The government's "step change" in housing took two more large strides in the last few days, with confirmation that it will give social housing grant to private developers and allow housebuilders to pay a charge rather a negotiate section 106 agreements in planning deals (pages 9 and 11).
Both changes are designed to increase housing supply of all types by getting more homes built, and quicker. One presumes they are in line with what Kate Barker – the economist commissioned by the Treasury to see what can be done to increase housing supply – is thinking.

But will they work? The government's position is that negotiating section 106 agreements can take years, holding up schemes and stifling housebuilding. Paying a charge would be much quicker. It was first proposed at the start of the planning reform process in 2001 but was dropped last summer because of widespread criticism.

This time round it is optional, so the Treasury cannot be accused of introducing a new type of tax. There are still concerns that the charge will run counter to the policy of providing mixed tenure, or that nimby councils will use huge charges to deter housebuilding. But the government is right to try a different approach.

The charge system may not be perfect but it can't be worse than section 106, which, as the Joseph Rowntree Foundation found in December 2002, has failed miserably to provide social housing without public subsidy. Around 12,000 new homes are delivered by this mechanism, many only with large dollops of social housing grant or housing association money. Many associations would prefer the freedom to do their own developments, thus ensuring mixed tenure remains firmly on the agenda. As for the problem of nimby councils, it is up to the government to ensure that they meet their targets for affordable housing.

But whether giving grant to housebuilders will be a step forward is another matter. Though it is a massive change in philosophy – using housebuilders as service providers – some argue that on a practical basis its not that different to what is already happening. English Partnerships has been subsidising developers with gap funding, for example. And the lines between private and public are already blurred – housing associations increasingly compete with housebuilders in providing homes for sale.

The charge system might not be perfect, but it can’t be worse than section 106

That said, there are still many qualms. It would be great if housebuilders do provide better value for money, but there is scant evidence that this will be the case. One might see how giving grant to housebuilders for low-cost homes for sale might allow some efficiency gains by cutting out the middle man. But do housebuilders really want responsibility for owning these types of properties, with all that that entails, even though they might have organisations manage them on their behalf?

And what about the accounting procedures for this grant? Will housebuilders, like housing associations have it down in their accounts as a permanent loan, which cannot be used to borrow against? Can they square that with the shareholders?

And at a time when associations face even more scrutiny, how can it be right, they ask, to have one rule for one and one for another? Presumably the government will be putting its faith in open-book accounting and lawyers to ensure that it gets what it paid for. But as any one involved with the private finance initiative will testify, drawing up a complex contractual arrangement to replace natural goodwill doesn't come quick, or cheap.

Source

Housing Today