Gove to introduce council levy for property developers

Michael Gove has announced axing rules that force developers to build ‘affordable’ housing. Section 106 of the Planning Act 1990 will be scrapped and replaced with a levy for an infrastructure fund to be used by councils for projects.

The levy fund could be as much as £7 billion if the plans go ahead. The fund will likely be used to combat the housing crisis through the building of council homes.

The Levelling Up secretary has held talks with industry professionals and a formal consultation may launch in weeks to come.

Section 106 of the 1990 Planning Act currently allows councils to ask developers to build infrastructure in return for permission to start new developments, this typically requires a certain number of ‘affordable’ homes.

The decision has garnered a mixed response from property developers. The decision has been welcomed by some developers, as understanding the act from a legal perspective costs time and money. While other developers worry that the scrapping may create more confusion, as the current system ensures affordable housing is built.

In a letter signed by London’s Deputy Mayor for Planning, Jules Pipe, property sector professionals warned Gove of the risk of scrapping the act, saying it should be improved instead.

Industry reaction

Joe Jarvis, real estate Finance Solicitor at JMW Solicitors, comments: “I think axing the s.106 could be a good thing for property developers and lenders. At the moment s.106s burden developers with obligations that need to be fulfilled by lenders and successors in title, which from a real estate finance perspective, means spending extra hours (and extra cost) on the legal side in reviewing and understanding the implications of s.106.

“If the developer simply pays the local authority the new levy at the start, instead of fulfilling on-going obligations under s.106, then this should free them up. However, I cannot see any proposals as to how the new levy will work and it remains to be seen how this will play out in practice.”