In London, we talk a lot about affordable housing delivery. But when it comes to smaller schemes, we’re often applying the wrong tools to the wrong opportunities.

At Newsteer, our view is simple: we need a smarter approach to affordable housing policy for smaller developments.

Too many boroughs currently require full viability assessments on any scheme that increases housing numbers. That might seem consistent in principle – but in practice, it’s a costly, time-consuming burden that delivers little, especially in a market where very few Registered Providers (RPs) are willing to take on small-scale Section 106 units.

Take, for example, a retail unit conversion in Southwark that produces one or two flats. The requirement for a viability assessment – and the cost of reviewing it – is disproportionate, especially when there’s virtually no RP in the market able to take such units.

A more effective alternative?

Instead of forcing developers through this exercise, we believe that:

1.      A new threshold should be set where schemes that deliver less than 20 on-site affordable homes should trigger an automatic payment-in-lieu rather than a viability assessment

2.      These funds should be ringfenced within the borough’s Housing Revenue Account (HRA) to support affordable housing delivery and maintenance.

3.      This approach should apply unless the Council can publish a register of smaller RPs that are actively looking for stock at a scale less than this or that the Council itself is willing to agree to acquire the affordable homes supported by an independent Red Book Valuation. This should be ascertained during the pre-application process with Heads of Terms agreed analogous to s106 heads of terms if this is a viable option.

4.      Part 2 of the above would enable the Council to be more active under part 3.

This would free up time and resources for all parties and enable councils to target funding where it can have the greatest impact.

Why it matters

In a recent soft market testing exercise, one smaller RP told us they no longer consider Section 106 homes in buildings over four storeys. This reflects a wider pattern: appetite for smaller S106 opportunities is highly specific, limited and increasingly risk-averse.

In this environment, insisting on on-site delivery for sub-20 unit schemes simply isn’t effective policy.

#OurSteer

We believe only schemes delivering 20 or more affordable homes should be expected to deliver on-site affordable housing in London. Smaller schemes should default to a well-managed, flexible in-lieu model that gives boroughs more predictable funding – and gives developers a clearer path to planning.

As the Mayor considers next steps for the New London Plan – it’s time to abandon this inefficient policy for a more pragmatic solution.

To discuss your affordable housing strategy, get in touch with our team:

Geena Bains (viability & valuation): geena.bains@newsteer.co.uk

Paul Manning (planning): paul.manning@newsteer.co.uk

Jonny Stevenson (land & new business): jonny.stevenson@newsteer.co.uk