Off site affordable housing payments and the calculation
A payment in lieu of on site affordable housing is calculated, not guessed. The value gap method, transfer values, the regulation 122 tests and the clauses that decide what it really costs.
An off site affordable housing payment is a sum secured in a section 106 agreement in place of building affordable homes on the application site. National policy starts from the opposite position, that affordable housing should be delivered on site, and the National Planning Policy Framework (August 2026 edition) treats off site provision or a financial contribution as the exception that has to be justified. The size of the payment is almost never a round number plucked from a policy. It comes from a calculation the authority publishes, or from one your viability consultant runs and the authority tests.
When an authority will accept a payment instead
Three arguments tend to work. The first is site size, where a scheme of a handful of units cannot support a management arrangement that a registered provider will take on. The second is tenure mix, where the affordable units would sit in a block with a service charge no registered provider will accept. The third is delivery, where the authority itself would rather have the money to fund a larger affordable scheme elsewhere in the area.
What does not work is convenience. An off site payment because the affordable units spoil the sales narrative will be refused, and quoted back to you at appeal.
Most authorities set out the circumstances in an affordable housing supplementary planning document. Read it before you assume anything, because the policy trigger, the percentage and the acceptable reasons for going off site vary between neighbouring districts in ways that make no intuitive sense. Your Affordable Housing Statement has to engage with that local wording, not with national policy in the abstract.
How the sum is calculated
There are two families of method, and knowing which one an authority uses changes your appraisal by a large margin.
| Method | What it measures | Typical use |
|---|---|---|
| Value gap | Open market value of the notional affordable units minus the transfer value a registered provider would pay | Most district and borough SPDs |
| Fixed rate | A published figure per square metre or per unit of market housing | Smaller authorities and some rural districts |
| Residual | Difference between the residual land value of a policy compliant scheme and the scheme as proposed | Negotiated majors and review mechanisms |
The value gap method is the common one. The authority works out how many affordable units the policy would have required, values them at open market value, subtracts what a registered provider would have paid for them, and asks for the difference. That difference is the subsidy the developer would have absorbed by building them, so in principle the authority is left no worse off.
Fixed rate formulas are simpler and blunter. They are easier to budget against at bid stage, and they tend to produce odd results at the margins, particularly on schemes with an unusual unit mix.
Transfer values and where the numbers come from
The transfer value is the price a registered provider pays a developer for a completed affordable home. It is expressed as a percentage of open market value and it differs by tenure, with social rent lowest, affordable rent above it and shared ownership higher again. Those percentages are local and they move with grant availability, borrowing costs and the provider's own business plan.
Do not carry a percentage from one authority's SPD into another appraisal. Ask two registered providers active in the district for an indicative offer in writing, and put those letters in the submission. An officer who can see a real offer is far more likely to accept your figure than one reading an assumption in a spreadsheet.
Values also have a base date. An SPD written three years ago and never updated will carry stale open market values, and the authority may still apply it. That is a negotiation point, and it cuts both ways.
Evidence that justifies off site delivery
An off site payment has to satisfy regulation 122 of the Community Infrastructure Levy Regulations 2010. The obligation must be 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. All three limbs, every time.
In practice that means your submission needs to show four things.
- Why on site provision is not deliverable, with the registered provider correspondence that supports it.
- How the sum has been calculated, with the inputs exposed rather than buried in a summary sheet.
- Where the money will realistically be spent, ideally by reference to the authority's own affordable housing programme.
- That the sum is not being used to fund something the authority would have funded anyway.
The last point is where officers push back hardest, and it is the one developers prepare for least.
Where viability changes the answer
A payment in lieu is not a way out of a viability problem. It is a different way of expressing the same obligation, and if the scheme cannot afford the affordable housing on site it usually cannot afford the equivalent cash either.
Where viability really does bite, the route is a Viability Assessment prepared in line with the national guidance and the RICS professional statement on financial viability in planning, tested against a benchmark land value the authority will accept. Expect the authority to commission its own review at your cost, and expect the review to disagree with your build cost and your profit assumption first.
Authorities increasingly attach a review mechanism to a reduced contribution rather than accepting a permanent write down. That is a reasonable landing point, provided the review inputs are fixed in the agreement and the reviewer is named or the appointment process is set out.
Indexation and payment triggers
Two clauses decide what the obligation actually costs you.
Indexation fixes the sum to an index, usually a construction tender price index or a house price index, running from a base date to the date of payment. On a scheme with a three-year build programme in a rising market, indexation can add a material amount, and the choice of index matters more than the rate. Ask for the index to run from the date of the agreement rather than the date of the SPD.
Payment triggers set when the money leaves. Commencement is the authority's preference and the developer's worst case. Occupation of a defined proportion of the market units is the usual compromise, sometimes in two instalments. On a phased scheme, tie each instalment to the phase it relates to, or you will pay for phase three before you have built phase two.
There is also the interaction with the levy. An affordable housing payment sits outside the Community Infrastructure Levy, and a scheme can carry both, so run your levy liability from the charging schedule alongside the section 106 figure rather than after it. The same discipline applies to the commuted sum negotiated for adopting estate roads, which is another cash obligation that arrives late in the process.
Negotiating the figure
Start by asking for the authority's calculation in full, including the unit values, the transfer percentages and the base date. Many are willing to share the spreadsheet. A surprising number of published figures contain an arithmetic step nobody has checked since the SPD was adopted.
Then negotiate the inputs rather than the total. Arguing that the sum is too high gets nowhere. Showing that the open market values are drawn from a different value area within the same district, or that the transfer percentage assumes grant that is not available, moves the number.
As an illustrative example, a scheme of nine flats in a district with a policy threshold of ten units falls below the trigger. The developer adds a tenth flat to improve the sales mix and lands squarely inside the policy, facing a contribution the appraisal never carried. Modelling the threshold before the layout is fixed costs an afternoon. Discovering it at validation costs a redesign.
Before you commit to an appraisal, it is worth checking which of the supporting documents your scheme will need, since an affordable housing contribution rarely travels alone. PlanScope pricing covers one free report, £50 per report, or £150 per month for unlimited reports on the Professional tier.
This is general guidance, not legal advice, so 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.
Frequently asked questions
When will a council accept an off site payment instead of affordable homes?
Usually where the site is too small for a registered provider to manage, where service charges make the units unattractive to providers, or where the authority would rather fund a larger affordable scheme elsewhere. National policy still prefers on site delivery, so the justification has to be evidenced. Most authorities set out acceptable circumstances in an affordable housing supplementary planning document.
How is the payment in lieu actually calculated?
Most authorities use a value gap method. They establish how many affordable units policy would have required, value those units at open market value, deduct the transfer value a registered provider would have paid, and ask for the difference. Some smaller authorities publish a fixed rate per square metre or per unit instead, which is simpler and less accurate.
What is a transfer value?
The price a registered provider pays a developer for a completed affordable home, expressed as a percentage of open market value. It varies by tenure, with social rent lowest and shared ownership highest, and it moves with grant availability and borrowing costs. Indicative written offers from two active providers carry more weight than an assumption in a spreadsheet.
Does an affordable housing contribution have to meet the regulation 122 tests?
Yes. Regulation 122 of the Community Infrastructure Levy Regulations 2010 requires any planning obligation to be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind. All three limbs must be satisfied, and a decision maker cannot take an obligation into account otherwise.
Is the contribution indexed?
Almost always. The agreement ties the sum to a construction tender price index or a house price index between a base date and the date of payment. The choice of index and the base date matter more than the headline figure, so press for indexation to run from the date of the agreement rather than from the adoption date of the policy document.
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.