Weaknesses in the Ministry of Housing, Communities & Local
Government's (MHCLG) developer contributions system - intended to
fund essential local infrastructure like schools, roads, public
transport, and affordable housing - are undermining councils'
ability to negotiate with developers, says the NAO.
The latest report by the independent public spending watchdog
assesses MHCLG's oversight of the developer contributions system
in England - it found a range of issues including incomplete data
and local authority staffing gaps to unsold affordable homes and
unspent funds.
Local Planning Authorities (LPAs) who are responsible for
securing developer contributions through a negotiated Section 106
agreement or a set CIL are facing staff shortages and a gap in
skills compared to large developers who often have specialist
negotiators.
Section 106 agreements, which can be used to help fund affordable
homes, are often complex and resource intensive because they are
individually negotiated. In 2023/24, 44% of all affordable homes
delivered in the year (over 27,000 homes) were funded through
Section 106 agreements. However, as of October 2024 according to
a Home Builders Federation (HBF) survey, 17,400 affordable homes
remain unsold to registered providers of social housing.
In contrast, the CIL is transparent and can be charged on new
development to fund a wide range of infrastructure but cannot be
spent on affordable housing. As of November 2024, 52% of LPAs
were operating a CIL.
Developers can use financial assessments to contend that a site
is not viable, having accounted for the appropriate Section 106
contributions and a typical profit margin of 15-20% of the
development's value, as set out in planning guidance. These
assessments are often hard for local authorities to challenge due
to a lack of transparency, limited expertise, and the ability of
larger developers to use consultants to reduce their contribution
obligations. MHCLG acknowledges that its guidance on financial
viability needs updating and aims to do this in 2025.
Since 2019, all local authorities that receive Section 106 monies
or the CIL have been required to publish an annual infrastructure
funding statement (IFS) each year, starting in December 2020
reporting on the preceding financial year. IFSs have been
published but can be produced with varying levels of detail, and
some authorities do not produce them on time. MHCLG therefore has
incomplete data on developer contributions, but its latest
estimate suggested that the value of agreed developer
contributions in published IFSs was £5.5 billion in 2022-23, down
from £6.4 billion in 2019-20.
Furthermore, many local housing targets have changed - some
significantly - making existing local plans outdated and
increasing the need for new infrastructure. As of February 2025,
the NAO found 86 LPAs (fewer than a third of the total) had an
up-to-date local plan, even though government planning policy
says they should be reviewed every five years. When the NAO last
reported on this in February 2019, 149 LPAs had an up-to-date
local plan.
In 2024, the Home Builders Federation estimated that local
authorities in England and Wales held over £8 billion in unspent
developer contributions. There are valid reasons for this,
including the length of time it takes for some projects to
complete, but if Section 106 monies are not spent as agreed they
can be returned to developers.
Government has launched several programmes to help make the
system more effective. They include initiatives to enhance the
skills of local planners, and to assist new housing schemes that
are progressing too slowly. In December 2024, government also
launched a service to better match up buyers and sellers of
affordable housing funded through Section 106.
The NAO has made several recommendations to MHCLG, including:
- evaluating the initiatives that aim to help local authorities
build the skills and capacity they need to manage developer
contributions effectively;
- reviewing how financial viability assessments are used,
including looking at potential conflicts of interest and
assessing whether more transparent methods (like open-book
costing) would work better; and
- encouraging wider use of the CIL, by removing barriers to
introducing it for areas where that would be a viable approach.
, head of the NAO,
said:
"To ensure the developer contributions system delivers value
for money, important issues must be addressed, including reducing
the imbalance in skills and experience between Local Planning
Authorities and large developers; the complexity of financial
viability assessments; and the lack of coordinated central
government support.”
ENDS
Notes to editors
- MHCLG defines ‘affordable housing' as housing for sale or
rent for those whose needs are not met by the open market,
including housing that provides a subsidised route to home
ownership, and/or is for essential local workers. It must comply
with one or more of the following definitions: social rent; other
affordable housing for rent; discounted market sales housing; and
other affordable routes to home ownership.
