Michael Gove to axe S106 agreements?

Levelling Up Secretary set to axe rules forcing developers to build “affordable” homes, in favour of a new levy for councils.

Where would this leave the Community Infrastructure Levy (CIL)? – Owl

By Ben Gartside www.telegraph.co.uk 

Michael Gove is poised to hit property developers with a £7bn levy that could pave the way for a massive expansion of new council housing.

The Levelling Up Secretary is preparing to axe rules which force companies to build a set number of “affordable” homes on their developments themselves, and will order them to pay into an infrastructure fund instead that can be used by councils for their own projects.

Mr Gove has held talks with industry about the proposals, and executives are preparing for them to be included in the Queen’s Speech next month if approved by Cabinet.

A formal consultation could be launched within weeks.

Developers expect the new levy to raise around £7bn if it goes ahead, assuming it costs the same as they spend under existing affordable housing rules.

It is not clear if councils will be able to use the money however they see fit, or if they will be required to earmark it for projects such as homes, roads, schools and GP surgeries.

However, large amounts of money are likely to be funnelled into local authority schemes to tackle the housing crisis. This could include an increase in the building of homes owned by councils, industry insiders said, or sold to residents through council-run developers known as Housing Delivery Vehicles.

The proposals have been met with consternation from developers. One executive said that while the move is designed to simplify planning, it may have the opposite effect. 

They said: “While the current system can be arduous and there have been complaints around efficiency, it ensures infrastructure is built and doesn’t create issues about cash flow, and means infrastructure can be built in advance of a development. 

“It also means communities neighbouring the development won’t necessarily feel a direct benefit – there is no obligation for councils to create infrastructure, or for it to be built in the same area.”

The proposals involve axing Section 106 of the 1990 Planning Act, which allows councils to order developers to build infrastructure in return for permission to start work on new estates.

This typically includes a requirement for a certain number of affordable homes, which can be run by social housing groups, sold through a shared ownership scheme or simply offered for sale or rent at a below-market rate.

The National Planning Policy Framework states that 10pc of homes should be affordable on major developments, and 52,100 such properties were built in 2020-21.

Section 106 has long been criticised as an unwieldy and bureaucratic imposition on developers that holds up projects.

Mr Gove is now proposing to scrap it and replace the system with a “consolidated infrastructure levy”, which would charge developers a fee set as a proportion of the value of their housing project. This money would then be spent by councils themselves.

Council housing boomed in the postwar years before a massive sell-off driven by Margaret Thatcher’s right to buy policy.

Only 3,370 local authority properties were built in the UK in 2019-20, down from almost 195,00 in 1969-70.

However, there are signs of a renaissance with new projects started by London councils reaching a four-decade high last year.

One property investor said that Mr Gove’s plan risks leading to a rise in “s——y quality” council housing. They added that the overall number of properties built is likely to be lower than under current rules because developers can move more quickly than the Government.

The idea for scrapping section 106 was initially touted by Mr Gove’s predecessor Robert Jenrick in 2020 as part of a white paper that was subsequently dropped. 

Conservative MPs have become increasingly frustrated with the delays around Section 106 agreements, and have encouraged Mr Gove to rework the policy. 

In a letter last year, leading property industry figures including the heads of the British Property Federation and the Home Builders’ Federation warned against introducing an infrastructure levy.

Jules Pipe, London’s deputy mayor for planning, also signed the letter in a move that suggests the proposals risk sparking a backlash from some local authorities which would rather force developers to bankroll specific projects themselves.

The letter, written to Mr Gove at the time of his appointment to Housing Secretary, asked him to improve the existing system rather than scrap it.

It said: “In our view the most effective approach to enabling the delivery of affordable housing, infrastructure and sustainable development, is to improve existing approaches to securing contributions to meet policy requirements set by development plans.”

The Department for Levelling Up declined to comment.