SECTION 01
What Section 106 actually means in practice
Affordable housing is a critical component of most residential development schemes in England, shaped by planning policy, registered provider dynamics, and viability considerations. This chapter provides a practical guide to navigating S106 obligations, tenure types, and RP relationships.
Section 106 of the Town and Country Planning Act 1990 provides the legal mechanism through which local authorities secure planning obligations from developers. In practice, S106 agreements are the primary tool for delivering affordable housing and infrastructure contributions on residential schemes.
35%
Affordable Target
Typical London policy
30%+
First Homes Discount
Minimum discount to market value
10%
BNG Requirement
For most developments in England
An S106 agreement is a legally binding contract between the landowner, developer, and local authority. It runs with the land and binds future owners. The obligations within it are triggered at specific points during development, typically upon commencement or at defined occupation thresholds.
Common S106 obligations
- Affordable housing provision, either on-site or as a commuted sum
- Education contributions towards school places generated by the development
- Healthcare contributions for GP surgeries and related facilities
- Transport and highways works, including junction improvements and cycle infrastructure
- Open space and play area provision or maintenance contributions
- Employment and training commitments during construction
The negotiation of S106 terms is a critical determinant of scheme viability. Developers must engage early with planning officers and have robust viability evidence to support their position where full policy compliance is not achievable.
SECTION 02
Affordable housing tenure types explained
Affordable housing in England encompasses several distinct tenure types, each with different eligibility criteria, rent levels, and implications for developers. Understanding these tenures is essential for negotiating S106 agreements and engaging with registered providers.
Typical Affordable Rents as % of Market Rent
Social rent
Social rent is set according to a national formula based on property values and local earnings. It is the most affordable tenure, typically 50-60% of market rent. Social rent is increasingly rare in new S106 agreements due to the lower capital values it generates, though some authorities still require it.
Affordable rent
Affordable rent is capped at 80% of market rent, including service charges. It has largely replaced social rent in new developments as it allows registered providers to pay higher prices for S106 units. Local authorities may specify lower caps, commonly 60-70% in higher value areas.
Shared ownership
Shared ownership allows purchasers to buy a share of a property, usually between 10% and 75% under the current model, while paying rent on the remainder. It bridges the gap between renting and full ownership. Shared ownership units typically command higher values than rented affordable tenures, improving overall scheme viability.
First Homes
First Homes require a minimum 30% discount to market value in perpetuity and are sold to first-time buyers meeting eligibility criteria. The discount is secured through a legal restriction on the title. National policy no longer sets a default minimum proportion of First Homes, so their inclusion depends on the relevant local plan and planning decision.
Tenure mix considerations
The split between rented and intermediate tenures affects both S106 values and scheme viability. Higher proportions of shared ownership and First Homes typically improve overall affordable housing values, while local housing need may require emphasis on rented tenures. Negotiating an appropriate mix requires balancing policy requirements with commercial reality.
SECTION 03
Registered providers and housing associations
Registered providers (RPs) are organisations registered with the Regulator of Social Housing to provide affordable housing. They include traditional housing associations, local authority housing companies, and for-profit providers. Understanding the RP landscape is essential for developers delivering S106 units.
UK RP Sector Composition by Stock Ownership
- Large HAs (10k+ units) (55%)
- Medium HAs (25%)
- Local Authority HCs (12%)
- For-Profit RPs (8%)
How RPs operate
RPs acquire affordable housing through S106 purchases, direct development, and grant-funded schemes. Their ability to pay for S106 units depends on their cost of capital, rental income assumptions, and management cost base. Different RPs have different appetites for tenure types, unit sizes, and geographic areas.
Selecting an RP partner
- Financial strength and ability to transact at scale
- Track record of completing S106 purchases without renegotiation
- Local presence and housing management capability
- Appetite for the specific tenures and unit mix on offer
- Willingness to engage early in the planning process
Early engagement with RPs is advisable. Their input on specification, tenure mix, and handover requirements can avoid costly changes later. Some developers run competitive processes among RPs to achieve the best terms, while others prefer long-term partnership arrangements that provide certainty across multiple schemes.
Contracting with RPs
RP purchase contracts typically follow standardised forms but require careful negotiation on matters including specification, practical completion requirements, defects liability, and longstop dates. Developers should ensure contract terms align with their construction programme and financing arrangements.
SECTION 04
How affordable housing is valued
Affordable housing values differ fundamentally from market values. They are driven by the capitalised income stream that an RP can derive from the property, not by what an owner-occupier or investor would pay. Understanding this valuation methodology is essential for appraising schemes and negotiating with RPs.
Investment valuation approach
RPs value rented affordable housing by capitalising the net rental income at an appropriate yield. Net income is gross rent less management, maintenance, and void allowances. Yields typically range from 4.5% to 6.5% depending on location, stock quality, and the RP's cost of capital.
Factors affecting values
- Rent levels, whether social rent, affordable rent at 80%, or a lower local cap
- Service charge levels and recoverability
- Unit size mix, with larger units typically achieving lower per-unit values
- Location and market strength
- Specification and build quality
- Grant availability, which can significantly boost RP bids
Shared ownership valuation
Shared ownership is valued based on the RP's retained equity stake and the income from rent on that stake, plus assumptions about staircasing over time. Values are more sensitive to market conditions than rented tenures, as the initial sale price is linked to open market value.
Market conditions and RP appetite
RP pricing is not static. In competitive markets with strong RP appetite, values may exceed standard investment calculations. In weaker conditions or where specific tenures or locations are less desirable, achieving policy-compliant values can be challenging. Regular market testing through competitive processes helps establish current pricing.
SECTION 05
Common pitfalls in S106 negotiations
S106 negotiations are complex and mistakes can have significant financial consequences. Many pitfalls arise from inadequate preparation, unrealistic assumptions, or failure to understand the interests of all parties involved.
Accepting unviable obligations
Developers sometimes accept S106 terms that undermine scheme viability to secure planning quickly, expecting to renegotiate later. Deed of variation applications are difficult, time-consuming, and uncertain. It is better to negotiate realistic terms from the outset, supported by robust viability evidence.
Inadequate viability evidence
Planning authorities and their consultants scrutinise viability assessments closely. Weak evidence, inconsistent assumptions, or failure to justify inputs will undermine credibility. Viability work should be prepared by experienced practitioners using current market data and defensible methodology.
Ignoring review mechanisms
Many S106 agreements include viability review mechanisms that can require additional contributions if outturn performance exceeds appraisal assumptions. Developers should understand how these mechanisms work, model their potential impact, and negotiate caps or thresholds where possible.
Specification misalignment
S106 agreements often require affordable units to be built to the same specification as market units, or to specific standards such as Nationally Described Space Standards. Failure to account for these requirements in cost plans can erode margins. Early engagement with RPs on specification expectations avoids surprises.
Timing and phasing issues
The timing of affordable housing delivery relative to market sales affects cashflow and risk. S106 agreements typically specify phasing requirements, and early delivery of affordable units may be required before significant market sales can proceed. Developers should model the cashflow impact of phasing obligations carefully.
SUMMARY
Key takeaways
Delivering affordable housing successfully requires understanding the planning framework, tenure types, RP market, and valuation methodology. Early engagement, robust viability work, and careful contract negotiation are essential to achieving outcomes that satisfy planning requirements while maintaining scheme viability.
INTELLIGENCE LIBRARY
Affordable Housing.
Affordable housing is a critical component of most residential development schemes in England, shaped by planning policy, registered provider dynamics, and viability considerations. This chapter provides a practical guide to navigating S106 obligations, tenure types, and RP relationships.
5 ARTICLES · 8 MIN READ TOTAL
8 min read·Updated September 2026
SECTION 01
What Section 106 actually means in practice
Section 106 of the Town and Country Planning Act 1990 provides the legal mechanism through which local authorities secure planning obligations from developers. In practice, S106 agreements are the primary tool for delivering affordable housing and infrastructure contributions on residential schemes.
35%
Affordable Target
Typical London policy
30%+
First Homes Discount
Minimum discount to market value
10%
BNG Requirement
For most developments in England
An S106 agreement is a legally binding contract between the landowner, developer, and local authority. It runs with the land and binds future owners. The obligations within it are triggered at specific points during development, typically upon commencement or at defined occupation thresholds.
Common S106 obligations
- Affordable housing provision, either on-site or as a commuted sum
- Education contributions towards school places generated by the development
- Healthcare contributions for GP surgeries and related facilities
- Transport and highways works, including junction improvements and cycle infrastructure
- Open space and play area provision or maintenance contributions
- Employment and training commitments during construction
The negotiation of S106 terms is a critical determinant of scheme viability. Developers must engage early with planning officers and have robust viability evidence to support their position where full policy compliance is not achievable.
SECTION 02
Affordable housing tenure types explained
Affordable housing in England encompasses several distinct tenure types, each with different eligibility criteria, rent levels, and implications for developers. Understanding these tenures is essential for negotiating S106 agreements and engaging with registered providers.
Typical Affordable Rents as % of Market Rent
Social rent
Social rent is set according to a national formula based on property values and local earnings. It is the most affordable tenure, typically 50-60% of market rent. Social rent is increasingly rare in new S106 agreements due to the lower capital values it generates, though some authorities still require it.
Affordable rent
Affordable rent is capped at 80% of market rent, including service charges. It has largely replaced social rent in new developments as it allows registered providers to pay higher prices for S106 units. Local authorities may specify lower caps, commonly 60-70% in higher value areas.
Shared ownership
Shared ownership allows purchasers to buy a share of a property, usually between 10% and 75% under the current model, while paying rent on the remainder. It bridges the gap between renting and full ownership. Shared ownership units typically command higher values than rented affordable tenures, improving overall scheme viability.
First Homes
First Homes require a minimum 30% discount to market value in perpetuity and are sold to first-time buyers meeting eligibility criteria. The discount is secured through a legal restriction on the title. National policy no longer sets a default minimum proportion of First Homes, so their inclusion depends on the relevant local plan and planning decision.
Tenure mix considerations
The split between rented and intermediate tenures affects both S106 values and scheme viability. Higher proportions of shared ownership and First Homes typically improve overall affordable housing values, while local housing need may require emphasis on rented tenures. Negotiating an appropriate mix requires balancing policy requirements with commercial reality.
SECTION 03
Registered providers and housing associations
Registered providers (RPs) are organisations registered with the Regulator of Social Housing to provide affordable housing. They include traditional housing associations, local authority housing companies, and for-profit providers. Understanding the RP landscape is essential for developers delivering S106 units.
UK RP Sector Composition by Stock Ownership
- Large HAs (10k+ units) (55%)
- Medium HAs (25%)
- Local Authority HCs (12%)
- For-Profit RPs (8%)
How RPs operate
RPs acquire affordable housing through S106 purchases, direct development, and grant-funded schemes. Their ability to pay for S106 units depends on their cost of capital, rental income assumptions, and management cost base. Different RPs have different appetites for tenure types, unit sizes, and geographic areas.
Selecting an RP partner
- Financial strength and ability to transact at scale
- Track record of completing S106 purchases without renegotiation
- Local presence and housing management capability
- Appetite for the specific tenures and unit mix on offer
- Willingness to engage early in the planning process
Early engagement with RPs is advisable. Their input on specification, tenure mix, and handover requirements can avoid costly changes later. Some developers run competitive processes among RPs to achieve the best terms, while others prefer long-term partnership arrangements that provide certainty across multiple schemes.
Contracting with RPs
RP purchase contracts typically follow standardised forms but require careful negotiation on matters including specification, practical completion requirements, defects liability, and longstop dates. Developers should ensure contract terms align with their construction programme and financing arrangements.
SECTION 04
How affordable housing is valued
Affordable housing values differ fundamentally from market values. They are driven by the capitalised income stream that an RP can derive from the property, not by what an owner-occupier or investor would pay. Understanding this valuation methodology is essential for appraising schemes and negotiating with RPs.
Investment valuation approach
RPs value rented affordable housing by capitalising the net rental income at an appropriate yield. Net income is gross rent less management, maintenance, and void allowances. Yields typically range from 4.5% to 6.5% depending on location, stock quality, and the RP's cost of capital.
Factors affecting values
- Rent levels, whether social rent, affordable rent at 80%, or a lower local cap
- Service charge levels and recoverability
- Unit size mix, with larger units typically achieving lower per-unit values
- Location and market strength
- Specification and build quality
- Grant availability, which can significantly boost RP bids
Shared ownership valuation
Shared ownership is valued based on the RP's retained equity stake and the income from rent on that stake, plus assumptions about staircasing over time. Values are more sensitive to market conditions than rented tenures, as the initial sale price is linked to open market value.
Market conditions and RP appetite
RP pricing is not static. In competitive markets with strong RP appetite, values may exceed standard investment calculations. In weaker conditions or where specific tenures or locations are less desirable, achieving policy-compliant values can be challenging. Regular market testing through competitive processes helps establish current pricing.
SECTION 05
Common pitfalls in S106 negotiations
S106 negotiations are complex and mistakes can have significant financial consequences. Many pitfalls arise from inadequate preparation, unrealistic assumptions, or failure to understand the interests of all parties involved.
Accepting unviable obligations
Developers sometimes accept S106 terms that undermine scheme viability to secure planning quickly, expecting to renegotiate later. Deed of variation applications are difficult, time-consuming, and uncertain. It is better to negotiate realistic terms from the outset, supported by robust viability evidence.
Inadequate viability evidence
Planning authorities and their consultants scrutinise viability assessments closely. Weak evidence, inconsistent assumptions, or failure to justify inputs will undermine credibility. Viability work should be prepared by experienced practitioners using current market data and defensible methodology.
Ignoring review mechanisms
Many S106 agreements include viability review mechanisms that can require additional contributions if outturn performance exceeds appraisal assumptions. Developers should understand how these mechanisms work, model their potential impact, and negotiate caps or thresholds where possible.
Specification misalignment
S106 agreements often require affordable units to be built to the same specification as market units, or to specific standards such as Nationally Described Space Standards. Failure to account for these requirements in cost plans can erode margins. Early engagement with RPs on specification expectations avoids surprises.
Timing and phasing issues
The timing of affordable housing delivery relative to market sales affects cashflow and risk. S106 agreements typically specify phasing requirements, and early delivery of affordable units may be required before significant market sales can proceed. Developers should model the cashflow impact of phasing obligations carefully.
SUMMARY
Key takeaways
Delivering affordable housing successfully requires understanding the planning framework, tenure types, RP market, and valuation methodology. Early engagement, robust viability work, and careful contract negotiation are essential to achieving outcomes that satisfy planning requirements while maintaining scheme viability.