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Developer contributions: a zero sum game?

26 February 2019 Author: Tom Kenny

When considering how to spend developer contributions, we must acknowledge that without further reform we face a zero sum game. More funding for affordable housing means less for the other things communities need.

Why we can’t rely on developer contributions for affordable housing

The RTPI has repeatedly argued that it is important not to view developer contributions as the main solution for funding affordable housing. Put simply, this is because developer contributions are meant to mitigate the impacts of development, whilst housing affordability is a crucial but separate goal of government.

In effect, the Government should be meeting sub-market housing need regardless of what the private sector is doing.

This is especially important because developer contributions can only be meaningfully raised in areas with high demand for development. Meaning poorer areas that genuinely need affordable housing often miss out on contributions.

Where there is a scarce amount of developer contributions available, it is crucial these are used to offset the impact of development. This in turn will make new development more popular, and help deliver further development.

This focus on ‘affordable homes’ delivered through the planning system also allows the Government to celebrate the delivery of an additional 41,530 new ‘affordable homes’ in England compared to the previous year, despite another year-on-year fall in the amount of new ‘social housing’ being delivered.

Incentivising the provision of affordable homes which aren’t linked to local incomes is dangerous if the goal is to genuinely meet housing need.

The counter argument

However, some affordable housing advocates criticise this position. They argue that since Section 106 is really the only game in town for funding affordable housing, we shouldn’t risk this funding being lost.

This reliance is certainly borne out by the facts - 68% of all developer contributions in 2016-17 went on affordable housing, which is easily the majority of all funding for affordable housing.

I read two reports today which I think make it clear why RTPI’s position here is so important - they emphasise that squeezing more affordable housing out of developer contributions does not mean more money overall - rather it means less money for other key infrastructure.

The National Audit Office’s report Planning for New Homes points out that while developer contributions have risen, this is only because the amount of units being permitted has risen. In fact the average contribution per unit has remained the same at around £19,000. And this has happened whilst house prices have risen 31% and developer profits are up 12-21%.

Meanwhile, a report on developer contribution published by MHCLG reported that affordable housing contributions had grown from 53% of all contributions in 2007/8 to 68% in 2016/17. However in the same period contributions for transport and open space and environment had fallen, the latter by more than 50%.

Thus, whilst campaigns to secure more affordable housing have been successful, this has not resulted in more developer contributions. Instead it has taken money away from some of the other key things needed to create great places. Providing sub-market housing isn’t enough – indeed, more deprived populations can be severely affected by poor infrastructure as discussed in our research on Poverty, Place and Inequality.

So what should we advocate for?

Of course I wouldn’t deny the fact that some sub-market housing is better than no sub-market housing. Nor that S106 is increasingly crucial to the delivery of this housing. But it’s past time we stopped viewing it as the main solution.

This is why it’s particularly heartening to see so many local authorities returning to delivering housing themselves and increasing support from Government for new social housing. To help this succeed public authorities need to be able to assemble sites more easily, which may in turn require land market reforms.

It’s also why Shelter’s Social Housing Commission was so welcome in showing the economic and social case for delivering a new generation of social housing to be funded with grants from Central Government.

We should push for more to be captured from developers, but we can’t rely in this to meet crucial and pressing housing needs.

 

Tom Kenny

Tom Kenny

Policy Officer, RTPI
Tom Kenny leads on housing affordability for the policy and research team at RTPI. You can find him on twitter @tomekenny.