Expanding the rate of house building

Housing developers to be pushed harder for Section 106 planning contributions

Kate Barker, in her Housing Supply commentary on the use of Section 106 to obtain contributions from developers, agreed that charges of this kind were no more than useful in enabling local authorities to share in the appreciation of land values arising from the grant of planning permission.

Her view was reached after considering an alternative approach to the aim of stability in the housing market and expanding the rate of house building.

If that was adopted, she felt that the use of S.106 should be scaled back to cover what she called direct impacts and mitigation along with affordable and social housing requirements.

Her alternative proposal (Chapter 4, Contributing to development) was that the Government should actively pursue measures to share in development gains accruing to landowners so that increases in land values could benefit the community more widely.

Capturing part of these values, she said, would provide a funding stream for a number of other policies that would support increasing housing supply.

So far there has been little evidence of the active pursuit of alternative means that Ms.

Barker recommended.

As the new circular on Planning Obligations from the Office of the Deputy Prime Minister makes clear, the changes now proposed are concerned only with the negotiation of planning obligations and with improvements to the current system.

The circular mentions the Housing Supply recommendation for a planning gain supplement but points out that this and the Government's own proposal for an optional planning charge require legislation.

It indicates that a decision on the optional planning charge (as a substitute for lengthy negotiations over S.106 agreements) will be made when the Government presents its response to Kate Barker's review of housing policy.

But it gives no such commitment about responding with legislation to her plea for a fresh look at the whole question of planning gain.

One may fairly deduce from this that S.106, improved as it may be in the process of consultation, is here to stay.

Development constraints on brownfield sites What then does the Universities' Value for Money research team tell us about S.106 and its operation? Since they were not asked as Kate Barker was to consider possible alternatives, not surprisingly they come to the conclusion that in the context of the Government's desire to create mixed and sustainable communities, S.106 is an important measure making acceptance of affordable housing on development sites more likely.

The report itself (Chapter 6) says that traditional affordable housing sites tend to be small brownfield infill sites, ex-local authority land or both.

More than 80 per cent of respondents claimed it has become more difficult to secure such sites in the last five years due to the price of land in the South and a shortage of publicly owned land coming forward in the North.

Here again is the root problem of affordable housing surfacing: S.106 procedures can help to mitigate the economics of house building on high-priced sites.

But such agreements can do no more than ensure that local authorities derive a proportionate quantity of the gain as development values escalate.

Kate Barker was alive to the drawbacks of the S.106 procedure, for example being mostly attached to major housing schemes with which few authorities deal very often.

Negotiations as she said can take many months, occasionally years, and are costly in both local authority and developer time and resources.

One of the important findings that emerged from the inquiries of the Universities' team was that the Government's 60 per cent brownfield target was constraining the characteristics of sites generally to small infill sites with high development costs.

These sites, as Kate Barker discovered, are the most expensive to develop and therefore least likely to attract a useful contribution from the developer.

The Government has claimed credit for increasing densities on housing sites, but as the Value for Money report points out, while increased density of development tends to increase the potential for supply of affordable units, it can also increase the costs of development as well as management costs for the RSLs (registered social landlords such as housing associations).

Key worker housing the team found was more attractive to developers but has a tendency to reduce the supply of social rented housing, which as Housing Corporation figures show is the main component of affordable housing.

Grant cutback by local authorities As to modern methods of construction, the team says it is difficult to make these techniques cost effective on small sites and so can push costs up for registered social landlords.

Also the grant regime currently in operation comes in for comment: abolition of the local authority social housing grant has, as they say, implications for affordable housing if it is not replaced by other means.

The recent financial disclosures from the Housing Corporation show how dependent is affordable housing on the social housing grant.

Data presented in the Value for Money report reveals that for S.106 schemes in London, the 2002/03 average total development cost per unit was GBP146,000, with average public subsidy per unit at 56 per cent of total development costs.

As building costs and land prices rise, it is not difficult to see why Mr Prescott complains that he is being asked to subsidise sites to the extent of GBP100,000 per dwelling.

That may make the housing affordable for the tenant, but it is doubtful whether Gordon Brown and his colleagues in the Treasury see it in quite the same light.

Hence no doubt the growing pressure for S.106 contributions.

As both Kate Barker and the Universities' team show, it tends to be a somewhat blunt instrument and indeed she alleged that some local authorities were not past using - or misusing - the powers given to them by planning legislation to delay or discourage development.

This is related to the practice of some councils whereby they ask for unreasonably onerous levels of developer contributions in order to deter development.

The Deputy Prime Minister and the Chancellor of the Exchequer, who both extol the benefits of home ownership, might like to reflect a little further on the strange situation where in the welfare state relatively few people can afford to enter the housing market as a first-time buyer.

The classic solution to crossing this barrier used to be borrowing, which though expensive at first mostly pays off in the end.

Today the gap between earnings and house prices has grown so wide that increasing numbers of young people are unable to finance what is popularly regarded as the most important transaction they will ever make.

While this sort of economic regime is allowed to prevail in the absence of sustainable remedy, it is small wonder that the house-building industry is unable to improve its output without subsidy and is now searching for means of cutting costs still further with 'modern methods of construction'.

That no doubt will help, but it doesn't get at the root of the problem.

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