Oxford City Council’s draft local plan was submitted for examination in March. Inspectors Jonathan Bore and Nick Fagan were appointed to examine the document.
Policy H2 in the submitted plan says that, "owing to Oxford’s significant need for affordable housing and because the majority of Oxford’s housing is delivered from small sites, contributions will be required from sites of 4-9 units".
It adds: "These sites have made significant contributions to delivering affordable housing, and they will be needed in future to help deliver affordable housing."
Schemes falling into this threshold of four to nine homes should provide an affordable housing contribution of 15 per cent of the gross development value, the policy states.
In addtion, schemes of 10 or more homes or bigger than 0.5 hectares should provide a minimum of 50 per cent affordable housing, it says.
The policy requiring affordable housing contributions from schemes of four or more homes has been in place at the council since 2013.
But the inspectors have asked for the policy to be dropped from the draft plan, which, according to the council, means the city "could lose out on hundreds of new council houses".
The council said that, since its introduction, the policy had secured contributions from house builders of up to £1.4 million - enough to fund around 10 new council homes in the city.
It added that, over the next 17 years, the policy was expected to generate between £26m and £42m of funding from these smaller developments.
The council said that the inspector’s recommendation comes in the wake of changed rules in the revised 2018 NPPF, which mean that only housing developments of 10 or more homes should include affordable housing – or have to make a financial contribution to the public purse to build new affordable housing in the area.
The council said that, in a submission to the inspectors, it had argued that Oxford should be exempt from the new national policy "because of the city’s acute shortage of affordable housing", and a shortage of large sites suitable for housing.
However, it said the inspectors decided that Oxford’s needs "are not compelling enough for the city council to deviate from the national policy".
In a letter to the council the inspectors said: "On the evidence we have seen we do not consider that [policy H2] would be effective or justified as an exception to a very clear statement of national policy, and it should be deleted."
Oxford City Council leader Susan Brown said that the local authority would write to the housing secretary "to call for the government’s NPPF to be amended to enable the city council to reintroduce its developer contribution policy."
Councillor Alex Hollingsworth, cabinet member for planning added: "This is utterly frustrating and hugely disappointing. This new government policy takes no account of local circumstances faced by a constrained city like ourselves.
"This policy could have delivered hundreds of new council homes during the lifetime of the local plan. That may be a small proportion of the overall need for affordable housing, but it is still hundreds of families who will have to wait longer than they otherwise would have done for a home of their own.
"We urge the government to reverse their policy, and allow cities like Oxford which rely on smaller sites to help meet their housing needs to require developers to provide affordable housing on them."
Last week, an inspector examining Reading Council's draft local plan backed a similar policy requring affordable housing contributions for small schemes.
Reading's local plan seeks a financial contribution equivalent to 20 per cent from developments of five to nine dwellings and 10 per cent on sites providing between one and four homes.