Commuted payments in lieu of on-site affordable housing

A commuted sum in lieu of on-site affordable housing is calculated from the gap between what the affordable units would be worth on the open market and what a registered provider would actually pay for them. That gap, multiplied by the number of units the policy would have required, is the commuted sum affordable housing calculation in its simplest form. Authorities dress it up in different formulas, but the subsidy gap sits underneath all of them.

National policy still expects affordable housing on site. Getting a payment accepted instead means winning a policy argument first and an arithmetic argument second, and most applicants attempt them in the wrong order.

When off-site provision is acceptable

The National Planning Policy Framework, now in its August 2026 edition, expects affordable housing required through policy to be delivered on site unless off-site provision or a financial contribution of broadly equivalent value can be justified, and unless the agreed approach contributes to creating mixed and balanced communities. Local plan policy usually repeats that and adds its own list of acceptable circumstances.

Three arguments actually work in practice.

The scheme is too small for a registered provider to take. Most providers will not manage a handful of units in a block they do not otherwise own, because the management cost per unit is uneconomic. On a scheme of eight flats, a single affordable unit is frequently undeliverable in fact rather than in theory, and a letter from a provider declining it is worth more than three pages of argument.

The service charge makes the units unaffordable. A development with a concierge, a lift, a podium garden and a sprinkler system generates a service charge that breaks the affordability of a rented unit. Providers say so in writing if asked.

The site constraints make tenure-blind integration impossible. Separate cores, separate entrances and separate refuse arrangements can be designed around, but on a tight urban site they sometimes cannot be.

Set that out in the Affordable Housing Statement rather than leaving it to the planning statement, because that is the document the housing officer reads.

The three ways authorities calculate the sum

The method matters more than the inputs. A subsidy gap calculation on a scheme of expensive flats produces a large number, because open market values are high. A residual value comparison on the same scheme can produce a smaller number, because it captures the cost savings of not building to affordable specification and the different programme. Ask which method the authority uses before you model anything.

Where a tariff applies, check whether the supplementary planning document was adopted after consultation and whether the figures are indexed. A tariff that has not moved since adoption is vulnerable, in both directions.

Transfer value and the subsidy gap

Transfer value is what a registered provider will pay for a completed affordable unit. It is derived from the rent or shared ownership income the unit will generate, capitalised and reduced to reflect management and maintenance costs, voids and the provider's own borrowing capacity. It is expressed as a percentage of open market value, and it differs sharply between tenures: social and affordable rent sit well below shared ownership, and First Homes sit differently again because the discount is fixed by policy.

Do not assume a percentage. Get evidence. Approach two or three providers active in the area and ask for an indicative offer on the schedule of units, or use transfer values from recent completed section 106 transactions in the same authority where you can obtain them. An assumed percentage is what an independent reviewer challenges before anything else.

The arithmetic then runs as follows, and these figures are illustrative only. Ten houses, policy requirement 30 per cent, so three affordable units. Open market value of those three units as built, say £285,000 each, giving £855,000. Transfer value offered by a provider at 50 per cent of open market value, giving £427,500. The subsidy gap is £427,500. Some authorities then deduct the cost of the units that would not now be built to affordable specification, and some do not, which is a difference worth several hundred thousand pounds on a modest scheme.

Where the money goes and what secures it

The payment goes into the authority's affordable housing commuted sum account, usually ring-fenced. From there it is used as grant to a provider, to buy section 106 units elsewhere, to fund council-led delivery, or to acquire existing stock.

The obligation in the section 106 agreement should state the sum, the indexation basis, the trigger, the account, and what happens if the authority does not spend it. Ask for a spend-by clause with repayment to the owner if the money is unspent after a defined period, commonly five or ten years. Authorities resist it and often accept it.

Since the pooling restriction was removed from the Community Infrastructure Levy Regulations in 2019, there is no longer a limit on the number of obligations that can contribute to a single project, which removed one of the standard arguments against commuted sums.

Making the policy case

The obligation still has to meet the three statutory 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 to it.

A commuted sum of broadly equivalent value to the on-site requirement passes those tests comfortably. A sum calculated by a method that bears no relationship to what the site would have delivered does not, and that is the ground on which the figure gets argued down.

Set out the case in the order the decision maker needs it: what the policy requires, why on-site delivery fails here with evidence rather than assertion, what the equivalent value is, how it was calculated, and what the money will deliver. The format of the viability appraisal submission matters as much as its content, because a case officer who cannot find the inputs will send it to a consultant.

Payment triggers and indexation

Developers want the payment late and councils want it early. The usual landing points are a payment on implementation for a small scheme, or staged payments linked to occupation of a stated proportion of the market units on a larger one.

Indexation is where money quietly leaks. A sum indexed to a tender price index from the date of the agreement to the date of payment can grow substantially over a three-year programme. Negotiate the index, the base date and the cap together, and model the outcome rather than accepting the authority's standard drafting.

Where the sum is large, expect the authority to want security: a charge over the land, a bond, or a restriction on occupation until payment. A restriction on occupation usually costs the developer least.

Evidence that supports a lower figure

A Viability Assessment following the Planning Practice Guidance on viability and the relevant RICS professional guidance is the vehicle. Councils expect a suitably qualified author for this work, normally a chartered surveyor, and professional review is strongly advised before submission.

The inputs that move the answer are benchmark land value on an existing use value plus premium basis, the return assumptions for market and affordable units, abnormal costs with quantified evidence, and sales values supported by comparables rather than agents' aspirations. Any of them will be tested, and an independent review of the appraisal is now routine on anything of scale.

One honest caveat: on a clearly viable scheme in a strong market, a viability argument for a reduced commuted sum rarely succeeds. The argument that works there is the deliverability argument about registered provider appetite, and that is a different document.

This is general guidance, not legal advice. Check the position with your local planning authority or a qualified professional before relying on it.

See PlanScope pricing if you need a draft affordable housing statement or viability framework to take to a specialist.

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