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Developer 'affordable' Housing Contributions/obligations

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Hello,

Can one of the better informed members of the forum educate me about the 'affordable' housing obligations/contributions that need to be made when a developer wants to build more housing.

I appreciate that each council might have its own rules but I'm trying to understand a few points:

What is actually classified as 'affordable'?

Who owns these 'affordable' houses when they're first built? Are they for the developer to sell at a set rate or are they handed over to a council or housing association to rent out or sell. If it's a mixture who decides the mixture?

What is the relationship to Section 106 payments if any?

When did these affordable housing obligations come in? I don't remember them being talked about until the last 10 years or so. Have they always been there but didn't receive much attention?

Many thanks

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I live in a 2006 built coachhouse. My landlord was the developer for the coachouse and other crappily built houses surrounding it (the other houses sold but just my home kept by him to rent out). Right behind me are some bungalows and houses that are rented out by Broadland Housing Assoc. I think that my landlord developer had to build these homes for the Housing Assoc in order to get the tightly packed private houses past the planners under S106. I would love to know whether the HA had to pay my landlord anything for their new homes.

I think S106 regs have been around since the early 2000s.

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Affordable housing is a catch all term for various non market housing. London's policy is 40% which will usually be a combination of shared ownership and social rent. Developers will essentially sell the housing to a housing association and they will then own those units (hence the supposed scandal about "poor doors" - it's easier for the ha to own the flats, doors, lifts, stairs, walls whatever.

However, developers can reduce their % contribution if they can demonstrate that it would make the scheme "financially unviable". This is done in secret and councils don't really have the expertise to check. Rics surveyors do the assessments however it has been argued that professional misconduct is taking place on a vast scale because they all fiddle the numbers for their clients. There was news on this recently bit not sure what the outcome was.

S106 is different and is meant to be a payment to the council for upgrading surrounding facilities like roads etc which will be impacted by the development. It is to "make acceptable a development that would otherwise be unacceptable I'm planning terms."

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The exact process varies from council to council. However, the key purpose of S106 is to "mitigate" the effects of new development, in particular, to prevent the development of isolated "high income" neighbourhoods. As a result, S106 typically requires that any new development consist of 40% social/intermediate housing, which are to be sold to a housing association or the council at a below market price - typically, the sale price would be for the cost price of construction only with zero price for the land; as an alternative, some councils and HAs will accept a donation of the land, for them to commission the construction themselves.

Under exceptional circumstances, it might be acceptable to pay a cash sum to the council instead of actually building the social housing. For example, this has been done on high-end exclusive developments, where the council has reduced the requirement for social/intermediate housing to 30%, in return for a cash sum calculated to provide that additional 10% elsewhere, plus fund some other infrastructure project.

Prior to 2014, small sites and self-build were not required to build the affordable housing themselves, but if they did not, they were required to pay a cash sum, to allow provision of affordable housing elsewhere, although I think that there is now a complete exemption for small scale builds (total floor area less than 10,000 sq ft).

The 40% social housing requirement is not always achievable in all areas, as the market price of each private housing unit may not be sufficient to fund the land and construction of 1.4 units of housing, therefore there is scope in S106 for negotiation if it can be demonstrated that the social housing requirement is not financially achievable. (Some cynicism is likely required).

The S106 affordable housing contributions are separate and in addition to the S106 community infrastructure levy (which is supposed to fund additional infrastructure; roads, schools, etc.)

Edited by ChumpusRex

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Edinburgh City Council define affordable housing as 'A subsidised dwelling sold at an affordable level (calculated as 3.5 times median income levels in the city at the time the property is first advertised on the housing market).'.



In 2015 the median income per resident was £24,500 (according to investinedinburgh.com) giving an 'affordable' home value of £85,750. Subsidised affordable housing can only be offered to people earning less than the median income. When the property is sold on by the initial purchaser at some point in the future the a deed of conditions states that it cannot be sold for more than 3.5 times average income which is higher at £136,735 (3.5 x £39,067 as at 2013).



Edinburgh City Council have the issued the following document entitled 'Developer Contributions'. which (while not under English rules/law so not applicable to many of you) is actually a very interesting read if you like tables/numbers.



https://consultationhub.edinburgh.gov.uk/sfc/developer-contributions-and-affordable-housing-gui/supporting_documents/Developer%20Contributions%20August%202015.pdf



It a consultation draft atm but gives an insight into the cash passing hands between the council and developers and the fairly complex number of 'affordable home' options open to builders. As I read it for every site of more that 12 properties the developer must include 25% affordable housing. But... they have 9 development options which 'qualify' as meeting their affordable housing requirement. Additionally they can offer the council a cash equivalent (Commuted Sums), a parcel of land for the council to develop themselves or alternative properties elsewhere (Off-Site Provision).



The housebuilder applies for the type of affordable housing they wish to accommodate. The 9 options include subsidised and non subsidised affordable housing, building in partnership with a LHA or Housing Association, offering for sale at a discount or offering properties for rent at less than LHA rates for the 'medium to long term'. Medium to long term isn't defined but I could see housebuilders renting for 5 years then bringing the properties back onto their books to sell again, probably as an off-balance sheet finance type arrangement. If you believe in HPI forever you simply couldn't lose.



Around 10 years ago I worked for a slum landlord who was thinking of buying a 'with permission' plot of land for new build flats in Dalry, but he was only interested if the council would agree to take his slum tenement flats in Easter Road as a 'swap' for the affordable housing component of the proposed development so he could keep his development free of 'benefits scum'. No idea whether that ever happened.



I could also see the large house builders wanting to do this with the part exchange properties they are taking in at the moment. This could help them mask the losses on their part exchange portfolio to the market as it slowly drops. Instead of taking a 100k loss on the part exchange value of their buyers old house 'helping' some poor sod buy an overpriced new build, instead they are taking a 100k loss to support affordable housing because they have hearts of gold.



As noted by others, if its just 'too expensive' then the developer may get away with making no affordable provision whatsoever. 'Viability for the developer / open book – If a developer wishes to demonstrate that their development contains exceptional costs which make the affordable housing contribution non-viable on-site, then a full assessment of costs will be required based on an “open book” approach i.e. the developer will be expected to make all of the relevant cost information available to the Council and/or relevant partner housing association. This is most often applied where there is a renovation of an existing listed building or where there are demonstrable exceptional site preparation and decontamination costs which the developer will incur'


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Thanks for the information. This has raised a further question regarding compulsory purchase orders for land. 

From the reading I've done I believe the original town and country planning act of 1947 allowed local authorities to purchase land at it's existing value perhaps through compulsory purchase orders. Then once planning permission had been granted they could sell on or lease the land to local developers. The uplift in land value due to the granting of planning permission then went to the local authority not the landowner.

Is this a correct interpretation? Would it still be possible to do this today? From what I can see the section 106 payments seem to have replaced this method.

I might be naive but I can see some benefits to this being implemented. Where I live greenbelt acricultural land sells for ~£10,000/hectare, if it were granted planning permission it would be sell for ~£1,500,000/hectare. There have been endless arguments about building on greenbelt, a lot of the local opposition seems to be against landowners or developers making huge profits once planning permission is granted. Could the could buy the land at ~£10,000/hectare through a compulsory purchase order, then grant planning permission and sell off  a proportion of the land to developers? The uplift in land value gained by the council then be used to build infrastructure for the entire development and social housing on the proportion of land the council have kept back. The developer wouldn't have to build social housing or make section 106 payments as this has been covered.

 

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