Social housing rules cost developers £1.3bn

• Section 106 planning rules have delayed the completion of over 40,000 homes and have acted as a £1.3 billion tax on housebuilding in 2025/26, according to new research from the Adam Smith Institute (ASI).

• Section 106 of the Town and Country Planning Act allows councils to demand that a certain portion of a housing development is ‘affordable’ and sold to housing associations or councils.

• Section 106 agreements delays house building because of its complexity and restrictions to selling market priced houses.

• The Adam Smith Institute proposes an end to Section 106 agreements, a return in full to the Homes England flat grant model of financing affordable housing, the preferential allocation of said Homes England grant funding to the areas in which it can remove the most people from rent burden per pound spent and the reduction of barriers and uncertainties restricting private capital involvement in the affordable housing market.

Section 106 planning rules have delayed the completion of over 40,000 homes and have acted as a £1.3 billion tax on housebuilding, equivalent to £13,600 per open-market home, in 2025/26, according to new research from the Adam Smith Institute (ASI). 

Section 106 of the Town and Country Planning Act allows councils to impose obligations on developers, as a condition of planning permission, including an obligation to build a certain portion of affordable housing. 

Delivering homes is one of the most direct levers available to the government for promoting economic growth. An active housing market drives construction employment, increases labour mobility, and unlocks consumer spending. The UK already faces a shortfall of around 6.5 million homes.

The Government promised to deliver 1.5 million homes by 2029 in their manifesto. Addressing the possibility that they fail to deliver on this promise, cities like London have reduced the proportion of affordable housing developers must include when trying to fast-track planning. The percentage dropped from 35 per cent to 20 per cent - the national average. The government released a new roadmap for Section 106 delivery in England allowing developers to renegotiate past agreements in hopes to reduce the amount of affordable units developers are in hock to. 

Section 106 poses a challenge to developers because of the complexities underlying each agreement, each one has specific and unique conditions, causing delays for house building projects. The time taken to agree to obligations has increased by 20 per cent and is on average 515 days. 

In addition, developers are locked into selling specific affordable homes before they can build market priced ones. Often housing associations don’t want to buy affordable homes, meaning that developers are stuck with homes they can’t sell and subsequently blocked from selling other homes at the market rate. 75% of housing associations said financial capacity was impacting their desire to acquire new S106 properties, and 67% said this would remain the case for the next two to five years. Equally when the housing market stagnates, nothing gets built, affordable or otherwise. This was starkly demonstrated during the 2008 financial crisis, when S106 unit delivery fell by 55%.

The dysfunction is particularly acute in London, where S106 starts fell by 99.86% between 2022–23 and 2023–24 from 4,857 to just 7. The average London home now costs more than 11.5 times the median London salary, and the average private renter spends between 40–50% of their income on rent.

The ASI proposes the abolition of the housing component of S106 obligations, a return in full to the Homes England flat grant model of financing affordable housing, the preferential allocation of said Homes England grant funding to the areas in which it can remove the most people from rent burden per pound spent and the reduction of barriers and uncertainties restricting private capital involvement in the affordable housing market.

Comments:

Jasper Ostle, Head of Research of the Adam Smith Institute said:

“Developers have been justling with councils for too long over section 106 agreements, it is delaying housing and distorting the market supply.

“Affordable housing agreements that councils place on developers are slow, bespoke and increasingly convoluted, now taking over a year to finalise on average. It is counterintuitive to house-builders to have a system that is so burdensome.

“If ministers want to hit their house building targets they should abolish the housing component of Section 106. The system needs to be simplified to reduce delays, restore certainty and help deliver more homes overall.”

James Cleverly, Shadow Secretary of State for Housing, Communities and Local Government and Member of Parliament for Braintree, said:

“Under Labour, housebuilding has collapsed across the country. In London alone, delivery has fallen to levels not seen since the Second World War. Over the next three years, house sales are forecast to drop by around 155,000 a year. 

“The Conservatives will look at every blocker to housing delivery. Important research, including this paper by the Adam Smith Institute, underlines how layers of delay and complexity are holding back new homes being built. That is why we are determined to move towards a system that prioritises delivery and ensures high-quality homes are built in the right places, with the infrastructure alongside it.

“We have already announced plans to abolish stamp duty on primary residences, helping to release existing homes and unfreeze the market.”

ENDS

For further comments or to arrange an interview, contact joanna@adamsmith.org | 07985 540467.

Methodology:

The estimate of 40,569 delayed homes is derived by combining affordable and open-market housing backlogs attributable to Section 106 (S106). The starting point is a Home Builders Federation survey identifying 8,500 uncontracted S106 affordable homes across local authorities (HBF, Uncontracted S106 Affordable Homes, October 2025). This figure is then scaled using the national ratio of S106 affordable units to open-market homes (3.77), calculated from Affordable Housing Supply live tables 1011S and 1011C, producing an estimated 32,069 delayed open-market homes. Adding these together yields the total backlog of 40,569 homes (32,069 + 8,500). S106 also functions as an implicit levy on development, estimated at over £1.3 billion annually, or approximately £13,600 per privately completed open-market home, based on the lower-bound Homes England grant value (£50,000) multiplied by the number of S106 units completed in 2024–25 (24,544, nil or partial grant), alongside ONS completion data.

Section 106 agreements account for a substantial share of affordable housing delivery—approximately 45% nationally—based on FY 2023–24 data showing 28,643 S106 units out of 64,351 total affordable homes completed. To estimate unmet housing demand by region, we construct an Affordable Housing Targeting Table by multiplying: (i) the regional share of the population in the lowest two national income quintiles, (ii) the proportion of those households renting privately, and (iii) the share of private renters who are rent-burdened, defined as spending more than 30% of income on rent (the 40:30 measure). Regional supply cost differentials are proxied using the ratio of recent new-build sale prices in each region relative to the English average, calculated from the English Housing Survey (2023–24) and UK House Price Index data (September 2025).

The Adam Smith Institute is one of the world’s leading think tanks. It was ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.