Why “Affordable Housing” in Planning Rarely Means What You Think

The curious world of Section 106 agreements and why the system is built in the negative

Most people assume that when a council asks for affordable housing, it means building some houses that are cheaper.

In practice, it rarely works like that.

What actually happens is that planning permission is granted subject to a legal agreement that forces the developer to provide something the council calls “affordable housing”. The developer cannot simply build smaller or cheaper homes and sell them at a lower price. Instead, they must usually transfer homes to a housing association at a discounted value or pay money instead.

The result is a system that looks simple on the surface but is actually a rather clumsy legal mechanism that has evolved over decades.

What Section 106 Actually Is

The legal mechanism used is called a Section 106 Agreement, named after Section 106 of the Town and Country Planning Act 1990.

A Section 106 agreement is essentially a legal contract tied to the land.

It allows a planning authority to say:

You can build this development — but only if you agree to certain obligations.

Those obligations can include things like:

• Providing affordable housing • Paying for school places • Paying for road improvements • Creating open space or play areas • Environmental mitigation

The key point is that the planning permission is conditional. If the agreement is not signed, the permission is not issued. This is why many developers say the system feels less like planning and more like negotiation backed by law.

Why Developers Cannot Simply Build “Cheap Houses”

One of the oddities of the system is that a developer cannot simply build houses cheaply and call them affordable.

Affordable housing is defined by policy and usually means one of the following:

• Social rent t Affordable rent (typically up to 80 percent of market rent) • Shared ownership• Discounted market sale

In most cases the homes must be controlled by a registered housing provider.

So a developer normally builds the houses and then sells them to a housing association at a significant discount. That discount is effectively the developer’s contribution to the affordable housing requirement. The system therefore works by transferring value, not by lowering the construction cost.

Why the System Is Written in the Negative

Another curious feature is that these obligations are often phrased in the negative.

For example, agreements commonly say things like:

“The Owner shall not occupy more than 50 percent of the market dwellings until the affordable housing units have been transferred to a Registered Provider.”

This sounds strange until you understand the legal logic.

Planning law cannot easily force someone to do something.

But it can prevent something from happening unless the obligation is met.

So instead of saying:

“You must build affordable housing.”

The agreement says:

“You cannot occupy or sell houses until the affordable housing is delivered.”

This negative structure is deliberate. It makes the obligation enforceable.

What Is a Unilateral Undertaking

Not every development ends up with a negotiated agreement.

Sometimes the developer simply signs a Unilateral Undertaking.

This is a one sided legal promise made by the developer that says:

If planning permission is granted, we agree to these obligations.

It is often used for smaller developments where the council’s requirements are straightforward.

The advantage is speed. Instead of negotiating a full legal agreement with the council, the developer simply submits a signed legal document with the planning application.

If the council accepts it, planning permission can be issued.

Why the System Feels So Clunky

The whole structure can feel awkward because it has grown slowly through planning law rather than being designed from scratch. Originally planning permissions simply allowed development or refused it. Over time councils wanted to secure contributions towards infrastructure and housing. Section 106 became the legal tool for doing this.

The result is a system where planning permission is effectively accompanied by a bundle of legal obligations attached to the land. It works, but it is hardly elegant.

Many people inside the industry quietly admit that it is a workaround rather than a properly designed housing delivery system.

The Reality for Small Developments

For small developers the key issue is viability.

Affordable housing requirements often take 20 percent to 40 percent of the development value depending on the local policy. That can make the difference between a site being viable or impossible to develop.

This is why many planning applications now include viability assessments, arguing that the scheme cannot support the full affordable housing contribution.

It also explains why affordable housing discussions are often the most sensitive part of the entire planning negotiation.

The Important Point Most People Miss

Affordable housing policy does not actually reduce the cost of building houses.

Instead it redistributes value within the development. Market homes become more expensive in order to subsidise the affordable units.

That is why many developers say the system does not really produce cheaper homes. It simply moves money around inside the scheme. Whether that is good policy or not is a political question. But it explains why the system operates the way it does.