Section 106 Charges Cut for Small Builders

Section 106 Charges Cut for Small Builders

Eric Pickles offers a boost to the country’s small house builders, slashing the cost of building a new home.

Pickles cuts stealth taxes on new homes and boosts small builders

From:Department for Communities and Local Government and The Rt Hon Eric Pickles MP

First published:28 November 2014

Part of:Giving communities more power in planning local development, Making the planning system work more efficiently and effectively, Increasing the number of available homes, others

Eric Pickles offers a boost to the country’s small house builders, slashing the cost of building a new home.

Eric Pickles today (28 November 2014) offered a boost to the country’s small house builders, slashing the cost to them of building a new home by as much as £140,000.

The Communities Secretary said the move would help restore the sector which was hit by the 2008 crash, and boosting local jobs and constructions.

Figures from the National Housebuilding Council have suggested that the number of small and medium-sized builders has halved, from 6,167 in 1997 to 2,832 by 2012.

Plans announced today will boost England’s builders, making clear that most “Section 106” charges should not be sought from the smallest housebuilders – specifically on sites of 10 homes or fewer, including self-build, extensions and annexes.

Mr Pickles also confirmed that in very rural areas, sites of 5 homes or fewer should not face the charge.

He also launched a £25 million fund to boost development finance for small builders.

Eric Pickles said:

Small builders are being hammered by charges, which have undermined the building industry, cut jobs and forced up the cost of housing. By getting rid of these 5 and 6-figure charges, we will build more homes and help provide more low-cost and market housing.

This will also be a massive boost to the self-build and custom-build sector. Overnight in many parts of England, it will be cheaper to build an extension, a family annex or just build your own home. Our long-term economic plan is helping hard-working people.

Protecting small builders

It is estimated that the policy will save, on average, £15,000 in Section 106 charges per home in England – with some councils charging up to £145,000 on single properties.

Further savings will be made from tariffs councils can use to charge more than £15,000 per home over and above any housing contributions.

Taken together, these changes will provide 6-figure savings for small-scale developers in some parts of the country.

This will also support the nation’s self-builders – ensuring any builder helping to turn someone’s dream home into a reality, or build an extension to an existing property, doesn’t get lumbered with Section 106 charges, mirroring what the government has already done on exempting them fromcommunity infrastructure levy.

Unlocking stalled smaller sites

Mr Pickles also announced plans for a new £25 million fund to unlock construction on micro-building sites between 5 and 15 homes.

These sites have local support and planning permission secured, but have struggled to get restarted after being mothballed during the downturn.

This new funding will come in the form of loans, which the developer will repay on completion and sale of the homes.

It forms part of the wider £525 million Builders Finance Fund scheme: already ministers have published a shortlist of more than 160 stalled housing developments of between 15 and 250 homes that could benefit from a share of the funding to get their workers back on sites.


A house building boost

The 2008 housing crash devastated our house building industry and led to the loss of a quarter of a million construction jobs.

Smaller house builders were among the hardest hit – where in 1990 they provided over 60% of new homes built, this year they’ll account for around a third.

Despite their best efforts to build more, these companies are hampered by large bills from councils.

These bills, known as Section 106 agreements, can run to more than the cost of building a home in the first place. They then render the company’s development plans unviable – leaving communities without the homes they should rightly expect.

In response to the government consultation on plans to cut back these taxes, builders warned how Section 106 requirements were destroying housebuilding.

The Home Builders Federation said:

This exemption would offer small and medium-sized developers a shot in the arm. The time and expense of negotiating Section 106 affordable housing contributions on small sites, and the subsequent payments, can threaten the viability of small developments and act as another barrier to the entry and growth of smaller firms. Over the course of several decades the number of SME house builders has collapsed from more than 12,000 in 1988 to less than 3,000 last year. It is not surprising that this has coincided with a period in which planning and regulation has generally become more costly and complex. We therefore welcome the efforts of the government to roll back some of these costs and help to foster a more diverse house building sector.

Brian Berry, Chief Executive of the Federation of Master Builders, said:

The new 10 unit threshold for affordable housing contributions is a sensible and proportionate approach to help alleviate the pressure onSME house builders who have been squeezed out of the housing market in recent years. This is important because without a viable SME house building sector we won’t be able to build the number of new homes that are needed to address the housing crisis.

“Thresholds for affordable housing contributions have been steadily pushed down over time. Where there used to be a national indicative site size threshold of 15 dwellings for affordable housing contributions, it is now increasingly common to see requests for affordable housing provision of up to 50% on very small sites of less than 10 units.

There is no denying that we need affordable housing, but trying to squeeze ever higher contributions out of every last site is having a devastating and counter-productive effect on small scale development. In a recent FMB survey, 50% of FMB house builder members reported that there were sites which they would otherwise be interested in developing, but which they believed would be unviable due to likely affordable housing, Section 106 and CIL contributions.

In addition:

  • the Mayor of London endorsed the proposals, noting it would “support the rejuvenation of the small scale development sector” and “encourage self-build”
  • O’Neill Associates cites Ryedale district council charging £52,500 for a single dwelling self-build project, making the project unviable
  • self build groups noted that local authorities are charging an affordable homes levy of up to ‘tens of thousands of pounds’ on self build homes, adversely impacting on the number and speed of self build housing provision; the proposed exemption will ‘increase the viability of single and small site development’
  • Foxley Tagg Planning explained how the charges were being levied on domestic extensions and annexes, which was “a fee generating exercise which limits small work to people’s homes” even though there was “no significant effect on strategic infrastructure” from the extension
  • Penrilla Consultants noted how Cornwall council were charging £26,000 on any small site with 2 or more dwellings, leading to “a reluctance to bring forward small sites” and “having a direct impact on employment in rural areas”
  • Purbeck district council in Dorset charges up to £140,000 on a new 5-bedroom dwelling

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