Cracking the code on Section 106

Posted: October 17, 2025 | Author: julesbirch | Filed under: Affordable housing, Housebuilding, Section 106 |Leave a comment

Originally written as a column for Inside Housing.

For something so important, the Section 106 system of providing affordable homes seems to exist inside a black box. 

We know what goes in (developments all over the country, local councils trying to get the contributions they can) and we know what comes out (almost half of affordable homes delivered for year).

We also know that this is just part of a wider system for capturing land value not just for affordable homes but also community infrastructure and facilities.

But the inner workings of the system seem hidden.

This is most obviously true when it comes to the dark arts of viability assessments that allow experienced developers to run rings around under-resourced local authority planning departments.

But it can also be true in reverse, with the complexity of the system holding development back and sparking calls for reform.

Two pieces of news this week got me thinking again about all this. First came the leaked memo about the affordable housing situation in London.

This came out of meetings involving developers and officials from the Ministry for Housing, Communities and Local Government and the Greater London Authority (GLA) about an ‘emergency reduction’ to the 35 per cent affordable housing target in the capital. 

This is not quite the same thing as Section 106 since 35 per cent is not a requirement but a a threshold above which developers do not have to submit a viability assessment and can expect fast-track planning approval. 

But developers complain that it makes schemes unviable, housebuilding in London has stalled and it’s been clear for some time that the target would be cut to more like 20 per cent. 

The leaked memo implies that the emergency package expected soon could go even further, with a new model involving ‘an emergency 20 per cent threshold’ that would be ‘non-specific on the tenure mix’, half of which would come from grant. There would also be no reviews ‘where completion occurred by a date likely somewhere around the end of the decade’.

The status of the memo seems unclear and it could be more a reflection of what developers are lobbying for than what will necessarily appear in the final announcement.

Which is just as well, since the implications of a package anything like this would be huge, with knock-on effects for the rest of the country.

At a minimum, it would mean a big reduction in the 44 per cent of affordable housing currently delivered via Section 106 but it could also mean fewer homes delivered from the Social and Affordable Homes Programme as grant is diverted to plug some of the gap.

That would inevitably mean fewer affordable homes where they are most desperately needed and where councils face the highest costs for temporary accommodation. 

Homelessness statistics published on Thursday show that the number of children homeless and living in temporary accommodation has hit another new record (172,420).

Of those, more than half (97,140) were in London, which you would hope would make a reduction in permanent affordable homes unacceptable to ministers. 

The counter-argument is that overall housebuilding will slump as developers fail to bring forward new schemes and existing ones get mothballed, something already showing up in falling starts in London.

Section 106 is far from the only problem for developers as they face up to the legacy of rising inflation and interest rates that followed the end of Covid and the Liz Truss experiment and delays and increased costs triggered by the Building Safety Regulator. 

But the bigger picture in a report from Zoopla argued last month is that there is a geographical divide: in the midlands and north homes are relatively affordable to buy but lower sales prices make them unviable to build; in London and the south, building is more viable but homes are least affordable to local buyers. 

As I wrote when Steve Reed took over as housing secretary from Angela Rayner, there is an underlying tension between the government’s pledges of 1.5 million new homes in this parliament and ‘the biggest boost in social and affordable housing in a generation’.

But this is where we come back to the black box: we know what the problem is (stalled development) and we know what the proposed solution might be (cuts to affordable housing) but we don’t know what happens inside.

Are ‘unviable’ sites unprofitable or simply undeliverable within the profit margin expected by developers? We don’t really know without detailed analysis of their finances and the memo suggests no review until the end of the decade.

And we don’t know what alternatives are being considered. In crises of the past governments have offered loans and grants to kickstart development and funded housing associations to buy unsold homes. 

The coalition preferred cuts to ‘red tape’, including Section 106, that delivered huge gains for housebuilders even before the creation of Help to Buy. Back then the question was why they were not being asked for a quid pro quo – and you would hope that they are being now.

We have heard repeatedly in recent years about ‘use it or lose it’ powers against developers that sit on unbuilt planning permissions but they do not seem to be on the table here. 

Back with the black box, the Public Accounts Committee (PAC) published the results of its investigation into the whole system of developer contributions on Friday. 

The Home Builders Federation had submitted evidence from a survey of its members that found over 17,000 unsold Section 106 homes that was blocking or delaying the construction of 100,000 private homes. 

That might seem to support the case for reform of Section 106 but Fiona Fletcher-Smith of L&Q argued pretty convincingly earlier this month that the problem lies instead with the quality of  the homes being delivered and the terms for acquiring them. 

MHCLG told the committee that the Section 106 Affordable Housing Clearing Service it set up in response to the problem had 100 local authorities, 100 developers and 200 housing associations signed up to it. 

The PAC calls it a helpful intervention but ‘only around 800 homes have been listed on it so far, and the Department does not know how well it is working’.

It goes on: ‘We are concerned that the Department cannot fulfil its stewardship role fully, as it lacks a timely and complete understanding of developer contributions. While it does carry out some internal analysis of LPAs’ [local planning authorities’] data on developer contributions, there is no national database, so information at a national level is limited and incomplete.’

So deal or no deal? When it comes to the black box, we don’t seem to be able to open it. 

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