The Infrastructure Levy, Affordable Housing and Viability

date Released On 1st Aug 2023

The government closed its consultation on a proposed new Infrastructure Levy in June 2023. The proposed new Levy would be mandatory and would replace the current CIL and s106 regime (although s106 or similar would continue in a number of instances). As a major departure from the existing system, the proposed Levy will be based on development value and it will encompass affordable housing.

As have many other organisations, Three Dragons has responded to the consultation raising concerns about the complexity of the affordable housing element of the levy and whether the mechanism outlined in the technical consultation will ensure that affordable housing levels can be maintained in all areas of the country. We note these concerns have been voiced as the Levelling Up and Regeneration Bill (through which the Infrastructure Levy will be introduced) passes through the House of Lords. Indeed recent amendments tabled and accepted have sought to strengthen and/or maintain existing levels of affordable housing delivery (see amendments 72-76).

Whilst basing the Levy on completion values could be a fairer way of raising funds in that market fluctuations can be captured in the rate, this will not increase monies for infrastructure or affordable housing where values are already low. We consider that the main weakness of the proposed levy is correctly identified by the authors of the accompanying Liverpool research, ‘Exploring the potential effects of the proposed Infrastructure Levy’ at ES.69 when they state that

“... a locally raised and spent Infrastructure Levy will result in the greatest value of developer contributions being concentrated in the highest value areas. This is equally true of the existing system. Further testing, trialling and real world evidence may be important to support decision makers to refine the proposed IL to support the government’s wider levelling-up agenda”.

The report goes on to indicate that in low value areas there may be little or no scope for setting a levy because development is already marginal (paras3.18, 3.19 and 3.22 ). This confirms Three Dragons experience of local plan viability modelling which indicates that if, for instance, we compare an authority in an area with low values to one with high values, we find that in the former there is little scope to set a CIL or seek to upgrade local infrastructure through S106 agreements whereas in latter a significant residential CIL rate is likely to be realisable. The new system will not ameliorate these inequalities and does nothing to help with the Levelling Up Agenda.

A revision of the current system could ensure that it works better, more funds are collected and there is a clear link to the market. A simple change to the annual uprating system so that it increases (or decreases) by the change to the Land Registry House Price Index (HPI) rather than the Building Cost Information Service (BCIS) would mean that rates better continue in line with the market. Alongside this public funding for affordable housing and support for infrastructure projects could be focussed on low value areas with higher value areas receiving little or no public funding for affordable housing or infrastructure

Tags: Development Viability

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