How social rent cuts have prompted Lewis to give new section 106 advice

New advice to council planners suggests that the government recognises that its cuts to social rent levels could hamper developments as social landlords struggle to pay for properties pledged under planning obligations.

Stalled scheme: experts argue that reduced rents will prompt renegotiation of affordable housing obligations
Stalled scheme: experts argue that reduced rents will prompt renegotiation of affordable housing obligations

Chancellor George Osborne's Summer Budget included an unexpected requirement for councils and housing associations to cut social rent levels by one per cent a year from 2016 to 2020. According to umbrella group the National Housing Federation (NHF), the policy will take £3.9 billion out of members' coffers over the period, reducing the amount they can pay for properties built to meet developers' section 106 affordable housing contributions. It said 27,000 affordable homes may not now be built as a result.

Housing and planning minister Brandon Lewis last week accepted that the social rent policy has resulted in some schemes "not being built out at the anticipated rate" and is forcing developers to go back to councils to renegotiate section 106 deals, sometimes by reducing numbers. In a letter, the minister urged councils to avoid unnecessary delays to schemes and respond "rapidly and positively" to renegotiation requests. He suggested that altering the mix of affordable housing types was "unlikely to justify" reopening viability negotiations. Lewis said it "would probably not be necessary in all circumstances" for revised agreements to be approved by planning committees.

Commentators queried the lawfulness of his suggested approach of allowing developers' requests to amend section 106 deals. But they also recognised that the letter came ahead of anticipated changes to the definition of affordable housing to incorporate the government's Starter Homes initiative to create 200,000 new homes for eligible under-40s to buy at 80 per cent of the market rate.

The Housing and Planning Bill, introduced to Parliament last month, includes a clause that would give ministers power to demand councils include a certain proportion of the homes in section 106 deals for some projects.

Alistair Smyth, head of policy at the NHF, said the budget changes mean that housing associations will place more emphasis on delivering properties for sale - using models such as shared ownership - rather than on social rent. "Viability is very much a case-by-case issue, but generally housing associations are still keen to build the same number of homes as before," he said. "But the rent changes mean that they cannot offer the same amount of money to developers."

Graham Jones, who leads on section 106 matters for the Planning Officers Society, said there is already evidence of developers being unable to find housing associations willing to take on the affordable rent element of some schemes. He said feedback from members indicates that agreements on "affordable rent" properties, which can be let for up to 80 per cent of market rates, are proving problematic, meaning that the situation would be even worse for social rent properties, pegged at much lower rates.

"It is inevitable that the affordable housing mix is going to move towards more intermediate tenures - including Starter Homes when the Housing and Planning Bill becomes law," he said. Jones added that councils so far seem prepared to negotiate changes in affordable tenure if the proportion in schemes is unaltered.

Stephen Ashworth, partner at law firm Dentons, refuted Lewis' claim that the financial differences between tenures are so marginal that there need be no new viability assessment. "A social rented property in the South East has a low value compared to any shared ownership or equity products and affordable rent and there will be a similar difference with Starter Homes," he said. "To suggest that there is no need to refer a request to change tenure to committee is almost inevitably wrong in law as in most planning authorities the development plan indicates the preferred tenure mix."

Ashworth added that the combined effect of the government's changes is likely to further delay housing delivery. He said the Starter Homes programme would require authorities to produce new evidence bases of objectively assessed need for affordable housing. "Starter Homes will eat into some provision, and people are going to have to work out what they can actually provide," he said.

Gilian Macinnes, principal consultant at the Planning Advisory Service, supported Ashworth's view on the need for committees to approve viability related changes to section 106 deals. "If they are going to make changes, how are they going to justify not following their own policy?" she asked.

Adrian Kerrison, director at consultancy AMK Planning, said Lewis' message is "very clear and very helpful" for developers. However, he was unconvinced that it would be taken on board by all authorities. "A 'take it or leave it' approach to affordable housing delivery tends to prevail if developers want to obtain permission without going to appeal. The letter will only have real effect if it is backed by formal policy guidance or legislation."

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