Transfer prices for affordable units and how they are set

The affordable housing transfer price is the amount a registered provider pays the developer for the completed affordable homes, and it is fixed in the section 106 agreement rather than negotiated later in the open market. Get it wrong and the scheme either loses money on units it is obliged to build, or sits with finished homes nobody will buy while the market units stay unoccupied under a phasing trigger. The number belongs in the appraisal and in the agreement from the start.

Why the transfer price sits in the agreement at all

A planning obligation under section 106 of the Town and Country Planning Act 1990 can require affordable homes to be provided and transferred to a registered provider. Left at that, the obligation would be unenforceable in practice, because a developer could satisfy it by offering units at a price no provider would pay.

So the agreement fixes the consideration. Councils need it fixed to know the obligation is deliverable. Lenders need it fixed because it determines a known revenue line on a chunk of the scheme. And the developer needs it fixed because the affordable units are usually built first or in parallel, long before market sales values are known.

The price also has to survive time. Between resolution to grant and practical completion, two or three years can pass, with build cost inflation in between. How that risk is allocated is the real content of the clause, and it is decided by which pricing mechanism the parties choose.

Fixed sums against formula-based pricing

Four mechanisms cover almost all agreements.

A fixed sum is the cleanest to administer and the most dangerous to agree early. A figure set at resolution and transferred four years later, with no indexation, is a real-terms cut to revenue on the part of the scheme with no sales upside to compensate.

Indexation is where the drafting earns its fee. Name the index, the base date, the review date and what happens if the index is discontinued. Tender price indices and general inflation indices move differently, and an index chosen because it was in the last agreement is not an argument.

Percentage of open market value approaches

Pricing affordable units as a percentage of open market value has an obvious logic. The provider pays less for a unit it will let at a rent below market, and the discount reflects the income stream the unit will actually produce.

The percentages differ by tenure. A home for social rent produces less income than one at affordable rent, which produces less than a shared ownership unit where the provider sells a share at the outset. So the discount is deepest for social rent and shallowest for shared ownership, and any single percentage applied across a mixed tenure scheme is wrong for most of it.

Two drafting points decide whether this mechanism works. First, the valuation date, which should be close enough to transfer to be meaningful but early enough for the provider to get board approval. Second, the valuation basis and who appoints the valuer, with a named dispute resolution route rather than a vague reference to agreement between the parties.

Councils test the percentages used in a Viability Assessment against their own local plan evidence base, so quoting figures from that evidence base, and explaining where your scheme departs from it, is a shorter route than asserting your own. The arithmetic is usually the easiest part of an independent review of a viability appraisal to challenge, because the inputs are all documented somewhere.

Build cost plus approaches

Build cost plus pricing suits schemes where the affordable units are a distinct block or a distinct typology, and where the developer is effectively acting as contractor for the provider.

The price is the cost of constructing those units, plus a stated margin, plus an apportioned share of site infrastructure, abnormal costs and professional fees. Each of those apportionments is a negotiation. Infrastructure shared between tenures gets allocated by floor area, by unit count or by plot area, and the three methods give different answers on any site where the affordable block is at higher density.

It transfers inflation risk to the provider, which providers accept less readily than they once did. Where you can get it agreed, open book cost verification and an audit right usually come with it.

What the price does to the appraisal

In a residual valuation, affordable units contribute revenue at the transfer price rather than at market value, so the transfer price is a direct input to gross development value and therefore to residual land value. Lower it and the land value falls.

This is why the number has to be settled before the appraisal is submitted rather than after. An appraisal that assumes a generous transfer price and then meets reality at the agreement stage produces a scheme that was never viable on the terms it was consented on. Set out the assumed price per unit, per tenure, the assumed date, the index and the basis, in the same table as the tenure split, so the reviewer can see the whole revenue assumption at once. The expected format for that is covered in viability appraisal outputs.

Unit size interacts with price more than people expect. Where the price is per unit rather than per square metre, a scheme meeting the nationally described space standard and accessibility requirements costs more to build for the same revenue, which is one reason space standards and accessible housing as appraisal inputs sit close to the transfer price discussion.

Grant, and how it is treated

Homes England grant under the affordable homes programme changes the economics, and agreements handle it in one of three ways.

1. The price is stated on a nil grant basis, and any grant the provider obtains is for its own account. Simple, and the most common.
2. The price is stated on a nil grant basis with an uplift mechanism if grant is secured, usually sharing the benefit.
3. The price assumes grant, which is unwise unless the grant is already confirmed, because an unsuccessful bid leaves a price no provider can pay.

The Capital Funding Guide sets the rules providers work to, including what grant can and cannot be used for, and a clause written without reference to it tends not to survive a provider's funding team. Grant conditions also affect nomination rights and rent setting, which feeds back into what the units are worth.

Where pricing disputes stall completions

The failure mode is predictable. Affordable units are built, the agreed price no longer reflects what any provider will pay, no transfer happens, and a phasing trigger prevents occupation of market units until it does.

That is the point at which a developer discovers how much bargaining power the council holds. The usual protections, which need to be in the original agreement rather than negotiated under pressure:

• A cascade mechanism setting out what happens if no provider acquires the units within a stated period at the stated price, moving to an alternative tenure, an open market disposal with a commuted sum, or a price review.
• A defined marketing obligation, so the developer can show it approached providers properly rather than argue about effort.
• A deed of variation route with a clear trigger, rather than relying on the council's goodwill.
• Clarity on the transfer stage. Many schemes transfer the land at a defined construction stage for tax reasons, and the VAT and stamp duty treatment of that structure needs specialist advice before the clause is drafted rather than after.

An Affordable Housing Statement submitted with the application should name the intended tenure split, the pricing mechanism and whether a provider is already engaged. Councils treat a named provider and an agreed mechanism as evidence of deliverability, and that counts for more at committee than a paragraph of policy compliance.

PlanScope can draft an Affordable Housing Statement and the supporting viability narrative from your scheme inputs in minutes, with the pricing assumptions flagged where figures are missing. Reports should be reviewed before submission, and PlanScope does not guarantee planning approval. This is general guidance, not legal advice; take advice on the section 106 drafting and the tax treatment before committing to a mechanism.