Property developers shelled out £2.1bn in s106 payments last year

“For smaller developers who are already struggling to find funding for their developments, these added costs can be the final nail in the coffin", says peer-to-peer lender

Property developers handed over more than £2bn to local authorities last year in Section 106 payments, in order to get planning permissions through.

That’s less than £2.35bn a year earlier, but markedly up on the £1.7bn generated for affordable housing and council community projects five years ago, according to s106 data revealed in a Freedom of Information request by peer-to-peer lender Lendy.

Northacre’s The Broadway project agreed a £10m affordable housing contribution as part of its s106 package last year

Some top-end developers – such as Luxlo, which crowed about a £4.2m s106 payment in marketing bunf for its seven-unit boutique Mayfair scheme – take a social responsibility view and even manage to make the burden help their brand as well as gaining local support for individual developments. But many others view the planning levy as a “stealth tax” on housebuilding, says Lendy.

The lender warns that “there is very little transparency on how the agreements are calculated”, and that lumpy cash demands from local authorities at the planning stage “can be the final nail in the coffin” for smaller developments – so potentially cut the supply of new housing, and/or raise the price of units that are delivered.

Westminster Council’s new boss, Nickie Aiken, mounted a robust defence of the current Section 106 and Community Infrastructure Levy system last month, explaining that: “We won’t be short changed on affordable housing simply because a developer has paid too much for a site. Of course we accept that developers need to make a profit. But we also need to recognise that developers must play their part in ensuring socially balanced developments. In Westminster it will be an essential precondition for making a profit.” Read more about Cllr Aiken’s views on property development and planning levies here.

Liam Brooke, co-founder of Lendy: “Typically, if you put a tax on an activity, you’ll get less of it.

“It’s no secret that there is a housing shortage in the UK. More needs to be done to help support developers – allowing them to get spades in the ground and houses built.

“Agreements with local authorities for planning permissions can be both complex and costly for developers.

“You can argue that Section 106 agreements can be beneficial in ensuring the local community benefits from developments, however, the fact that smaller developers are being priced out of the market by these added costs is a real concern.

“Not only can the costs be high but they also tend to be unpredictable as there is very little transparency on how the agreements are calculated.

“For smaller developers who are already struggling to find funding for their developments, these added costs can be the final nail in the coffin.

“If developers are faced with high costs from local authorities they may need to recoup some of their profits which could mean higher house prices or corners being cut during construction.”