be disruptive, costly and cause further delays to development through uncertainty. S106 in particular is a mechanism which has been shown to successfully deliver a significant proportion of affordable housing, and focus should, therefore, be on ensuring that this works for all parties in the process before exploring a new system for land value capture.

6. How could different mechanisms of land value capture complement the Government’s ongoing planning reform agenda, including delivery of New Towns and the release of ‘grey belt’ land for development?

Please see our response to Question 3 for notes on wider planning reforms.
More information is available in our responses to the NPPF consultation, grey belt inquiry, and brownfield passports working paper.

7. Overall, would reforming land value capture support or distract from the Government’s target of delivering 1.5 million new homes by the end of this Parliament?

We support the government’s intention to ensure that land value capture supports in the delivery of 1.5 million homes, particularly for social rent. We would argue that the current system should remain, with the necessary reforms to ensure it works effectively.
However, it is clear that land value capture will only have a limited contribution to the 1.5 million homes target. As outlined in our response to Question 3, the sector must be supported with long-term investment to ensure it is able to boost development of truly affordable homes that adequately represent local housing need. 

Visit the government's website for more information on the consultation.

For more information on our response please contact Megan Hinch, senior policy officer (interim), megan.hinch@cih.org