This briefing sets out the unintended and inter-related consequences of the proposal to remove an affordable housing requirement from sites of less than 10 units.  Overall there is a danger that it will reduce overall housing supply in rural areas, undermine the vitality of small local builders and seriously reduce the delivery of rural affordable homes. It ends with some recommendations that would mean these consequences could be avoided.

It is likely to have a negative impact on small builders

It will probably push up land values as residual valuations will no longer include the ‘cost’ of affordable housing.  The builders’ profit remains constant, it is the land value that flexes.  There is a danger that small builders will find themselves priced out, unable to pay the higher price or take on the risk of option agreements that can be carried by larger developers.

It is worth noting that the rural exception site policy was introduced in response to the high land values that prevailed at the time when it was not possible to require an affordable housing contribution.

There is a symbiotic relationship between small local builders and housing associations developing in rural areas.  Most rural affordable housing schemes are built by small, local  builders.  For them the guaranteed income from selling homes to a housing association provides security that enables them to raise loans and assists cash flow.  Schemes that include affordable housing therefore make an important contribution to the ability of these businesses to thrive.

It does not tackle the main barriers to small builders

Discussions with organisations representing and working with small builders reveals that providing affordable housing is not the barrier to their survival.  Rather it is the difficulties securing development capital that poses the greatest challenge, followed by the lack of in-house skills to manage what can be a complex process often a consequence of the lack of standardised S106 agreements for the affordable housing element.

It may reduce overall housing delivery in smaller communities

Rural communities are often receptive to new development of a scale that is appropriate to their community and where the housing provided meets a local need and supports the sustainability of the community.  Larger scale sites commonly spur significant local opposition that causes delay and increases costs.  In consequence the proposal could result in less homes being built in rural areas.

The proposal undermines the NPPF

In line with the NPPF’s requirement for a plan led system that delivers sustainable development many recently adopted and emerging Local Plans are allocating sites, or relaxing development boundaries, to bring forward sites of a size and scale appropriate to the local environment.  Through Local Plan policies these will provide a range of housing, including affordable housing, to support the social and economic sustainability of the community.  These policies are underpinned by and economic viability assessment and will have been tested at Examination.

There is no compunction for landowners to release sites and it is likely they will take an economic decision to release land that achieves the highest value.  In consequence it is likely they will offer sites just below the threshold, wherever it is set.  This will not deliver the evidence based, plan-led housing schemes that promote sustainable development.

It will increase costs to the Exchequer and undermines the Government’s Affordable Homes Programme.

In the drive to achieve value for money the Government’s Affordable Homes programme prospectus recommends the use of cross-subsidy and commuted sums to reduce the call on public subsidy. The proposal will remove both these alternative funding options for rural delivery leading to a requirement for higher input of grant. The consequence, which is already apparent, is that Registered Providers move away from rural schemes to urban developments, thus, undermining the HCAs stated commitment to rural affordable housing.

All these consequences will have a significant negative impact on the delivery of rural affordable housing by reducing site supply and finance.

Last year 66% of the affordable homes provided in settlements of less than 3,000 population were delivered on S106 sites that provided a mix of market and affordable homes.   Most residential development in rural local authorities is on sites of less than 10 units, so it is likely that many of these schemes were on small sites.

The remaining 44% were built on rural exception sites, many of which will have been part funded from commuted sums taken from small sites in the locality. Moreover, removing the need for affordable housing on small sites will increase the site values, making it less likely that landowners will release rural exception sites.

Alternative Proposals

•    Given the significant impact that the proposal would have on the delivery of rural affordable housing, all sites in villages of less than 3,000 population are exempted from the removal of an affordable housing requirement.

•    Reduce site size thresholds for the Builders Finance Fund to include all sites below 30 units with a ring-fenced pot for smaller developers.

•    Add a premium to the New Homes Bonus for developments on small sites that has to be used by the local planning authority to simplify process and improve support for builders developing small schemes.  For example using it to increase the capacity of their development management function.