CIL could hamper affordable housing delivery, says select committee

There is concern that the implementation of CIL will "residualise" the use of section 106 agreements, which act as an "important stream of finance activity" for affordable housing.

The Communities and Local Government Committee report on the financing of new housing supply looks at what can be done to make finance available to build more homes.

"Section 106 has been a big driver of affordable housing over the last few years. I think in 2010-11 about 29,000 homes were delivered through section 106," said Richard Hill, deputy chief executive of the Homes and Communities Agency.

There is concern that the introduction of CIL could reduce the number of affordable homes delivered through developer contributions in section 106 agreements. Section 106 of the Town and Country Planning Act allows a local planning authority to agree planning obligations with a developer in association with the granting of planning permission.

"If CIL were to be set at a level that is too high, then section 106 affordable housing proposals will become extremely challenging to secure and could lead to a potentially substantial reduction in new affordable housing," said Midland Heart housing association.

There is uncertainty about the relationship between CIL and section 106 agreements and the impact on how much affordable housing will be secured, the report said. "There is a real concern about the future of section 106."

A survey carried out by researchers at Cambridge University found that it is unlikely that large amounts of affordable housing will be built through CIL.

CIL is effectively an infrastructure investment fund, so infrastructure will benefit from most of the available developer contributions, the group said. This would leave a comparatively very small contribution for section 106 agreements and the affordable housing contributions that are often secured under them.

Under the current CIL regulations, receipts may not be spent on affordable housing. However, a Government consultation in October 2011 invited views on whether CIL should be available to deliver affordable housing where there is robust evidence that doing so would "demonstrably better support its provision and offer better value for money".

It also sought views on the "appropriate balance, or combination, between the Community Infrastructure Levy and section 106 planning obligations to best support the delivery of affordable housing".

“The report provides a timely reminder that the Government needs to tie together various loose threads following its October 2011 consultation on proposed reforms to the CIL Regulations," said Marcus Bate, planning and development law expert at Pinsent Masons, the law firm behind Out-Law.com.

"Questions were asked about the interrelationship between CIL and section 106, without clear guidance or national policy ensuing. As a result, the inevitable trade-off between infrastructure , which is funded via CIL, and affordable housing, which is funded by section 106, has not been given sufficient prominence. The message needs to be communicated to all stakeholders that every pound collected via CIL will result in up to a pound less spent on delivering local affordable housing”, said Bate.

"Local authorities will need to keep this in mind when setting appropriate rates in their CIL Charging Schedules," he said

The implementation of CIL could also hamper the Government's pledge to deliver 170,000 affordable homes by 2015, said the report, adding that the target relies on the delivery of affordable housing agreed in a number of section 106 agreements.

If section 106 agreements are "significantly varied" this could reduce the number of homes delivered. "There is a whole lot of [affordable housing] delivery that is contingent on section 106 as part of that 170,000," said David Orr, chief executive of the National Housing Federation.

"We recommend that the Government, at the earliest opportunity, clarify the relationship between the Community Infrastructure Levy and section 106 agreements, and how together they can be used to maximise affordable housing delivery," the report said. "It should take care to ensure that the introduction of CIL does not lead to a reduction in the number of affordable homes delivered through contributions from developers."

"Talk about 'maximising' affordable housing delivery has been high up the agenda in London following the recent Mayoral elections. But that conversation needs to look at the development sector in the round if it is to be an informed one, recognising pressures on land values and site specific infrastructure costs," said Bate.

"The issue is not whether affordable housing should be delivered by CIL or section 106 – section106 is clearly the more suitable and flexible option - but how the maximum reasonable amount of affordable housing can be secured when viability is constrained and the top slice of development costs is spent on CIL, both the Mayoral and the local CILs," he said.

In relation to stalled projects the Committee recognised that the viability of schemes needs to be assessed, but recommended that the Government leave local authorities to decide whether or not to reopen section 106 agreements.