Councils could end up borrowing more money if changes to housing development laws go ahead.
That’s the view of executive member for the local plan on Wokingham Borough Council, Cllr Lindsay Ferris.
The government is considering changing the way that developers are made to pay for new infrastructure such as schools and roads, with a levy paid to councils based on the final value of the development, rather than the value of land before work began.
This would see developers pay at the end of the project, rather than the beginning.
Cllr Ferris said this could lead to councils having to borrow to cover the cost of building infrastructure years before developers have to pay up, whereas this currently “comes in at the beginning which helps the councils at least start the project. They’re talking about providing the majority of it, or all of it towards the end.
“That means the council will have needed to borrow money to do the infrastructure requirement to make a development take place.”
Cllr Ferris was speaking as he approved Wokingham Borough Council’s response to a government consultation on the proposed changes, held on Wednesday, May 31. It will become the council’s position on Wednesday, June 7.
Currently, councils can make developers pay for infrastructure through the Community Infrastructure Levy. They do this by setting a charging schedule and setting rates based on the floorspace of the planned new development.
They can also make developers pay for or build features such as infrastructure, affordable housing, or green space, by negotiating this with them during planning applications. These are known as Section 106 agreements.
Developers paid a total of £92.3 million to Wokingham Borough Council under Section 106 agreements in the 2021/22 financial year.
But they can also duck out of these obligations by arguing that they would make their developments “unviable”, while the value of the floorspace at the start of the project could end up far less than the total value of the development at the end.
The government says its proposed new Infrastructure Levy will fix this. This is included in its Levelling Up and Regeneration Bill currently making its way through parliament.
Wokingham Borough Council says it agrees that councils should be able to charge more money from the value of completed developments. It also agrees that councils should be able to demand developers provide a certain proportion of affordable housing.
But it warns developers could find ways to “game” the system, such as by selling completed developments on the cheap to their own holding companies—then selling them on again at a higher price.
Cllr Ferris said: “There is significant concern the new system will deliver real affordable housing to meet local needs”.
