Phil Knight, Head of Private Housebuilding
Affordability is not just a problem for first time buyers, it’s also growing problem for Registered Providers (RPs) who seem to be directing their budgets at maintaining their existing stock rather than adding to it.
This is not only a problem for potential tenants, it is also an issue for developers required to build a percentage of Section 106 homes. According to HBF, around 900 homes are currently complete and unoccupied because of a lack of RPs prepared to buy them.
That is only the tip of the iceberg, however. Current schemes could add another 8,000 homes to that number by the end of the year. Just as concerning, developers who believe that they will not find buyers for the Section 106 homes on a development may need to review the development timescales as the financial model may no longer work.
The last thing the government needs is additional brakes on new housebuilding and it’s good to see a response to this specific issue.
The recently published Roadmap for Section 106 Delivery promises reform of the Section 106 process and offers some solutions to providing the finance needed for RPs to take on new properties.
Unblocking the pipeline of S106 homes
There is a “time limited” “emergency measure” to allow completed Section 106 homes to be sold if there is no RP willing to take them on which is designed to clear the backlog of completed homes.
In addition there are several suggestions to fund new section 106 home purchase: low interest loans; the ability of RPs to use receipts from Right to Buy schemes to buy new homes; the formation of consortia to bid for new homes collectively and potential new financial models to make funds available to the RPs.
In the longer term, the roadmap suggests changes to the terms under which Section 106 terms are agreed – including earlier involvement of RPs in the design of schemes, better clarity on the specifications required for social housing and standardised templates for smaller schemes to help speed up the process.
It all makes sense on the face of it, and a simplification of the whole Section 106 process is welcome.
Hopes pinned on NPPF
Many of the proposals in the section 106 roadmap, alongside so much affecting the delivery of new housing, is bound up with the proposed new National Planning Policy Framework (NPPF), currently out for comment. This document could and should be a game-changer that provides the tools to speed up planning and unlock a wave of new housing.
Stalled funding for infrastructure
None of this welcome activity addresses the backlog of around £6 billion of unspent Section 106 money, allocated to specific community and infrastructure projects and currently sitting in council bank accounts.
This is not a new problem and the amount of money held appears to be growing.
In an attempt to pressure councils into actioning funded projects, a requirement was introduced in 2020 to give detailed information on unspent Section 106 funds. It is now easy to interrogate the annual reporting and see just how much money is unspent. For example, Oxfordshire County Council reports for the year 2023 / 2024 show £260 million in unspent funds, much of which was destined for school upgrades.
There are a number of reasons for this situation, with the lack of resource in local planning departments being commonly cited. There is also an issue around the sheer length of time between planning consent being granted and the Section 106 money being handed over.
Some money will be handed over at the start of the project, but much of the contribution will only be delivered at the end. That could be years for a big development. By which time, the local school that needed an extension will have had to find other options and the councillor who was championing its cause may have moved on.
Not surprisingly, this issue is something of an irritation to the housebuilders who provide the funding, but apparently less so for the councils holding the money. Even with interest rates coming down, £260m in a bank account still gives around £9m per year in income.
Just saying.