Fixing the viabilty gap needs more than overturning s106, but it’s a good start

by Nick Fell, Head of Residential at strategic property consultancy Rapleys

In early 2026, the government laid out its intention to simplify the entire s106 process with its stated ambition of reducing the inefficiency and delay that has become synonymous with the negotiation of s106 agreements. 

This new ‘roadmap’ has several aims:

• To clear the backlog of unsold affordable housing units – of which there are currently 900 completed and 8,500 in the pipeline or under construction within the next 12 months, according to the HBF that are not currently under contract with a Registered Provider and a further 17,000+ units with planning that remain uncontracted
• To speed up housing delivery – the HBF found that over 700 residential sites have been delayed or stalled in the last three years due developers’ inability to secure a Registered Provider to acquire these affordable units
• To simplify and modernise the whole s106 system
• To increase long-term delivery of affordable housing

The current s106 system is slow, complex and inefficient. This initiative is great news to deal with the current backlog of units that haven’t been sold of which there are thousands either standing empty and unused or in the immediate pipeline. Under the roadmap, any unsold unit needs to be placed on the Government clearing site for six weeks without a sale before discussions can open about overturning the agreement and changing tenure so the initiatives join up nicely and will create activity. 

The positive actions of standard s106 templates, earlier RP engagement, clearer design standards and greater pricing transparency should result in reduced negotiations, lower transaction and legal costs and increase financial capacity, but the latter is very modest in scale with just £2.5bn allocated to low interest loans. Even with these loans, most RPs cannot currently afford to buy s106 at viable prices.”

The core issues remain with grant funding, balance sheet constraints, rent caps limiting income, construction cost inflation, decarbonisation programmes, cladding issues and critical improvements following Awaab’s Law.

Furthermore, whilst the roadmap is strong on process reform, it is however weak on fundamental market economics – it’s treating the symptoms but not the root causes. It’s very short-term: at present these emergency measures are only for developments that already exist or will complete by the end of 2027.  This may mean some movement immediately, but it doesn’t address any of the core issues as to why the problems exist and, without that, we will find ourselves in the same situation in due course.

The biggest obstacle to long-term delivery of affordable housing remains the level of grant funding which should cover 50-70% of the purchase cost but currently only makes up 10-30%, forcing RPs to rely on borrowing and placing them at risk of further debt or being unable to afford to acquire or develop. The private sector is still subsidising affordable housing which means a slowdown privately knocks into affordable too. Private side developers can ill afford to take a risk on s106 as there isn’t a ready and willing buyer cohort guaranteed. Recent data highlights this in London where figures are hugely down for planning, starts and deliveries across private and social housing as the two are inextricably linked.

From a Planning point of view, technically, councils already have the ability to vary s106 agreements on the basis of changing circumstances and ability to deliver: if they want to be proactive in engaging with developers, they already have the tools to do so. This therefore could be more of an incentive to push Local Authorities to take a more visible role whereas currently they prefer to stay under the radar on such matters.  Hopefully this gives developers more power to engage with their LA, increases their confidence on planning matters and cuts some of the red tape at the same time. However, on the planning side, this means nothing unless the development itself is viable.

So what are the potential solutions?

In order to fundamentally fix the financial viability gap and risk allocation in s106 system, the Government needs to go much further and there are several very key actions that could and should be taken:

1. Grant funding

The action which would have the most significant impact would be to increase grant funding. This would close the viability gap, increase RP spending capacity, reduce resilience on cross-subsidy and stabilise delivery. Historically Grant Funding was the backbone of all delivery, and we need to bring it back to a significant level.

2. Govt/Homes England guaranteed buyers

Another measure would be to line up Homes England or the Government as a guaranteed buyer of last resort. This would eliminate the perceived risk of developing and help stabilise the system.

3. Get Councils building again

In the 1970s, councils were the biggest developer of housing but now the smallest. Yet they sit on swathes of land. If Local Authorities could be pressured into developing again, this would drive delivery. 

4. Incentivise private investment into RP sector 

Consider vehicles to encourage and attract further private investment into the sector alongside tax breaks. Whilst the latter could prove politically unpopular – after all, many of the biggest investors in this part of the market will no doubt be global/institutional funds – it would allow investors to view the asset class as less risky.