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Opinion: Developers get a rough ride over affordable housing

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Opinion: Developers get a rough ride over affordable housing

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Published by Jon Land for 24dash.com in Housing

Opinion: Developers get a rough ride over affordable housing Opinion: Developers get a rough ride over affordable housing

Tom Conlon, new business manager at Affinity Sutton, says berating housebuilders for the lack of affordable housing is like criticising supermarkets for not running food banks.

‘Greedy developers… spurious viability claims… excessive margins’

Such sentiments reflect the views of many both inside and outside housing towards the major housebuilders, particularly in respect to their approach to delivering affordable housing obligations under Section 106 of the Town and Country Planning Act (1990).

It was a view with which I had some sympathy as I embarked last year on my MSc dissertation at The Bartlett School of Construction and Project Management at University College London, which studied the changing relationships between developers and registered providers of social housing (RPs).

As a new business manager at a large RP, appraising S106 schemes that are consistently below policy level in terms of affordable provision has become a depressingly familiar ritual.

Yet during the course of my research, my views changed. For all the criticism of developers, it is important to note that approximately 60% of all new affordable housing is delivered through S106, up from just over 20% in 2000. Or to put it another way, the majority of affordable housing is now built not by the charitable RPs, but by those same ‘greedy developers’.

While there is undoubtedly merit in some of the criticisms levelled at the viability system (not least the fact that S106 agreements can be re-negotiated at the behest of a developer in lean economic times but never subsequently revisited in an improving market by a local authority), it is important to remember that the aim of developers is to provide housing for the private sales market – itself a sector desperately in need of new homes. Their loyalties and obligations lie with their customers and shareholders and it is entirely rational that developers seek to minimise affordable housing levels on their schemes.

Perhaps the more pertinent question is not "why aren’t developers delivering more social housing?" but "why do we have a system that compels developers to build grudgingly what RPs would willingly build?"

As the Joseph Rowntree Foundation stated some 20 years ago following the implementation of the Act, "We do not think it any more reasonable to expect suppliers of new private housing to house the homeless than to make farmers responsible for feeding the hungry." If we are to berate private developers for not providing enough social housing, shouldn’t we berate supermarkets for not running food banks?

There are several fundamental issues with S106 as a means of delivering affordable housing that have escaped popular censure, both from a fiscal and procedural perspective. Although S106 is seen as part of the planning process, it is of course actually a tax on development value. While the principle of a tax on the uplift in value of a site on grant of planning permission is widely accepted, S106 – both in respect of financial contributions to local services and affordable housing provision - is an implicit negotiated tax. Negotiated taxes by definition lead to varying outcomes, and with due respect to local authority planners, developers are likely to demonstrate stronger negotiation skills and therefore secure favourable terms in these tax negotiations.

In addition to this, my research found evidence that emerging coalitions between RPs and developers further contributes to the inefficiency of S106. The strength of the major housebuilders (80% of all new private housing is built by the largest eight developers) enables them to exercise supplier power over the long list of RPs seeking to be selected as the affordable housing partner on a project.

While price, strong housing management and efficient internal processes remain paramount in the developers’ selection criteria, RPs that can publicly support proposals that provide sub-policy levels of affordable housing are far more likely to be selected than those that cannot. As one developer put it, "the LA is a lot happier when it’s coming from the RP rather than the big bad developer".

This is good news for developers. It is also good news for those favoured RPs able to rely on a steady stream of (sub-policy) S106 units to fill their HCA allocations and such alliances are valuable for both sides. It is not such good news for those on Local Authority waiting lists, for whom the weak yield of the S106 tax is most damaging.

Given the lack of expectation for a return to a significant capital grant funding regime, it is likely that the bulk of new affordable housing will continue to be delivered through taxing private developments in one form or another.

Despite affordable housing sitting outside its remit, the introduction of the Community Infrastructure Levy (CIL) has been a positive first step in tackling the inefficiency of the current negotiated S106 system.

Rather than blaming developers for being developers, I would argue that those who are frustrated by the shortage of affordable housing should take this opportunity to lobby for further reform, to ensure that the long term form of tax is designed in a way that results in not just more affordable housing being delivered, but it being delivered by those organisations that exist to provide it.

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