On 28th November 2014 the Government issued a ministerial statement setting out proposed changes to national policy in relation to Section 106 planning obligations, along with corresponding Planning Policy Guidance to tackle what is described as a ‘disproportionate burden’ on small scale developers. By increasing the commercial attractiveness of small scale housing schemes, the Government hopes to increase the number of active developers in the market, many of which disappeared during the recession.
The changes came into force immediately and prevent contributions (including affordable housing) being sought by Council’s from developments of 10 units or less, and which have a maximum combined gross floorspace of no more than 1,000sqm. The policy change also introduced these same thresholds for tariff style S106 contributions (where an authority have pooled funding ‘pots’ intended to fund the provision of general infrastructure in the wider area) where these are still in use and meet the tests in the Community Infrastructure Levy regulations 2010 (as amended). In National Parks, Areas of Outstanding Natural Beauty and designated rural areas (designated under s157 of the 1985 Housing Act), authorities may choose to implement a lower threshold of 5 units or less.
Whilst there will be many small developers that benefit from changes, concerns have been expressed by organisations such as Action with Communities in Rural England (ACRE). In particular, it is argued that the change will lead to fewer affordable homes being built in the countryside, which could be detrimental to smaller rural communities. ACRE suggest that small-scale developers may simply stop building affordable homes, preferring instead to concentrate on schemes which fall within the 10 unit threshold. To illustrate the significance of the change, CLG figures show that in 2012/13, 66 per cent (1,905) of homes in settlements under 3,000 dwellings were delivered through section 106 agreements.
These fears are shared by many Local Authorities, particularly those where the vast majority of units are delivered through small scale schemes of less than 10 units. In Shropshire, for example, 89 per cent of housing decisions in the year to September 2014 were for small scale schemes of less than 10 dwellings. Shropshire Council’s core strategy stresses the importance of requiring schemes of all sizes to contribute to infrastructure requirements. There is therefore a direct conflict between policies. Earlier this year, news emerged of a legal challenge by Reading Borough and West Berkshire Councils. Estimates show that the change in policy could leave communities in Reading out of pocket by £650,000 a year to pay for new roads, schools and parks. The outcome of the challenge is therefore eagerly awaited.
Whereas some Council’s may look to change policy at a local level, others may wait for the conflict to be weighed up in the decision-making process by arguing that more restrictive requirements should remain in place in order to ensure that essential infrastructure is delivered. If contributions from minor projects are truly key to delivering affordable housing provision and infrastructure, then council’s may be justified in insisting that the 10 unit threshold should be lowered or even removed in its entirety. For those authorities without a plan in place, applicants would be expected to argue that the new guidance takes precedence and, in an appeal situation, the inspector would be expected to give more weight to the guidance than local policies.
So what does this mean for the delivery of housing?
If Local Planning Authorities can no longer count on contributions and affordable housing delivery through small sites, then there are some local authorities which may well question the merit of granting planning consent in smaller towns and villages, preferring instead to focus development in and around larger settlements. This will not always be practical, but affordable housing delivery is a key component of the Objectively Assessed Need calculation and Local Authorities will be keen to avoid any upward correction of their housing targets to address under supply. Equally, local authorities may well look to increase the level of contribution sought from larger schemes to offset losses elsewhere. There will no doubt be a raft of appeal decisions and legal challenges over the coming months to determine the weight to which the policy changes should be given, but authorities will need to act fast to avoid any long term delay to infrastructure and affordable housing delivery.
For the development industry, we could see an increase the number of schemes being promoted for just 10 units (or less), albeit this is unlikely to happen in the short-term as the number of small scale developers in the market to take advantage of the change will need to increase over time before we see any significant movement in housing delivery. In terms of values, schemes without affordable housing may well command a premium, not only due to the favourable s106 package, but also due to the stigma that affordable housing can sometimes have on the saleability of units within a site. Those developers that currently focus on small size schemes (10-25 units) may decide to focus more of their attention on smaller more profitable schemes without the burden/cost of entering into a complex legal agreement, which can often take many months to negotiate. There will no doubt be new operators entering the market and some existing developers may look to use the change in policy to ‘scale-up’ their operations in order to challenge the position of the position of the established house builders. With greater competition, we may well see increased house building, but it will take time to work through. Equally, there are those that argue that housing delivery may way slow as developers look to focus more of their time/resource on small scale schemes with higher profit margins and less bureaucracy. We at Richborough Estates are keen to explore any new opportunities that may arise as a result of the change in policy.
By Steve Louth