At a time when local authorities have spiralling debt, receiving calls for improved services and a cost-of-living crisis, there is certainly an argument that cash is king.
Developers paying cash in lieu of building affordable homes is already, to some extent, woven into our planning system. For example, if the provision of affordable housing on a particular site is impractical, or could possibly even produce a worse outcome, developers are able to make a case that cash would be more beneficial for the local area. Earlier this year, a draft of the new NPPF suggested that cash in lieu of providing affordable housing could be more accessible for medium-sized housing sites rather than a difficult burden for the developer to prove on a case-by-case basis. This article explores the advantages and disadvantages of such a policy.
The consultation forming part of the new NPPF publication did ask what we should consider to be a medium-sized development. The definition was any scheme of 10 to 49 homes on a single site which is up to 2.5 hectares. As a result, the change in policy will mainly impact this type of development going forward.
There are certainly objective reasons as to why this may seem attractive to both developers and local authorities. Medium-sized sites are particularly challenging given their tight margins, the length of negotiation involved in agreeing a Section 106 Agreement, biodiversity obligations and also the declining small to medium housebuilder market. Furthermore, a developer may finally finish negotiating the percentage of plots which will be affordable housing only to find a limited apatite from registered providers, especially if the local authority maintains a preferred list of registered providers the developer must go to first before seeking bids from the wider market. The last three years has shown just how vulnerable small to medium housebuilders may be to spiralling costs even on just one of their development sites.
The main advantage of this change in policy would be to unlock medium development sites which are particularly unattractive to registered providers, or which are financially unviable due to the level of affordable housing required. In theory, the local authority may use that cash to invest in affordable housing elsewhere which is more in-line with its master plan. The alternative location could be more attractive to registered providers too, especially if the development is in a location where a type of tenure is under subscribed. As a result, local authorities could keep an element of control in terms of how affordable housing is delivered. Furthermore, the acquisition of additional units is becoming more attractive amongst larger registered providers due to low demand within the private sector, and this will only grow should the new administration maintain the commitment to additional grant money being available. As a result, some of the houses may simply be owned by registered providers anyway as additional units even if the units are not technically designated as affordable housing under a Section 106 Agreement.
Having said that, local authorities should be careful. The first issue is that this policy clearly only works if the local authority actually uses the commuted sums for the delivery of affordable housing elsewhere. Many local authorities are ill equipped to spend 106 payments due to being either under-resourcing or lack of training and, if they wish to develop their own affordable housing schemes, would have to go through their own very expensive planning process to secure the homes which would drain the money provided by the developer as part of the same planning process for a different site. This is clearly not an efficient use of the money provided via a commuted sum.
The second issue is that we must not forget the main raison d'etre behind the Section 106 Agreement. Enforcing delivery of affordable housing via the planning system it vital to the creation of mixed communities. Perhaps if the local authority uses the commuted sum for mixed schemes across the local area, this can still be achieved but the local authority will still lose influence over any site which is subject to a cash payment. This is clearly quite a large proportion of the market.
If the new administration does in fact consider cash in lieu of the delivery of affordable housing attractive, guidance must be carefully drafted and trends continuously monitored. It would be inadvisable for councils to simply be driven by ideological purpose rather than objective economic reasoning to meet supply and demand. Carefully drafted formulas which balance the advantages verses disadvantages must be utilised, training as to how cash in lieu should and can be spent should be deployed. Registered providers, local authorities, charities and any party with an interest in the delivery of affordable housing should read the proposals carefully and, where possible lobby their position. Although this change could unlock stalled sites that have become unnecessarily unviable or unattractive, it could also weaken the planning system's ability to influence the provision of affordable housing and, in some cases, may even be used to reduce the provision of affordable housing within a particular area.
