What a new duty to include Starter Homes on reasonably-sized sites could mean for section 106 negotiations

Provisions to require a proportion of discounted Starter Homes to be included on all reasonably-sized sites could lead to attempts from developers to renegotiate existing section 106 agreements, according to experts.

Starter Homes: government aims to deliver 200,000 by 2020
Starter Homes: government aims to deliver 200,000 by 2020

In its earliest iteration, the intention of the Starter Homes policy was to deliver discounted homes for first-time buyers on commercial and industrial sites. It is now very different beast. The Housing and Planning Bill, currently at committee stage, includes provisions that would place a duty on local planning authorities to require a proportion of Starter Homes on all "reasonably-sized" sites. Chris Brown, executive chairman of developer Igloo Regeneration, said that initially Starter Homes had started off as "bungs for middle class kids to live on industrial estates", but have now "morphed into bungs for middle class kids to live on housing estates".

The government’s aim is to deliver 200,000 Starter Homes - sold at 20 per cent below the market price to first-time buyers under the age of 40 - by 2020. The Housing and Planning Bill includes clauses intended to help it achieve this ambition, including a duty on councils to promote the supply of Starter Homes "when carrying out relevant planning functions". It also includes a clause that would enable the secretary of state, through regulations, to require all applications for residential development above a certain size to include a planning obligation securing a certain proportion of Starter Homes. Secondary legislation will set out the proportion of Starter Homes that local authorities are required to provide on different sized sites and in different areas, an impact assessment published alongside the bill says.

A month after the publication of the bill, planners are still trying to get to grips with the practical implications of the provisions. Speaking earlier this week at a communities and local government select committee session, planning minister Brandon Lewis stressed that the process of agreeing planning obligations would change little as a result, suggesting that the mix of tenures contained in section 106 agreements would remain a matter for negotiation between town halls and developers. "What we are saying is that on reasonably-sized sites we want to see Starter Homes delivered," Lewis said. "How that is done and what mixes of tenures … will continue to be a negotiation between the developer and the local authority."

But some commentators believe that further clarity is required. Adam Donovan, assistant director at property firm Deloitte Real Estate, said that it is not yet clear whether developers will be required to provide a quota of Starter Homes on top of local authorities’ own affordable housing requirements, or whether Starter Homes will be included within those affordable housing requirements. He said that any requirement to provide Starter Homes in addition to affordable rented homes would have an "adverse impact on the viability of housing schemes". But he added that, if Starter Homes are to be a proportion of the affordable element of a housing development, developers are "likely to respond favourably". He said that it would be a "potential benefit to developers to provide Starter Homes over affordable rent. Developers are certainly seeing it as an opportunity".

Experts agree that, should the government seek to introduce a mandatory Starter Homes target for reasonably-sized residential developments, this could squeeze out affordable rented products. Donovan said that, in the same way as the introduction of the Community Infrastructure Levy (CIL) has prompted developers to look at reducing affordable housing contributions to improve the viability of their schemes, the introduction of a fixed Starter Home quota alongside non-negotiable CIL requirements could potentially put affordable housing contributions under "increasing pressure". Donovan said: "If you have some sort of fixed point, the only thing left for developers to negotiate is potentially the affordable housing."

Grant Leggett, director in consultancy Boyer’s London office, said that it is "inevitable" that section 106 agreements will include Starter Homes requirements, and that these will come at the expense of other forms of affordable housing. "At the end of the day, someone is going to have to pay for it. There's only so much developer pot to go around."

An impact assessment published alongside the bill suggests that the government is aware of this potential implication. "On some sites, developers may choose to adjust the level of affordable housing in relation to the number of Starter Homes they will be developing," it says. "This may reduce or alter the mix of affordable housing provided which could impact on those individuals seeking affordable housing."

Speaking earlier this week during the committee stage of the bill, Richard Blakeway, London’s deputy mayor for housing, said that the level that the Starter Homes quota is set at is a "key issue". "There has been speculation that it will be 20 per cent, but we are waiting to see the regulations," Blakeway said, adding that it is "important" that Starter Homes work alongside other affordable housing products in the capital.

Meanwhile, experts also point out that, if enacted, the provisions in the bill could prompt developers to seek to reopen existing section 106 agreements. Richard Ford, a partner at law firm Pinsent Masons, said that existing section 106 agreements are "already being looked at for the purposes of variation in anticipation of Starter Homes happening". "Developers are running financial models," he said. "That’s now happening." Ford added that work is also underway to draft section 106 agreements for new schemes in such a way as to enable those agreements to be adjusted "as and when Starter Homes happen".

Leggett warned that, should the government not put in place measures to prevent existing section 106 agreements from being reopened, development could slow down as a result of developers reappraising their schemes. "Everyone is going to take a look at the economics of their schemes," he said. "Inevitably, that’s going to be a drag on the implementation of schemes." Brown agreed, warning that the provisions could cause a "hiatus in delivery … as people go back to renegotiate section 106 agreements".

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