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How Much Affordable Housing Do Private Developers Have to Build?  Ricky Prota January 11, 2024

How Much Affordable Housing Do Private Developers Have to Build? 

Since the 1980s, the UK has undergone significant shifts in its housing landscape. During this era, housing delivery largely transferred from the public sector to private developers. This monumental change created a gaping void in the supply of affordable housing, contributing to a housing crisis that still echoes today. 

Laws are now in place to ensure that a percentage of any private residential housing development is affordable homes. How much is that percentage and what exemptions are there? Do new developments have to include social housing? 

This article addresses such questions and reviews the vital role of private residential developers in addressing the nation’s housing needs. 

How Has the UK Housing Market Changed Since the 1980s? 

The number of social homes built in the UK has drastically reduced over the decades, especially since the 1980s. Shelter refers to the following statistics:   

  • In the 25 years after the Second World War, 4.4 million social homes were built in the UK 
  • In 1980, 94,140 social homes were built
  • In 1983, only 44,240 units were built
  • In 2021/2022, a mere 7,528 new social homes were built

Why the dramatic plummet in the figures above? Things changed in the 1980s under Margaret Thatcher when the Right to Buy was introduced. With tenants able to buy their properties at a discounted price, less and less properties were available for social rent. Councils also faced new restrictions surrounding the building and managing of social housing. 

Recently, Right to Buy properties have been coming onto the market again but this time, as private rent-to-buy properties at prices too expensive for those on low incomes.  

The Housing Act of 1988 

As well as the Right to Buy, the introduction of the Housing Act of 1988 brought about more changes. One of the intentions for the Act was revive social housing, except from here on, it would be financed privately and executed through housing associations. However, it ended up contributing to a reduced number of affordable homes. 

Introduction of Assured Shorthold Tenancies (ASTs)

One of the key provisions of the Act was the introduction of Assured Shorthold Tenancies (ASTs). These tenancies allowed landlords to regain possession of their properties after a fixed term, usually six months, without having to provide a specific reason. 

This change incentivised landlords to opt for shorter rental agreements, making it less attractive for them to invest in long-term affordable housing solutions. Landlords seeking higher returns were more likely to focus on the potentially more profitable private rental sector, leading to a reduced supply of homes available for affordable, long-term rentals.

The Rise of Buy-to-Let Properties

The act’s provisions, including ASTs and increased flexibility for rent adjustments, made the buy-to-let market more appealing to investors. As a result, many properties that could have otherwise been used for affordable housing were converted into rental properties targeting higher-income tenants, contributing to a decrease in the availability of affordable homes.

Lack of Rent Controls

The Act removed rent controls that had previously limited the rate at which landlords could increase rents. While this change aimed to provide landlords with more financial freedom, it also meant that rental prices could increase significantly, making it harder for low and middle-income individuals and families to afford suitable housing. As rents rose, the supply of affordable homes relative to the demand diminished, exacerbating the affordability crisis.

What Percentage of Private Developments Have to Be Affordable? 

According to the National Planning Policy Framework (NPPF), the minimum percentage of affordable housing must be 10%. In reality, it’s usually somewhere between 20-40% in most regions but in some locations, it can be up to 50%. 

Residential developers need to negotiate with planning authorities to establish the actual percentage but this applies when developments come under s106 agreements; if the new infrastructure levy goes ahead, contributions will work in a different way. 

When Does This Legislation NOT Apply? 

Requirements differ by Local Aurhotity but according to the NPPF, affordable housing applies only on developments of at least 10 properties, or where the site is at least 0.5 hectares in size.  In some regions, previous thresholds apply instead of the 0.5 hectare limit; in these cases, there must be a minimum total combined floorspace of 1,000 square metres across all units.  

Other exemptions are as follows:

  • When the 10% would exceed the amount of affordable housing required in the area, or if it would ‘significantly prejudice the ability to meet the identified affordable housing needs of specific groups’. 
  • When the site provides solely for Build to Rent homes.
  • When the site provides specialist accommodation for people with specialist needs, such as students or the elderly.
  • When the development will be done by people building or commissioning their own homes.
  • When the site is ‘exclusively for affordable housing, an entry-level exception site or a rural exception site’. 
Do New Developments Have to Include Social Housing? 

What percentage of new developments have to be social housing? There is no minimum threshold as this is determined by Local Authorities.

In the Affordable Homes Programme from 2021-2026, 50% of the funds were due to be spent to build homes for discounted rent and the remaining 50% would be designated to affordable home ownership. However, this year, it was decided that social rent would take priority; as a result, grant rates specifically for social rent were made accessible throughout the country.

It 2021, it was announced that the programme would deliver 32,000 units – more than double the amount of social rent properties delivered through the previous programme. However, not everyone is convinced that figure is suitable; for example, Crisis and the National Housing Federation stated that 90,000 units should be built each year in England for 15 years in order to adequately address demand. 

Increasing support in the development of social housing would reduce expenditure on housing benefit which has now exceeded £29 billion annually, compared to £9 billion in 1991-1992. 

Establishing Viability 

In order to conquer the housing crisis, developers need to look beyond existing stock and focus on building new homes as well. Our Landval software helps private developers obtain the best residual land value, quickly analysing development costs and testing your gross margin against fluctuating sales values. 

We also provide ProVal, the UK’s leading viability software for social housing providers, helping Registered Providers quickly make accurate financial viability decisions.  

Conclusion

The evolution of the UK’s housing market since the 1980s has been marked by significant legislative and market shifts that have critically impacted the provision of affordable housing. 

The transition from public sector housing to private developers and legislation such as the Housing Act of 1988 have largely defined the trajectory of the sector. Despite intentions to revive social housing through private channels, subsequent measures like the Assured Shorthold Tenancies and the focus on buy-to-let properties inadvertently limited the availability of affordable homes. 

Current mandates that require private developers to include a percentage of affordable homes in their projects are a testament to the ongoing challenge of meeting national housing needs. 

The question of how much affordable housing do private developers have to build does not have a black and white answer, but it must be at least 10% for sites of at least 10 units, as specified by the NPPF. In many cases, it will be between 20-40%, as determined by Local Authorities. 

Our expertise is at your disposal at every stage of the development process. To book a demo of Landval, ProVal or any of our other solutions, contact us today. 


 

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