Affordable housing commuted sums: how councils calculate them
Commuted sums for off-site affordable housing are calculated by transfer value or residual appraisal. The method, the base date and the index matter more than the headline figure.
A commuted sum is what a council accepts instead of affordable homes on your site, and the amount is set by a calculation method that varies from authority to authority. Some use a published formula in a supplementary planning document. Some derive the figure from the difference between open market value and what a registered provider would pay. Some run a residual appraisal and take the difference between two scheme values. The methods produce very different answers on the same site, which is why the first question to ask an officer is not how much, but how.
When off-site provision is acceptable at all
National policy expects affordable housing to be delivered on the site that generates the need, unless off-site provision or a financial contribution of broadly equivalent value can be justified with strong evidence, and the agreed approach contributes to mixed and balanced communities.
That framing puts the burden on the applicant. The arguments that succeed are practical ones: a scheme too small for a registered provider to take on and manage, a building type unsuited to affordable tenure such as a single-stair conversion with high service charges, a site where the affordable units could not be given the separate access a provider requires, or a location where the authority's own housing strategy prefers a contribution towards delivery elsewhere.
Arguments that fail are the ones about preference. A developer who simply does not want affordable homes in the scheme is not making a planning case. Nor is a viability argument that concludes no affordable housing is deliverable, since that is a different question from whether the contribution should be on site or off it.
Thresholds matter too. Contributions are generally not sought on schemes of ten dwellings or fewer, or below the equivalent floorspace figure, with a lower threshold applying in some designated rural areas. Check the adopted policy, because local thresholds sometimes sit below the national position.
The transfer value approach
This is the method most commonly published in supplementary guidance, and it is the easiest to interrogate.
The council takes the number of affordable units the policy would have required, then multiplies it by the difference between the open market value of an equivalent unit and the price a registered provider would pay for it as an affordable unit. That difference is the subsidy the developer would have provided in kind, converted into cash.
An illustrative example, using assumed figures that are not evidence of values anywhere: a 20-unit scheme in an authority with a 35 per cent policy generates a requirement for seven affordable homes. Assume a market value of £300,000 per unit and a registered provider transfer value of £150,000. The difference is £150,000 per unit, and the commuted sum is seven times that, or £1,050,000. Change the transfer value assumption by 10 per cent and the sum moves by £105,000.
That sensitivity is the point. Transfer values depend on tenure mix, on grant assumptions, on unit size and on the provider's own appraisal, and a formula that fixes them at a single percentage of market value will be wrong on some sites in both directions.
The residual approach
The alternative method compares two appraisals of the same scheme: one with policy-compliant on-site affordable housing and one entirely for open market sale. The commuted sum is the difference in residual land value between them.
This is more defensible in principle and much harder to agree in practice, because it imports every contested input in development appraisal. Benchmark land value, build cost, finance rate, sales values, developer return and programme all move the answer.
Where an authority proposes a residual calculation, ask for the appraisal file rather than the conclusion. The inputs are where the negotiation is, and a Viability Assessment prepared on the same basis lets you compare like with like. Councils usually expect this work from a suitably qualified author, and independent review is strongly advised.
Indexation and payment triggers
A sum agreed today and paid in three years is not the same sum, and the agreement has to say how the gap is bridged.
| Term | Typical drafting | What to watch |
|---|---|---|
| Index | A published building cost or house price index | Which index, and the base date |
| Base date | Date of the agreement or of committee resolution | An early base date increases the payment |
| Trigger | On start, on occupation of a proportion of units, or in phases | Cash flow, and whether the trigger is measurable |
| Late payment | Interest at a stated rate above base | Whether interest compounds |
| Spend period | Council must apply the sum within a period or repay | Ask for it, because not every draft includes it |
The spend clause is the one applicants forget to ask for. A contribution that sits unspent in a council account for a decade has not delivered any affordable housing, and a repayment obligation after a defined period is a reasonable term to seek.
Why the figures differ so much between authorities
Four variables account for most of the variation.
The policy percentage differs, and so does the tenure split behind it. The assumed transfer value differs, sometimes expressed as a percentage of open market value and sometimes derived from local registered provider evidence. Market values differ, which is legitimate and expected. And the treatment of grant differs: an authority that assumes grant funding will be available produces a lower subsidy figure than one that assumes none.
Comparing your sum against a neighbouring borough's is therefore not an argument. Comparing it against the authority's own published methodology, applied correctly to your site, usually is.
Challenging a formula with site evidence
A published formula is guidance, and guidance yields to site-specific evidence where the evidence is good enough.
- Establish which document the formula comes from and whether it was subject to consultation and examination.
- Check that the policy requirement has been calculated on the right unit count and the right floorspace.
- Obtain a written valuation opinion on open market values for the actual unit mix, not for a generic average.
- Obtain evidence of the transfer value a registered provider would actually offer, ideally in writing from a provider active in the area.
- Where the site carries abnormal costs, evidence them with quantified figures rather than describing them.
- Present the alternative calculation using the authority's own method, so the officer is comparing one number with another rather than one approach with another.
The last step is the one that works. Officers can accept a different input far more easily than a different methodology, because a different input is a matter of evidence and a different methodology is a matter of policy.
Securing the sum in the agreement
The obligation has to satisfy the tests in regulation 122 of the Community Infrastructure Levy Regulations 2010: necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind.
Set out the case for the contribution in the Affordable Housing Statement, covering the policy requirement, why off-site provision is the appropriate response, the calculation and the payment terms. That document is what the officer copies into the committee report, so writing it well is worth the time.
Then read the deed. Check the definition of the trigger, the index and its base date, whether the obligation binds successors in title, whether a mortgagee exclusion is included, and whether the sum is repayable if it is not spent. Get the Planning Statement and the deed to describe the same scheme, because inconsistencies between the two surface at the worst possible moment.
This is general guidance, not legal advice. Affordable housing policy and commuted sum formulas vary by authority, so check the adopted local plan and any supplementary guidance with your local planning authority or a qualified professional before relying on it.
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Frequently asked questions
When will a council accept a commuted sum instead of on-site homes?
Where off-site provision or a payment of broadly equivalent value can be justified with strong evidence and still supports mixed and balanced communities. Practical arguments succeed: a scheme too small for a registered provider to manage, a building type with service charges no provider will accept, or an authority housing strategy that prefers delivery elsewhere.
How is the transfer value method calculated?
The number of affordable units the policy would have required, multiplied by the difference between the open market value of an equivalent unit and the price a registered provider would pay for it as affordable housing. The transfer value assumption drives the answer, and a ten per cent movement in it changes the sum substantially.
Why do commuted sums differ so much between councils?
Four variables account for most of it: the policy percentage and tenure split, the assumed registered provider transfer value, local market values, and whether the method assumes grant funding is available. Comparing your figure with a neighbouring authority proves nothing. Comparing it with the same authority's published method applied correctly does.
Can I challenge the council's formula?
Yes, with site evidence rather than argument. Obtain a valuation opinion on the actual unit mix, written evidence of what a registered provider would pay locally, and quantified abnormal costs. Then present your alternative using the authority's own methodology, because officers accept a different input far more readily than a different method.
What terms should I negotiate in the section 106 deed?
The index and its base date, the payment trigger and whether it is measurable, the late payment interest rate and whether it compounds, whether the obligation binds successors, any mortgagee exclusion, and a spend period requiring repayment if the sum is not applied within a set number of years.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.