How Do Section 106, CIL and Affordable Housing Affect Development Viability?
How affordable housing, Section 106 and CIL affect development value, costs and residual land value, and what land teams should check before relying on an appraisal.
7 min read
Section 106, CIL and affordable housing affect development viability because they change the value and cost assumptions available to support the scheme and the land. Affordable housing can change the blended development value, while Section 106 and CIL can add material development costs. A useful appraisal should reflect the applicable policy position before a land price or residual land value is treated as reliable.
How This Works
Planning policy and developer contributions need to be brought into the appraisal early enough to influence the decision, not added as a final adjustment after the land value has already been agreed.
Affordable Housing
For a residential scheme, the working tenure mix can materially affect GDV.
Private-sale homes and affordable homes are not automatically valued in the same way. The appraisal should therefore separate the assumed affordable housing provision and value rather than applying one average sales value across the whole scheme.
The relevant policy requirement, tenure expectations and any site-specific position should be checked against current local and national planning evidence.
Section 106
Planning obligations are legal obligations used to mitigate the impacts of a development proposal. They can include contributions or requirements relating to infrastructure and other measures needed to make development acceptable in planning terms.
At an early appraisal stage, the final Section 106 agreement may not exist. That does not mean the appraisal should assume zero.
The team should record the best current evidence, which may include policy requirements, infrastructure evidence, comparable obligations, pre-application material or professional advice, and clearly mark any allowance that remains provisional.
CIL
Where Community Infrastructure Levy applies, the appraisal should reflect the relevant local charging position and the scheme assumptions that affect the liability.
CIL should not be treated as a generic national percentage. Charging schedules and the way a particular scheme is treated need to be checked for the relevant authority and development.
The Combined Effect
Government viability guidance is explicit that policy requirements, including affordable housing, CIL and Section 106, should be considered as part of the viability picture. For an acquisition team, the practical consequence is straightforward: if these inputs are omitted or materially understated, the residual land value can be overstated.
Worked Example
Take an illustrative residential scheme with:
total GDV, including the assumed affordable housing value: £22.0 million
build, infrastructure, fees, finance and other development costs: £13.0 million
Section 106 allowance: £600,000
CIL allowance: £400,000
target developer profit: £3.5 million
On that simplified basis:
£22.0m GDV
minus £13.0m other development costs
minus £0.6m Section 106
minus £0.4m CIL
minus £3.5m target profit
equals £4.5m residual land value
If the Section 106 and CIL allowances were accidentally omitted, the same model would show £5.5 million for land.
That £1.0 million difference is not an improvement in the site. It is a missing cost assumption.
The affordable housing assumption can have a similar effect through the revenue side of the model. If the tenure mix or affordable value changes, GDV and potentially the programme can change too.
Review Method
Before relying on the appraisal, check the following.
What is the current affordable housing requirement or working assumption?
Record the policy source, tenure mix and valuation basis.
What Section 106 items are known?
Separate confirmed obligations from estimates and placeholders.
Does CIL apply and what evidence supports the allowance?
Use the relevant charging authority material and scheme assumptions rather than an inherited generic rate.
Are any highways or other infrastructure obligations being modelled elsewhere?
Avoid both omission and double counting.
What could still change?
Planning negotiation, scheme design, infrastructure evidence and professional review can all alter the eventual position.
What happens to the residual if the obligations move?
Run sensitivity on the assumptions capable of changing the commercial decision.
Sources Used
Limitations And Professional Review
This article does not calculate the actual affordable housing, Section 106 or CIL position for any particular site.
Local policy, charging schedules, exemptions, reliefs, legal agreements, scheme design and site-specific infrastructure requirements can change the result. Formal planning, legal, valuation and cost advice should be used where the decision requires it.
There is also an important distinction between an internal commercial appraisal and a formal viability assessment used in the planning process. They may share inputs, but they do not necessarily serve the same purpose or evidential standard.
Where Harold Viability Fits
Harold Viability is designed to keep the planning assumptions beside the financial model rather than leaving them in separate PDFs, emails and spreadsheets.
The current workflow can structure affordable value, CIL, Section 106, development costs, finance, target profit, residual land value and sensitivity alongside the site and planning evidence being relied on.
The judgement still belongs to the team. The value is being able to see what has been allowed for, where the assumption came from and what the result does if that assumption changes.
Get your site appraised with Harold Viability.
For the broader site and land workflow, see Harold Land.
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