£5 billion a year for infrastructure and affordable housing comes from private developers

Researchers from the University of Sheffield have found that private developers have agreed to fund £5 billion of England´s local capital infrastructure, including roads, schools and new affordable housing in England. The research, which was commissioned by the Department of Communities & Local Government (CLG) and published today by CLG, shows planning obligations have led to the very substantial investments by developers.

The planning obligations, known as S106 agreements, are negotiated by local planning authorities when granting planning permission for new developments. These obligations ensure that the necessary infrastructure to support new developments is in place and also that developers of private housing schemes create mixed communities by providing an element of affordable housing on new private estates.

The researchers, from a joint team at the University´s Department of Town and Regional Planning and the Department of Land Economy at the University of Cambridge, found that nearly two thirds of new affordable homes are now provided through S106 agreements. In principle many of these contributions are funded by developers from the increase in land value brought about by the granting of planning permission.

Until recently little was known about the extent and value of these obligations. The study published today is the third in a series commissioned by CLG and shows just how substantial these contributions are. They have risen from £2bn in 2003-04 to £4bn in 2005-06 and to £5bn in 2007-08, of which half in each year was for new affordable housing. This increase reflects both the greater capability of planning authorities when negotiating contributions and the rise in development values over that period providing the funds for developers to make their contributions.

The most recent research showed that, whilst planning authorities continued to focus their efforts on the largest sites, they were also negotiating more contributions from smaller sites than in earlier years. It further showed that there were still large variations in the extent to which planning authorities negotiated agreements and in the value of the contributions secured. This was partly due to the variations in demand for development and land values but also to significant variations in local authority policy and practice.

An important new finding from the latest research is that developers have been delivering a very large proportion of the agreed obligations. Allowing for changes to the timing of delivery, obligations were fully delivered on four in five of the sites where obligations were agreed in 2003-04 and 2005-06. Later agreements have been affected by the property downturn as sites have been developed much more slowly but planning authorities will require all the agreed obligations to be delivered once the market improves.

Professor Tony Crook, from the University´s Department of Town and Regional Planning, who led the research team, said: "The last decade of this century has seen a very substantial increase in these contributions by developers facilitated by the significant increase in land values. The size of the country´s future requirement for new homes will require a substantial investment in infrastructure to support it, whilst the Government´s target for new homes includes increased targets for affordable homes.

"The changes to S106 policy, including the new Community Infrastructure Levy which will come into operation in April this year, will bring more sites into the frame for contributing to infrastructure because the Levy will apply to all but householder applications and the smallest sites and therefore these proposals have the capacity for further raising the funds available for infrastructure. Success will also depend on the continued capacity and capability of local planning authorities to set the Levy and to negotiate S106 contributions as well as the continuing capacity of the development industry to fund these."

Dr. Gemma Burgess, from the University of Cambridge Centre for Housing and Planning Research and one of the study´s co-authors, said: "This report illustrates the increasingly important role S106 agreements have played over the last few years in contributing to local infrastructure and supporting affordable housing, and it will be crucial, given the current financial climate, that local authorities continue to do so."

"Local authorities that may not have used S106 agreements to their full effect in the past are clearly improving practice, but we also found that policy and practice still vary enormously from one authority to another."