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News Release from: Chartered Institute of Building [CIOB] | Subject: Tariff for S.106 housing agreements
Edited by the Buildingtalk Editorial
Team on 11 August 2005
Tariff for S.106 housing agreements
Milton Keynes Partnership leads the way with tariff for S.106 housing agreements.
From the recent housing policy paper issued jointly by Chancellor of the Exchequer Gordon Brown and Deputy Prime Minister John Prescott, it appears that the United Kingdom Government is currently attempting to resolve the difficult issue raised by Kate Barker in her Housing Supply report, whether it is better to go for a planning gain supplement or to explore the potential of Section106 'planning obligations' One positive aspect of this type of planning agreement is that it does supply part of the financial support the public authorities and indeed the developers need when a site is being opened up for development
This article was originally published on Buildingtalk on 12 Mar 2004 at 8.00am (UK)
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The developer contributes but in return gets the benefit of the public services so provided.
The Treasury/ODPM paper published in July says that the Government is still considering a planning gain supplement as recommended by Kate Barker.
The lady herself showed a preference for this.
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She believed that "government should actively pursue measures to share in windfall development gains accruing to landowners so that increases in land values can benefit the community more widely".
"Capturing part of these values", she said, "will provide a funding stream for a number of other policies that will support increasing housing supply".
But the history of past attempts to recover part of the development value in this way show that while the idea may be appealing in theory, it does not work in practice.
Charges of this kind in fact act as obstacles to development.
Much more effective has been employment of the powers in the planning legislation to obtain contributions from developers by means of S.106 agreements.
Indeed, as Kate Barker perceptively pointed out, the proposition that S.106 allows for development gain appropriation is supported by the behaviour of land prices.
"Residential land values as measured by the Valuation Agency, now usually include a 'Section 106 charge' typical for the area and are thus lower than they would otherwise be." In other words, the buyer's offer and the seller's expectations are discounted by the knowledge that the tariff applies to all land transactions of this kind.
So far the exercise of these powers has been constrained by limitations imposed by policy and the legislation itself.
But in the face of demand for a faster rate of house building, experience shows that S.106 agreements do act to some extent as a regulator of land prices.
Having seen the potential in terms of making housing more affordable, the Government is encouraging local authorities to produce an S.106 tariff appropriate to their area.
This is much better than attempts to fix a standard tariff, for the value of land available for development and the revenues it will produce vary widely.
What is acceptable as a tariff in one region could prove an onerous burden in another.
Tariff decision for housing sites Most significant in recent weeks is the decision of the Milton Keynes Partnership to give planning consent for 1,400 homes at Broughton Gate on the east side of this fast-growing urban development area.
This award has gone to Gallagher Estates under a new form of S.106 agreement.
It is based on an infrastructure tariff that will help to fund the work required to open up the land for development.
Milton Keynes is the first area in England to seek enhanced contributions from developers through an infrastructure tariff at a fixed rate.
The English Partnerships regeneration agency, landlord by virtue of holding the assets and powers of the former Commission for New Towns, estimates that over the next ten years or so some GBP300 million of the GBP1.5 billion being invested in the infrastructure will be raised by the new tariff.
The intention is to apply it across the whole of the urban development area.
As the planning authority for the UDA, the Milton Keynes Partnership will facilitate construction of local and strategic infrastructure and collect payments from the developers.
They will be building over 15,000 homes, being rented or sold at prices which should be shielded to some extent from land value inflation and will thus be more affordable.
For obvious reasons, both Gordon Brown and John Prescott will be watching this project closely as an important contribution to the sustainable communities project.
Jane Hamilton, chief operating officer for the Milton Keynes Partnership, which includes representatives from the local authority and from the health and business sectors, said that up to now S.106 agreements have been put together in a piecemeal way.
"We have looked at the big picture", she said.
"This is a much more strategic approach that lets us plan properly for the future".
On this issue, the Treasury/ODPM paper says that the existing system of planning obligations has been criticised for being complex, difficult to agree and responsible for delaying the planning process.
As a result, the Government has made clear its determination to bring about much-needed reform to the system and intends to streamline the current arrangements for negotiated agreements of this kind ahead of any wider change.
Though first off with the tariff approach to the generation of planning obligations, Milton Keynes will not be unique for long.
Regional assemblies such as that in the South East of England are also in search of sustained infrastructure funding and are asking that every planning authority within the region should produce an S.106 tariff for development appropriate to its area.
'Roll-out across England'.
The regional planning committee has adopted a target of building 28,900 homes a year over the next 20 years.
But it has told the Government that this scale of growth can only be achieved with adequate infrastructure investment.
In its own action plan, the South East regional assembly has asked for a guarantee that the planning gain supplement if introduced will not overlap with S.106 contributions.
They do not want to ask developers to pay twice for the infrastructure.
How could they with a tariff already in place? So 106 looks as though it is going to win.
There is talk of the tariff system being 'rolled out' across the whole of England.
The local authorities on the whole don't like the idea of a development charge.
It is something adversarial, imposed on the developer, whereas the S.106 contribution is reached by negotiation and agreement even if at present complex and cumbrous.
To go for both would certainly merit the kind of criticism that has been levelled at the Government's housing policy recently by none other than the RICS.
Commenting on the Planning for Housing Provision paper issued by the Office of the Deputy Prime Minister a few weeks back, the surveyors detect a lack of logic in the Government's approach to affordability, for example by urging that land should be freed for development in those areas where the price of land is rising.
If that is so, it is a view with which CIOB would concur.
This is not to say that S.106 agreements are by themselves the answer to the quest for affordable housing.
Even in Milton Keynes the tariff will produce only 20 per cent of the infrastructure investment.
But it produces this funding without adding inflationary pressure to the economics of housing.
This is evidence of a logical principle in housing and planning policy which is worthy of further and wider application.
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