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Recently published research for the DCLG shows just how important planning gain has become in securing substantial developer contributions to help fund infrastructure and affordable homes.
But while the approach worked in a period of heavy development pressure and high land values, the economic climate and the prospect of further planning reforms have changed the picture.
The research was published alongside guidance on the community infrastructure levy (CIL) and a consultation document on scaled-back section 106 agreements issued just before the general election. It is the third in a series of studies for the DCLG examining the incidence and value of section 106 agreements.
The first two, covering 2003-04 and 2005-06, showed a significant rise in the annual value of obligations from £1.9 billion to £4 billion between those two years.
The 2007-08 study showed a further increase to £4.9 billion. Extrapolating the results for the two intervening years suggests a total contribution of £18.5 billion over the five years from 2003 to 2008. The subsequent change in the economic climate, especially the fall in development values, means that this rate of increase is very unlikely to be sustained. However, the research also shows that local authorities' policies and practices are as crucial as the level of development value in securing obligations and getting them delivered.
The £4.9 billion agreed in 2007-08 represented a rise of just under a quarter on the £4 billion negotiated in 2005-06. This is smaller than the 57 per cent increase experienced between 2003-04 and 2005-06, reflecting in part the smaller rise in development values in the later period. Another indication of the scale of increase is that the value of direct payment obligations agreed per local authority in 2007-08 was £3,550,000, compared with £2,670,000 in 2005-06.
The local policy framework for planning agreements was further refined by 2007-08. Almost all planning authorities had formal policies on planning obligations in place and 42 per cent had set them out in local development frameworks.
Three-quarters were also producing infrastructure plans, a key requisite for charging CIL. But there were significant variations between authorities, even allowing for their very different sizes, in the numbers of agreements struck, obligations agreed and value obtained.
As in the previous studies, these variations occurred between local authorities with very similar socio-economic characteristics, development pressures and market values. Although variations in local policies and practices were still important in explaining these differences, statistical analysis of the variations found that over time market factors had become more important.
With more formal policy in place and wider adoption of good practice, planning authorities became more successful in negotiations where market conditions permitted. Indeed, the analysis shows that a broad range of now commonly accepted practice, such as having standard charges in place, was associated with more agreements, more obligations, higher values and better prospects for delivery. Wider adoption of good practice can and does achieve results.
In most cases, obligations had been fully delivered on the 96 sample sites we examined in detail where agreements had been signed in 2003-04 and 2005-06. On half the sites, the contributions agreed were delivered in line with agreements as expected, although five per cent required a great deal of effort to ensure delivery. Planning authorities expected another 20 per cent to be delivered in full. Ten per cent of cases were delivered subject to agreed changes, obligations were not delivered as agreed on 13 per cent of sites and the outcome was unknown on six per cent.
When changes in delivery occurred, these were generally related to the timing of direct payments or in-kind obligations in response to changes in the pace of site development, reflecting the state of the development market as the economy dipped. Planning authorities proved unwilling to accept changes to the substance of agreements made in line with planning policy and considered necessary for proposed developments to proceed. The key exception was a willingness to accept more social rented instead of intermediate housing as the basis for affordable home delivery.
In the current climate, developers are keener to renegotiate agreements than in the past and pursue a tougher stance on new schemes. The negotiation and delivery of obligations requires a range of high-level skills on the part of planning authorities. The decline in planning application fees and administrative charges for new section 106 agreements places this crucial work at risk.
We have now become very dependent on planning gain to deliver the essential infrastructure to support new development and the affordable homes required to meet housing need and create mixed communities. Two-thirds of affordable homes, however funded, are now completed on section 106 sites. The period covered by this sequence of studies was one of sustained development pressure and increased land and development values. These were favourable circumstances for councils to negotiate infrastructure and affordable housing with developers.
In a period of lower development pressure and falling development values, the results are not necessarily a guide to the short-term future in terms of incidence of agreements and value of obligations. In legislative terms, we have moved into a new era of CIL and scaled-back section 106. Even so, the evidence that having clear policies and good practice in place leads to positive outcomes suggests that planning authorities putting procedures in place will be in a strong position once development pressure returns.
There is currently much uncertainty about the coalition government's intentions for CIL and section 106. During the parliamentary debates on the Planning Bill 2007, the Conservatives welcomed proposed reforms of planning obligations and did not oppose CIL, although they were keen to ensure that funds raised by the levy were used locally rather than regionally. Their green paper Open Source Planning endorsed the principle of requiring developers to contribute to infrastructure but proposed to scrap CIL and to limit planning obligations to site-specific remediation with contributions based on a tariff from which affordable housing would be exempt.
If this approach is pursued, it seems likely that the use of obligations to secure funding for sub-regional and other non-site-specific infrastructure and for affordable housing may be no longer possible. The coalition's agreement on its programme for government makes it clear that the planning system will be reformed in line with the Tories' open source principles. So our most recent research may have seen the end of an era.
Tony Crook is professor of housing and Dr Ed Ferrari is a lecturer in town and regional planning at the University of Sheffield. The research team included Richard Dunning, Professor John Henneberry and Dr Craig Watkins from Sheffield, Dr Gemma Burgess, Fiona Lyall-Grant, Sarah Monk and Professor Christine Whitehead from the University of Cambridge and Dr Steven Rowley of Curtin University. The Incidence, Value and Delivery of Planning Obligations in England in 2007-08 is available at PlanningResource.co.uk/doc.
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Key Findings:
- The 2007-08 figures show a rise in numbers of agreements successfully negotiated, especially in rural England and urban London, compared with the previous two survey years.
- There were an average 30 agreements per authority, against 25 in 2003-04 and 2005-06.
- Agreements were not sought on most permissions. Only seven per cent of all non-householder permissions were covered by agreements in 2007-08.
- Agreements were sought on permissions for most large-scale development. There was a continued increase in the proportion of major developments with agreements.
- Between 2005-06 and 2007-08, there was an increase in the proportion of minor developments with agreements, partly due to the increased use of standard charging.
- Almost all residential permissions for sites of 50 or more dwellings and about 85 per cent of schemes of between 15 and 50 homes had agreements. Nearly half of all sites below these thresholds had agreements.
- The numbers of obligations secured in each agreement increased.
- Planning authorities negotiated a much wider range of contributions than in previous years, with significant increases in the northern and Midlands regions.
- Around half the total value secured in 2007-08 was for new affordable housing, a proportion similar to that in previous surveys. The total numbers of new affordable homes agreed increased from 31,365 in 2003-04 to 48,145 in 2007-08.
- The nominal value of agreed contributions increased from £38,000 to £54,000 per home between 2003-04 and 2007-08, representing a combination of discounted prices for land and dwellings.
- The value of non-housing obligations was smaller but the sums raised were still large in absolute terms. In 2007-08, developers agreed to fund £462 million worth of transport and travel obligations, £270 million of education obligations and £234 million of open space.
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