CIH response to the inquiry into improving local areas through developer funding

3.1. We welcome the committee’s inquiry into how developer contributions fund affordable housing and wider infrastructure, and reviewing the system’s effectiveness. CIH has been engaged with these discussions following member concerns on the limitations and barriers of the current system in delivering the affordable homes we desperately need, further detailed below.

3.2. It is crucial to contextualise the development of new homes, and how this is impacting the effectiveness of developer funding, particularly in the Section 106 process. The Regulator of Social Housing noted there is ‘reduced financial capacity’ in the housing sector. This is particularly impacting the development plans of housing associations, as they focus on investing in existing homes to meet increased and upcoming regulatory and legislative expectations, such as net zero requirements, the new Decent Homes Standard, Awaab’s Law, and Competence and Conduct Standard. This has led to financial constrictions on the capacity for land-led development for some housing associations, and means there is increased importance in value-for-money and good quality homes delivered through Section 106 agreements (as outlined further below in paragraph 4). As such, the system of developer contributions to fund additional affordable housing is crucial to increase supply and provide homes for those who need them.

3.4. Additionally, CIH has consistently called for housing and infrastructure to be planned and delivered holistically and strategically, in order to meet local community needs. The roles of strategic planning, Spatial Development Strategies, local plans, and new town developments will be vital in delivering housing to meet needs, particularly for social rent, and providing social infrastructure and transport to maintain and create successful, well-designed, practical, and healthy communities. Therefore, the Community Infrastructure Levy must be used effectively to deliver the necessary infrastructure alongside housing development, as outlined below in paragraph 5.

4.1. As stated, Section 106 agreements are a crucial mechanism to deliver an increased supply of affordable homes for those who need them. According to the UK Housing Review, Section 106 agreements deliver nearly half of all affordable housing, and it is therefore critical that we ensure the system works to boost the supply of social homes. The sector collectively rejected the introduction of the Infrastructure Levy for many reasons, and we need to ensure that the current system works well and effectively. Further information can be found in our response to the inquiry on land value capture. We therefore want to ensure that the system is set up for success and is clear and accessible for all stakeholders.

4.2. However, it is important to reflect issues raised to us by CIH members about the current environment of Section 106. In our response to the land value capture consultation, we highlighted the feedback from member discussions. A recent survey of the sector conducted by CIH on the limitations of Section 106 agreements found that there is a “perfect storm” of issues that are prohibiting Section 106 delivery, with all actors spanning the process flagging issues. Whilst these issues can vary on a regional and organisational basis, survey responses and feedback identified a range of reasons for a reduced appetite for Section 106 homes including:

4.2.1. Competing financial priorities (building safety, net zero, repairs)
4.2.2. Quality of S106 builds
4.2.3. Properties not meeting needs (size, tenure, accessibility etc)
4.2.4. Number of homes provided
4.2.5. Land prices or competition for sites
4.2.6. Relationships with developers/inclusion in decision-making/control over delivery timings
4.2.7. Location of sites

4.3. Discussions with members have highlighted that the primary solution to improve Section 106 delivery is early engagement between all parties (developer, housing association, and local authority), to establish clear expectations, improve communication, and build stronger future relationships. Similar existing approaches have overcome many of the issues mentioned above and ensured that the homes delivered by developers meet the needs of providers, and with clear costs negotiated in advance to avoid late-stage viability negotiations. This builds on the recent guidance for developers published by the G15 and L&Q for successful Section 106 agreements. 

4.4. As noted above, there are significant financial constraints upon the housing sector, which inhibit development initiatives. It is therefore vital that the sector is supported financially, to increase appetite for Section 106 and boost overall housing delivery, to support the government’s 1.5 million new homes commitment. 

4.5. This is particularly necessary to deliver homes to meet acute needs in specialist and supported housing. Some local authorities have the delivery of supported housing built into their local plan, but by no means all. For example, Sefton’s local plan allows for 50 per cent of affordable delivery via Section 106 contribution to be supported homes, on a ‘bedspace for bedspace’ basis and that the supported homes remain as such in perpetuity. This approach not only serves to contribute to the supply of such homes, but to their retention, safeguarding against voids being transferred to general needs rent in circumstances where sustaining occupancy is subject to an unpredictable commissioning environment. It is crucial that all mechanisms for development, including developer contributions, can be used to support the need for more specialist and supported housing to meet needs.

4.5. Additionally, in our response to the National Planning Policy Framework (NPPF), we outlined the opportunity for commercial and other non-residential developments to contribute financially to the delivery of off-site affordable homes. This contribution should be added to a ringfenced pot within the relevant local authority to drive the delivery and viability of socially rented homes. This initiative would support the government’s mission to boost housing delivery in the Plan for Change, by ensuring an aligned and coordinated approach across the planning and development sectors to commit to increasing the supply of truly affordable homes.

5.1. The Community Infrastructure Levy (CIL) focuses on funding essential infrastructure, which plays a significant role in creating good places to live alongside housing developments.

5.2. Members have raised concerns with us around CIL prohibiting the delivery of affordable housing. The Stonewater v Wealden District Council 2021 case demonstrates an example where CIL relief was not been granted for additional or 100 per cent affordable housing schemes. This ultimately means schemes are not viable or delivered with less affordable housing, which is a concern. Due to the restrictions around grant funding for Section 106 agreements, providers can struggle to provide additional affordable homes on the same sites.

5.3. CIH members have outlined potential solutions to these issues, such as implementing an Option A/Option B clause as standard across all local authorities.

5.4. More broadly, more guidance is needed from both government and Homes England around CIL for local authorities and registered providers, to ensure a clear and consistent approach across different areas, and to remove barriers for more affordable housing delivery. 

6.1. The inquiry rightly questions if local planning authorities are receiving the support and resource required to efficiently and effectively support the delivery of homes through developer contributions. CIH has consistently outlined concerns around the capacity and resource of local planning teams to be able to deliver the current system of planning, as well as the various governmental reforms. In our NPPF response, we raised the issue that local planning departments across England have faced significant reductions in staffing levels over recent years, with reduced capacity causing delays in planning approvals and loss of skills in areas such as ecological 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, Section 106 and viability assessments.

6.2. We welcome the government’s commitment to planning reform and boosting the training of planners to meet these needs, such as with the Planning Skills Fund. It is essential that planning departments are resourced and supported so that the government’s planning reforms can be effective in boosting the delivery of affordable housing.

For more information on the inquiry visit parliament's website.

For more information on our response please contact Megan Hinch, policy manager on megan.hinch@cih.org.