Unlocking Housing Delivery - Section 106 Agreements

The UK Housing Sector is facing an unprecedented challenge in relation to the delivery of affordable housing. Many developers have succumbed to the politics embedded in the planning system and ended up with planning consents (on paper) with S.106 affordable housing obligations over and above what the scheme can afford to provide. In previous market cycles, the market may have come to the rescue and some of these schemes delivered. Now, with build cost inflation, expensive funding, increased regulatory requirements (which take both time and money) and a weak sales market with no buy side stimulus like Help to Buy, it’s easy to see why new development is so hard to deliver.

Combined with this, Registered Providers (RPs) have been scaling back their acquisition of section 106 properties due to financial pressures and shifting priorities to existing stock. Developers are increasingly finding themselves unable to satisfy their affordable housing obligations. This could be either because they are unable to secure a viable offer for their S.106 packages or in some instances, find an RP partner at all. The transfer of affordable housing being tied to the occupation of the market housing creates a bottleneck that threatens not just affordable housing delivery, but the entire housing supply chain.

The challenges facing affordable housing delivery through section 106 agreements have reached critical levels. The London Assembly’s Affordable Housing Monitor 2025 reports that nearly 50% of affordable homes completed in London are funded by section 106, yet RPs are increasingly selective about new acquisitions[1]. Research conducted in October 2024 by the Home Builders Federation found that at least 17,432 section 106 affordable housing units with detailed planning permission remain uncontracted, with 139 home building sites currently delayed due to uncontracted section 106 units[2].

This selectivity is driven by several factors: financial constraints following years of rent caps and increased regulatory requirements, reduced RP involvement in the market and greater selectivity over product, a renewed focus on grant-funded development, prioritisation of investment in existing stock over new acquisitions, and the affordability of shared ownership units. 

There is a clear and urgent need for local planning authorities (LPAs) to work collaboratively with developers to ease the barriers to affordable delivery. Detail around how section 106 homes are delivered will be central to this. Current section 106 agreements are rigid, especially around the nature and timing of affordable housing delivery, with restrictions on starting new phases or occupying private homes if the affordable housing is not sold to a RP. This creates a potential deadlock that can be fatal for some developers, particularly SMEs.

The ‘Planning for the Future’ White Paper published by the Conservative Government in 2020 and the Levelling-Up and Regeneration Act 2023, sought to introduce a National Infrastructure Levy to replace developer contributions and the Community Infrastructure Levy. This was subsequently dropped by the Labour Government in favour of reinforcing the section 106 system, which is why it is so critical to ensure that section 106 agreements are drafted with greater flexibility to address challenges to delivery.

Enough of the doom and gloom, a practical solution to introducing more flexibility could be the use of cascade mechanisms.

Whilst in recent years Local Planning Authorities (LPAs) have been reluctant to accept “cascade mechanisms” in favour of review mechanisms, when faced with an overwhelming number of applications that are seeking to renegotiate their S.106 affordable housing provisions, they are now being viewed as a practical, albeit underutilised, solution in section 106 agreements. Also, the form of current review mechanisms only allow upward movement and do not recognise the risks in an unstable housing market. Resurrecting cascade mechanisms could help to unlock stalled developments, reduce the risk of third-party viability and improve investor confidence in the housing market.

A cascade mechanism is a flexible provision within section 106 agreements that allows developers to work through a predetermined sequence of affordable housing delivery options without requiring a deed of variation or a new planning application. Think of it as a contingency plan built into the original agreement.

The structure of the obligation typically follows a logical progression:

• Stage 1: Delivery of an agreed affordable housing quantity and mix – either at policy levels or having been viability tested;
• Stage 2: Alternative level, mix and tenure of unit types if: no RP shows interest after a defined marketing period (typically 6 months) or specifically requests a different product; if there is a change in viability or grant availability; and
• Stage 3: Financial contribution in lieu of on-site provision as a last resort if no interest from an RP.

It is crucial that each stage is drafted with clear submission requirements and timescales, ensuring that developers cannot simply circumvent their obligations. The obligation should provide practical alternatives when market conditions make delivery impossible balanced against the LPAs objectives to provide the maximum amount of affordable housing possible. The onus will be on the developer to demonstrate that they have exhausted each option to the LPA’s satisfaction. The mechanism will also likely seek to place the developer in a financially ‘neutral’ – the aim is to prevent schemes from stalling, not to boost developer profits. According to Rosie Shields, a Senior Associate at Hogan Lovells,

“when drafted correctly, cascade mechanisms, in their variety of forms, can work well for both developers and LPAs. Indeed, they can allow developments to progress according to timeframes which have been agreed by both parties, with the intention of achieving what can practically be delivered by way of affordable housing while helping to ensure that units do not remain empty unnecessarily by responding to demand in the area”.

1. They boost and maintain housing delivery. To avoid developments stalling and permissions being shelved, cascade mechanisms ensure flexibility in the delivery via alternative affordable housing products or via a payment in lieu (particularly helpful for smaller sites!)

2. Less reliance on third party involvement. Cascade mechanisms can switch to affordable tenures which a developer can either sell to end users themselves (Discounted Market Sale) or retain / sell to a different pool of investors (Discounted Market Rent). This might, however, lead to a weakened delivery of certain types of affordable products, such as Social Rent.

3. Future proofing. Reduce time and cost for both developers and LPAs by pre-agreeing alternative delivery routes and avoiding the need for deed of variations or new planning applications.

4. Greater certainty of delivery. Provide all parties with a clear and standardised approach reducing risk and delays, which is particularly critical for SME developers.

5. Cash flow protection. Enabling developers to progress with market sales and comfort that these can be occupied whilst in parallel determining the most appropriate affordable housing product. This ensures project viability and delivery, particularly for SMEs.

6. Reduces uncertainty around the availability of grant funding. Facilitates the delivery of alternative dwelling types and tenures influenced by the availability of grant funding at a certain point in time. This is particularly helpful for large scale developments where the future availability of grant funding and level of RP activity is usually uncertain. Financial Viability Appraisals can set out scenarios where the level and mix of affordable housing provision is different depending on the level of grant funding available.

[1] London Assembly (July 2025) ‘Affordable Housing Monitor 2025 London Assembly Research Unit for the London Assembly Housing Committee’

[2]Home Builder Federation (November 2024) ‘An examination of the crisis in s106 Affordable Housing’ Bid farewell

To discuss any of the matters discussed above or any other planning matter, please contact the team.