It is becoming widely recognised that there is a crisis in affordable housing delivery. Over 8,500 affordable homes are currently in limbo as registered providers have withdrawn from the market due to a ‘perfect storm of economic and policy challenges’.
This is problematic for any site where a percentage of affordable homes has been secured by an s106 agreement; but particularly so for smaller sites, as RPs often prefer larger more cost-efficient sites.
S106 agreements generally include a restriction on disposing of a certain number of open market units until after the affordable housing has been delivered.
So, what happens when you can’t dispose of those affordable homes to a registered provider as planned?
There are several options that S106 Management can assist with:
Firstly, a cash sum in lieu of the onsite affordable housing can be agreed with the local authority, and the s106 agreement varied to allow direct payment rather than delivery in kind.
However, this is not entirely straightforward. The local authority will generally require that commuted sum to be calculated so that it is of similar value to onsite delivery in cash terms. There are many different methods of doing this – and each local authority tends to have a different solution; while some have no idea and will require you to provide some basis for this approach.
We have assisted many clients with this process, including SME developers and national housebuilders. Our residual method of quantifying the difference between a 100% open market scheme and a scheme including affordable housing is the most accurate method of assessing commuted sums.
Secondly, a viability report can be submitted to show the maximum viable level of commuted sum. On smaller sites, this is arguably the most sensible approach, as onsite affordable housing is rarely viable on smaller sites in any event, as highlighted by Zoopla recently:
Our viability reports have resulted in significant reductions in commuted sums on many sites countrywide. Combined with an s73application or mutually agreed deed of variation this can provide an expedient route to unlock stalled housing sites.
Finally, a change of tenure or cascade mechanism can be agreed whereby the onsite affordable housing delivery is delivered as discounted market ownership direct to market, rather than being restricted to affordable rent or shared ownership where a registered provider has not bid on the affordable units.
If you have a stalled housing site being held back by a lack of registered provider interest in s106 affordable housing, please call us today to discuss. We can help bring your housing forward.
