We still aren’t doing enough for small development sites

This change is much needed for the ever-declining SME house builder market. Analysis by the Home Builders Federation (HBF) shows that in 2024, just over 17,000 homes were approved on sites of three to nine units, compared with around 35,000 in an average year during the 2000s. The share of plots on these sites has fallen from almost 20% in 2008 to between 6% and 8% now, while average site size has climbed to just over 41 units per site.

The bottlenecks are often procedural, but they are also cumulative and expensive, and more often than not seem to push a marginal scheme into the red.

“On one scheme I worked on recently, the application was resolved to approve in autumn 2024 but the Section 106 agreement has still not been signed”

Section 106 is a further complication. While it is essential for the much-needed delivery of infrastructure and affordable housing, negotiation has become synonymous with delay, and this is compounded by local authority legal and planning teams being drastically under-resourced. Even when the substance is agreed early, the process can grind on because there is no shared baseline for drafting.

On one scheme I worked on recently, the application was resolved to approve in autumn 2024 but the Section 106 agreement has still not been signed (at time of writing). The contributions were not heavily debated. It has been delayed by a thousand emails, including minor drafting points that should not determine whether homes get built.

The ongoing draft NPPF consultation does at least acknowledge planning obligations as a pinch point. It seeks to provide a basis for the use of national model conditions and obligations, including a standard template for small and medium sites which could remove a lot of waste from the system.

The most significant, and perhaps most contentious, of the proposed changes is the introduction of cash in lieu of on-site affordable housing. Used carefully, I believe this is a sensible move.

A medium scheme can regularly struggle to integrate on-site provision in a way that works for a registered provider (RP), particularly where tenure needs are complex or where there is limited RP appetite for small numbers in a certain location. If a commuted sum removes this deadlock and brings a scheme forward, that is better than a stalled site delivering nothing.

But there are risks inherent in this. Cash in lieu can create a perception problem for SMEs: the risk of being portrayed as ‘buying their way out’ of mixed communities, even when the financial contribution is material. It can also harden landowner expectations, with some vendors assuming that any perceived reduction in on-site obligations means the developer can pay more for the land, prolonging negotiations and delaying delivery.

“Cash in lieu shifts responsibility onto local authorities for turning money into homes. That requires land, procurement capability and staff time, at a point when many councils are already stretched”

Another issue is delivery capacity. Cash in lieu shifts responsibility onto local authorities for turning money into homes. That requires land, procurement capability and staff time, at a point when many councils are already stretched. It also requires strong monitoring, because planning obligations often include time limits and repayment clauses if money sits unspent.

Freedom of Information research by the HBF estimates that there is currently over £8bn of unspent developer contributions sitting in local authorities, with 26% of unspent Section 106 funds having been held for more than five years. In the past five years, some 80 local authorities returned a total of £20.6m in unspent contributions to developers.

If cash in lieu is to appear credible, it needs transparent valuation methods, clear ringfencing, reporting that shows where receipts are spent and timeframes that keep money moving rather than sitting in accounts.

What would make it go far enough? The draft NPPF is right to signal that the missing middle matters. Yet policy change alone will not rebuild the SME sector.

The most meaningful measure of success is not simply the number of permissions categorised as medium. It is whether more SMEs re-enter the market and whether those already active can scale from small to medium without being trapped by process risk. The number of active SMEs has more than halved since 2007, a trend that needs reversing urgently.

To get there, three changes are necessary. First, proportionate requirements must be truly proportionate, with clearer national expectations that reduce scope creep in evidence, conditions and validation.

Second, the Section 106 reset must move quickly from intent to delivery. The government’s recently published roadmap for Section 106 delivery in England recognises inefficiency and delay and sets out steps towards a simpler, more transparent system, with clearer standards for Section 106 units and earlier engagement between local planning authorities, RPs and developers.

Third, resourcing and skills cannot be treated as side issues. Planners, solicitors, surveyors and construction skills are part of the delivery system. If any link is weak, smaller sites feel it first because they have the least slack to absorb delay.

The draft NPPF has opened the door for a more balanced market. Once this is in place, further work will be required to standardise obligations, rebuild capacity and make sure flexibility supports delivery without hollowing out affordable housing.

Chris Green, associate director, Boyer