Affordable housing tenure split and the viability argument

An affordable housing tenure split drives viability harder than the headline percentage does. Two schemes with identical 35 per cent affordable provision can sit tens of pounds per square foot apart on residual land value depending on whether the affordable units are social rent or shared ownership, because the transfer value of each tenure is derived in a completely different way. Developers who understand that negotiate on the mix rather than on the quantum, and they get further.

The authority usually cares more about the percentage. That asymmetry is the opportunity.

Why tenure changes the appraisal outcome

A rented affordable unit is valued by capitalising the rent a registered provider can charge, net of management and maintenance costs and any major works sinking fund, at the yield the provider's own business plan uses. Social rent produces the lowest capitalised value because the rent is set by formula at the bottom of the range. Affordable rent produces more. Both sit well below market value.

A shared ownership unit is valued differently again: an initial tranche sale, typically a quarter to a little over a third of the equity, plus the capitalised rent on the retained equity, which for current shared ownership products is charged at 2.75 per cent of the value of the retained share each year. That combination produces a markedly higher receipt per unit than either rented product.

So the appraisal responds to three variables at once: the proportion of affordable units, the split between rent and intermediate products, and the unit sizes within each tenure. The third is often forgotten. A tenure split quoted in units behaves differently from the same split quoted in habitable rooms or floor area, and policies express it both ways.

Policy-compliant splits and local variation

There is no national tenure split. The National Planning Policy Framework defines the categories of affordable housing in its glossary, and the split between them is set locally.

In London, the London Plan sets a minimum of 30 per cent low cost rented homes, a minimum of 30 per cent intermediate products, and the remaining 40 per cent at the borough's discretion, which in practice most boroughs direct towards rent. That structure sits alongside the threshold approach: a scheme offering a policy-compliant proportion on the fast track route avoids a viability assessment altogether, while a scheme below it goes through the viability tested route with review mechanisms attached.

Outside London the pattern is looser. A common shape is a majority rented, often in the region of 60 to 80 per cent, with the balance in intermediate products, but the figure sits in the adopted local plan or an affordable housing supplementary planning document and varies considerably between neighbouring authorities. Read the policy rather than the summary.

A separate national requirement has applied to First Homes since the 2021 written ministerial statement, directing a proportion of affordable housing secured through contributions towards that product. The policy position on First Homes has continued to develop, so confirm the current requirement before building it into an appraisal.

Transfer values and the registered provider market

An appraisal is only as good as the transfer values in it, and transfer values are a market rather than a formula.

Get written indications from registered providers rather than using a percentage of open market value from a previous job. Provider appetite moves with their development programmes, their stock profile in the area, their exposure to existing building safety liabilities and the cost of their debt. A provider that bought a 40 unit rented package in the same town two years ago may have no appetite at all this year.

Three practical points follow.

Approach more than one provider, and approach them early enough that the responses arrive before the appraisal is submitted. A single refusal is anecdote; three written refusals on the same mix is evidence.

Ask what they will not take as well as what they will. Providers routinely decline single-aspect units, units above a certain storey without a lift, units in a block with a high service charge, and scattered units in a predominantly market core. Those refusals shape the layout, not just the appraisal.

And test the package size. A 12 unit package is unattractive to a large provider and may suit a smaller local one, and the transfer value differs between them.

Substituting tenure to improve viability

Tenure substitution is the most productive move available in an affordable housing negotiation, because it can hold the headline percentage while improving the receipt.

Moving units from social rent to affordable rent raises the transfer value without changing the number of affordable homes. Moving units from rent to shared ownership raises it further. Both are departures from a policy split, so both need justifying, and the justification has to be about deliverability rather than preference.

What makes the argument land is a package rather than an ask. Offer to hold the overall percentage, offer the substitution only to the extent the appraisal requires, and offer a review mechanism so that a recovery in values restores the policy mix. Set it out in the affordable housing statement in the same format as the policy requirement so the officer can compare line by line.

What does not land is a reduction in rented units presented alongside an unchanged profit assumption. Officers and their advisers look at the profit line first, and the way that scrutiny works is set out in the note on independent review of a viability appraisal.

Unit mix and standards interact with all of this. Larger family units in the rented tenure cost more to build and transfer at a lower value per square metre, so a policy requiring a family-sized rented mix bites harder than the tenure split alone suggests, and the treatment of space standards and accessible housing as appraisal inputs should be consistent with the tenure assumptions.

Grant funding and how it is treated

Grant is the question authorities ask and developers answer badly.

Public grant has historically not been available for homes delivered through a section 106 obligation, on the basis that those homes are already required by policy, with limited exceptions. The viability guidance expects any grant that is actually available to be reflected in the appraisal, which means you need either a written indication from the provider that grant is available for the package or a clear statement that it is not.

Where grant is available, say so and model it, because an authority that discovers unmodelled grant during a review loses confidence in the whole appraisal. Where it is not, obtain the provider's written confirmation rather than asserting it, because the assertion will be challenged.

Grant also interacts with tenure. Products eligible for grant at any given time depend on the programme in force, so the eligible tenure can differ from the policy-compliant tenure, and that mismatch is a legitimate point to put to the authority.

Securing tenure in the agreement

The section 106 drafting is where a negotiated tenure split either holds or quietly unravels.

1. Define each tenure by reference to the national definition and to the applicable rent cap, not just by name, because tenure names change and definitions move.
2. Schedule the units by plot number, tenure, size and habitable room count, so there is no argument later about which unit is which.
3. Set nomination rights and any local connection requirement expressly.
4. Include the mortgagee protection provisions the registered provider's funder will require, because a provider cannot complete without them.
5. Include a cascade: if no registered provider acquires the package within a stated period at a defined formula price, state what happens next, whether that is an alternative tenure, a commuted sum or a further marketing period.
6. Tie the delivery triggers to occupation of numbered market plots rather than to dates.

The cascade is the clause that matters most in practice and the one most often omitted. Without it, a scheme whose affordable package attracts no bids is stuck: the obligation requires transfer to a provider, no provider will take it, and the only route out is a variation negotiated from a position of weakness.

Review mechanisms and tenure flexibility

Review mechanisms cut both ways and the drafting decides which way.

An early stage review, triggered where development has not started within a stated period, tests whether the scheme can now afford more. A late stage review, triggered when a stated proportion of market units has been sold, tests the outturn and shares surplus above an agreed threshold. In London the threshold approach attaches reviews according to the route taken, with the viability tested route carrying both.

Three drafting points are worth holding out for. A cap on the additional provision that a review can require, so the downside is bounded. A clear definition of the surplus calculation, including which costs are allowable and how profit is treated. And a mechanism that allows additional provision to be delivered as an in-kind tenure uplift on the same units rather than only as a cash payment, which usually costs you less and is more useful to the authority.

The appraisal that supports all of this is the viability assessment, and it has to be internally consistent: the tenure assumptions in the appraisal, the schedule in the draft obligation and the mix on the drawings all need to match, because a reviewer will check them against each other before examining anything else.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval. For specialist technical reports, qualified professional input may be required. You can enter the site postcode to see which reports a residential scheme is likely to need.