Section 106 should be promoted, not written off

Market movements

Where we act for developers taking their S106 affordable housing obligations to market and finding suitable delivery partners, there is no doubt that the market has slowed sharply over the past couple of years. 

As has been well reported, there is a backlog of unsold S106 homes, whether built or not, which is hindering the delivery of homes for private sale. 

We have seen plenty of instances where bids from traditional not-for-profit providers have been thinned in number, or even absent altogether. 

On the other hand, we have seen a big increase in bids and investment from some of the growing cohort of for-profit providers which are taking advantage of less competition and, often, bring a different perspective on risk to their investment decisions. 

For example, we have just exchanged contracts on behalf of a developer client with a for-profit provider for around 100 top-quality S106 homes in a London borough. 

This is a good example of a high-rise block with only a single stairwell included in the design of a viable scheme that was already well advanced in construction when the market started to rethink provision of a second means of escape. 

The country is full of buildings that do not have a second means of escape and will never get one. But when a development is at that stage of advancement, what is the best way to make a contribution to tackling the housing crisis? 

Build it out and create new affordable, as well as private, homes for those in real need, or bog it down for years in redesign, planning and renegotiation of the viability? I’m sure those on the housing register in that borough know which they would choose. 

Quality and demand

One of the main problems that has led the traditional providers to turn away from S106 has been build quality.  There have certainly been some egregious examples of poor workmanship and oversight which has tarnished the reputation of house builders and housing associations alike. 

But, of course, not all S106 homes are badly built – far from it. House builders should be prepared to own the problem where it is fairly laid at their doors.

While the best housing associations are on top of it, some need to take a more proactive approach to supervising delivery, working in partnership, to ensure that the homes are delivered on time and to the required standard. 

There is also more that can be done (perhaps with some of the new planning officers the government has announced) to ensure the affordable homes delivered through S106 meet local housing need. 

If all the parties can get that right, they can make a real contribution to delivering and sustaining mixed communities, with homes that are tenure blind and fully integrated with those for private buyers or renters. 

Viability is the key

Crucially, the proportion of affordable homes required by planning needs to be viable, or nothing will get built at all. 

The way in which those homes are designed, specified and built must meet the requirements of planners, housing associations and, most importantly, the people in housing need who will live in them – the right tenure and right size. 

And the way in which the whole thing is priced, must be viable for both the developer and the acquiring association. 

We have seen some examples in the past of remarkably aggressive pricing, even unnecessarily so, where internal subsidies and relationships with individual developers, as well as the desire to increase provision in a particular local authority area, has driven some quite distorted bids. 

As recently as July last year, we saw the Department for Levelling Up, Housing and Communities return nearly £2bn of unspent grant to the Treasury. If that could be diverted into making more S106 provision viable for all parties, this would surely be a better use of the resources. 

We continue to work with housing associations throughout the country, looking at a mixture of land-led development proposals and S106 packages, with new developments coming forward on a very regular, if reduced, basis. 

That is hugely encouraging for the short to medium-term future, but the outlook will surely be far worse if S106 is written off and allowed to remain in intensive care. This would go against everything the new government is trying to achieve. 

The right S106 product will still find a viable buyer with the right marketing – it’s time to talk S106 up, rather than down.

Richard Petty, head of UK residential valuation, JLL