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Technical Consultation on the
Infrastructure Levy
Workshop – Delivering Affordable
Housing through the new
Infrastructure Levy
25/04/23
Aims
The aim of this workshop is to:
• To seek feedback and views on DLUHC’s lead policy proposal for how the new Infrastructure Levy will deliver
affordable housing.
• Invite questions and feedback to inform the development of regulations which will set out how the Levy will
operate.
This workshop focuses on Chapter Five of the consultation (primarily questions 30-34).
Agenda
1. Introductory remarks and aims
2. Overview: Infrastructure Levy
3. Affordable Housing delivery through the new Levy: The ‘Right to Require’
4. Breakout groups
 Feedback
5. Flexible use of Levy funds and treatment of high-proportion/100% affordable housing schemes
6. Breakout groups
 Feedback
7. Close
Please use slido to
post and ‘up vote’
questions
Affordable Housing and
the existing system
• Developer contributions worth a total of £7bn were agreed in 2018/19, £4.7bn of which
was in the form of affordable housing contributions.
• There were 59,175 affordable homes delivered (completions), and 63,228 starts on site in
England in 2021-22. 44% of all affordable homes delivered in 2021-22 were funded
through section 106 (nil grant) agreements, compared to 47% in the previous year.
• Planning obligations:
• can be uncertain and opaque
• are subject to negotiation (and subsequent renegotiation) on viability grounds
• can lead to substantial delays in the granting of planning permission
• CIL is more transparent and predictable, but inflexible in changing market conditions and
cannot be used to fund affordable homes.
Overview: Infrastructure Levy
• Reforms to largely replace section 106 planning obligations and CIL in England.
• Aims to improve transparency, reduce delays, capture more value than the existing system and
deliver at least as much affordable housing.
• Chargeable on Gross Development Value (GDV) – rates set and collected by charging authorities.
• Non-negotiable cash payment, with affordable housing delivered on site as an in-kind payment.
• The Levelling Up & Regeneration Bill provides the legislative framework – policy detail to be set out
in regulations (following consultation).
• Introduced through ‘test and learn’.
Payment of the
Infrastructure Levy
Integral infrastructure
In-kind provision of affordable
housing
Levy-funded infrastructure Sustainable
growth and
mitigation
Levy charging
schedule
Delivery
Scope
Affordable Housing and
the existing system
• The Government is committed to delivering at least as much – if not more – on-site affordable housing as
the current system of developer contributions.
• When setting rates, charging authorities will need to have regard to the desirability of securing the same
level of affordable housing delivery or a level which exceeds that (204G).
• We will also introduce, through regulations, a new ‘Right to Require’ to rebalance the inequality between
developers and local authorities.
Means
of developer contributions​​
Current system​​
The proposed, new Infrastructure Levy​​
Section 106​​
(as applied currently)​​
Community
Infrastructure Levy​​
Can be used to
secure affordable housing?​​
Yes​​
Secured at levels subject
to negotiation​​
No​​
Unable to secure
affordable housing​​
Yes​​
Secured as a non-negotiable, in-kind
proportion of the Levy liability​​
The ‘Right to Require’
Proposed Levy system
Existing system
LPAs express AH units to be delivered as a
proportion of total units on a site in the local
plan.
Level of onsite affordable housing is agreed via
negotiation between the LPA and the
developer.
LPAs will set their AH requirements as a
percentage of IL liability; the ‘Right to Require’.
That proportion of Levy liability will be
delivered as on-site, non-negotiable, in-kind
affordable housing, offset against final IL
liability.
Right to require
(proportion of Levy liability to be met as in-kind delivery of
on-site affordable homes)
50%
Tenure mix
Social rent 50%
Affordable rent 25%
First Homes 25%
Assumed discount for each
tenure
Social rent 50%
Affordable rent 35%
First Homes 30%
Cumulative assumed
discount for all tenures
(50% x 50%) + (25% x 35%) + (25% x 30%) = 41.25%
Turning the ‘Right to
Require’ into onsite units
Application is
received by the
LPA (e.g.
10,000m2)
Indicative Levy liability
using assumed values
charged to a developer
is £2million
LPA exercises their 50%
RtR rate meaning:
£1million of the Levy will
be delivered as cash & £1
million of the Levy as in-
kind AH.
The £1million can be
apportioned to the LPA’s
preferred tenure mix in the
form of discounts from the
open market price
Example: A £100k discount
for each AH unit for the RP
will mean 10 AH units will
make up the £1million in-
kind value.
Different tenures have
different discounts (e.g. If
the discount is 50k, you
could have 20 AH units or
you can mix and match
Where a purchase
agreement is in place with
an RP, actual price
information could be used
to calculate the discount.
The cash portion of the
Levy may
increase/decrease, but
the number of AH units
is fixed.
• The monetary value of the ‘Right to Require’ is represented by the cumulative discount of the affordable
housing tenures on a scheme.
• It is this cumulative value that is offset from the Levy liability and represents an in-kind contribution.
How to calculate the
monetary value of the
‘Right to Require’
• For example, the calculation for one AH unit is as follows:
Unit Open Market Price Percentage discount for RPs Discount price RP receives AH units on site
AH Unit (1) £200,000 50% £100,000 10 = (£1mill/100k)
AH Unit (2) £200,000 25% £50,000 20 = (£1mill/50k)
 LPAs may lower their ‘right to require’ on a site-by-site basis. For example, the LPA may want to receive a greater
proportion of the Levy in cash on a particular scheme to help fund a new road, school, or GP surgery.
 Different AH tenures will take up different amounts of floorspace, and represent different monetary discounts from
the open market price.
 Whilst the cash proportion of the Levy may change depending on final GDV of the site, the number of AH units is
fixed.
Turning the ‘Right to
Require’ into onsite units:
The Process
Example information to determine the ‘Right to Require’ Example
Right to require
(proportion of Levy liability to be met as in-kind delivery of on-site
affordable homes)
50%
Tenure mix
Social rent 50%
Affordable rent 25%
First Homes 25%
Assumed discount for
each tenure
Social rent 50%
Affordable rent 35%
First Homes 30%
Cumulative assumed
discount for all tenures
(50% x 50%) + (25% x 35%) + (25% x 30%) = 41.25%
• We expect LPAs to have a good understanding of the likely
discounts for different AH tenures.
• These assumed discounts form part of an IL charging
schedule.
• Using these figures, you can estimate how any AH units will
make up the RtR in-kind value on any given site.
• At the application stage, developers will be required to seek
RP partners for AH units, so the actual discounts can be
inputted into the calculation to produce a more accurate
figure.
Overview
Stage 1
Pre-application
• LPA publishes (largely
assumed) information in
its Infrastructure Levy
charging schedule.
Stage 2
Application
• Information provided in a
planning application,
combined with the
information from the IL
charging schedule, allows
the calculation of an
indicative Levy liability.
• This indicative Levy
Liability comprises the
value to be paid in cash
and value to be delivered
as in-kind AH units.
• Then, the proportion of
floorspace to be used for
the AH units can be
calculated and the LPA
can apply its tenure mix to
calculate the exact
tenure-by-tenure split.
Stage 3
Pre-commencement
• The developer seeks an
RP partner to purchase AH
units to provide data on
the actual discounts for
AH, rather than assumed
discounts from the
charging schedule.
• A re-calculation is
required using the actual
discounts provided by
RPs.
• The number of AH units to
be provided on site as an
in-kind contribution is
fixed at this stage.
Stage 4
Pre-completion
• Developers are required
to pay a provisional
liability payment which
will be the initial payment
of the Levy.
• A re-calculation of the
Levy liability can be
required if the
LPA/developer requests a
third-party evaluation.
• If a re-calculation occurs,
the amount of AH remains
fixed, and the collective
discount is re-calculated
and offset from the new
Levy liability. The
developer pays the
updated residual cash
amount.
Stage 5
Post-completion
• After sale of the
development, either party
can request a final
adjustment calculation to
reflect actual market
values. An adjustment
payment is then made.
• This stage does not affect
the delivery of affordable
housing and affects only
the cash portion of the
Levy liability.
Discussion
1. What are your views on the ‘Right to Require’?
2. What do you consider to be the key challenges and concerns?
3. Do you think the ‘Right to Require’ will give LPA’s stronger
protections over AH delivery?
Flexible use of Levy
funding to fund AH
 LPAs can secure further onsite affordable housing units through the flexible use of Levy receipts.
 This allows the LPA to buy more units onsite using Levy receipts and provide subsidised rental units.
 LPAs could also work with housing associations, providing a grant for them to purchase units from
developers at open market prices.
LPA secures AH units
on Scheme A
through their 50%
‘Right to Require’.
This equates to 39
AH units (of various
tenure) on Scheme
A.
The LPA is able to use Levy
receipts (collected from
previous developments) to
provide further AH in addition
to the 39 secured through the
‘Right to Require’
The LPA uses Levy
receipts to top up
the price an RP is
prepared to pay for
AH units.
Example: If an RP is prepared
to pay 80k for an AH unit, and
the open market value
developers want is 100k, the
LPA will use 20k from Levy
receipts to top up the RP.
Example: This means the RP
still pays 80k and the
developer still receives 100k
for the unit as expected –
the LPA has paid the
difference.
Example: Overall, the
LPA spends 100k
through this
mechanism, which
equates to 5 additional
AH units
Example: Scheme A now
provides 44 AH units (39
units through RtR
mechanism, and 5 units
through the grant pot
mechanism)
Exempting 100% and high-
proportion AH schemes
 We do not want to charge the Levy on schemes which consists of 100% affordable housing.
 We envisage a similar approach to cross-subsidised schemes where there is a high proportion of AH.
 Where the value of the cumulative discount of affordable housing on a cross-subsidised scheme exceeds the Levy liability payable
as cash on the open market housing on the same scheme, we propose exempting the entire scheme.
 Would this pose a risk to such schemes being accepted by LPAs, given no Levy liability would be payable?
 Integral infrastructure will still need to be provided on-site to mitigate the impact of development.
Floorspace of
proposed
development
Overall Levy
liability
Right to Require
(percentage of
total Levy
liability)
Cash
proportion
of the Levy
liability
In-kind AH
contribution
AH
floorspace
Market
housing
floorspace
10,000sqm £8 million
0% £8 million £0 million 0m2 10,000m2
50% £4 million £4 million 1,905m2 8,095m2
100% £0 £8 million 3,810m2 6,190m2
100%+ £0 million £8million+ 5,000m2 5,000m2
100%+ £0 million £8million+ 10,000m2 0m2
Discussion
1. To what extent will LPAs use the ‘Grant Pot’ model to fund AH
(alongside other infrastructure priorities)?
2. To what extent do high-proportion/100% AH schemes come
forward? Do you agree they should be exempted from the
Levy?
3. How is infrastructure usually delivered alongside such
schemes?
Key information
• The consultation will be open until Friday 09 June.
• Responses encouraged to use Citizen Space.
• Questions should be directed to: InfrastructureLevyConsultation@levellingup.gov.uk

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Infrastructure Levy Technical Consultation (Workshop 3 Delivering Affordable Housing) .pptx

  • 1. Technical Consultation on the Infrastructure Levy Workshop – Delivering Affordable Housing through the new Infrastructure Levy 25/04/23
  • 2. Aims The aim of this workshop is to: • To seek feedback and views on DLUHC’s lead policy proposal for how the new Infrastructure Levy will deliver affordable housing. • Invite questions and feedback to inform the development of regulations which will set out how the Levy will operate. This workshop focuses on Chapter Five of the consultation (primarily questions 30-34).
  • 3. Agenda 1. Introductory remarks and aims 2. Overview: Infrastructure Levy 3. Affordable Housing delivery through the new Levy: The ‘Right to Require’ 4. Breakout groups  Feedback 5. Flexible use of Levy funds and treatment of high-proportion/100% affordable housing schemes 6. Breakout groups  Feedback 7. Close Please use slido to post and ‘up vote’ questions
  • 4. Affordable Housing and the existing system • Developer contributions worth a total of £7bn were agreed in 2018/19, £4.7bn of which was in the form of affordable housing contributions. • There were 59,175 affordable homes delivered (completions), and 63,228 starts on site in England in 2021-22. 44% of all affordable homes delivered in 2021-22 were funded through section 106 (nil grant) agreements, compared to 47% in the previous year. • Planning obligations: • can be uncertain and opaque • are subject to negotiation (and subsequent renegotiation) on viability grounds • can lead to substantial delays in the granting of planning permission • CIL is more transparent and predictable, but inflexible in changing market conditions and cannot be used to fund affordable homes.
  • 5. Overview: Infrastructure Levy • Reforms to largely replace section 106 planning obligations and CIL in England. • Aims to improve transparency, reduce delays, capture more value than the existing system and deliver at least as much affordable housing. • Chargeable on Gross Development Value (GDV) – rates set and collected by charging authorities. • Non-negotiable cash payment, with affordable housing delivered on site as an in-kind payment. • The Levelling Up & Regeneration Bill provides the legislative framework – policy detail to be set out in regulations (following consultation). • Introduced through ‘test and learn’.
  • 6. Payment of the Infrastructure Levy Integral infrastructure In-kind provision of affordable housing Levy-funded infrastructure Sustainable growth and mitigation Levy charging schedule Delivery Scope
  • 7. Affordable Housing and the existing system • The Government is committed to delivering at least as much – if not more – on-site affordable housing as the current system of developer contributions. • When setting rates, charging authorities will need to have regard to the desirability of securing the same level of affordable housing delivery or a level which exceeds that (204G). • We will also introduce, through regulations, a new ‘Right to Require’ to rebalance the inequality between developers and local authorities. Means of developer contributions​​ Current system​​ The proposed, new Infrastructure Levy​​ Section 106​​ (as applied currently)​​ Community Infrastructure Levy​​ Can be used to secure affordable housing?​​ Yes​​ Secured at levels subject to negotiation​​ No​​ Unable to secure affordable housing​​ Yes​​ Secured as a non-negotiable, in-kind proportion of the Levy liability​​
  • 8. The ‘Right to Require’ Proposed Levy system Existing system LPAs express AH units to be delivered as a proportion of total units on a site in the local plan. Level of onsite affordable housing is agreed via negotiation between the LPA and the developer. LPAs will set their AH requirements as a percentage of IL liability; the ‘Right to Require’. That proportion of Levy liability will be delivered as on-site, non-negotiable, in-kind affordable housing, offset against final IL liability. Right to require (proportion of Levy liability to be met as in-kind delivery of on-site affordable homes) 50% Tenure mix Social rent 50% Affordable rent 25% First Homes 25% Assumed discount for each tenure Social rent 50% Affordable rent 35% First Homes 30% Cumulative assumed discount for all tenures (50% x 50%) + (25% x 35%) + (25% x 30%) = 41.25%
  • 9. Turning the ‘Right to Require’ into onsite units Application is received by the LPA (e.g. 10,000m2) Indicative Levy liability using assumed values charged to a developer is £2million LPA exercises their 50% RtR rate meaning: £1million of the Levy will be delivered as cash & £1 million of the Levy as in- kind AH. The £1million can be apportioned to the LPA’s preferred tenure mix in the form of discounts from the open market price Example: A £100k discount for each AH unit for the RP will mean 10 AH units will make up the £1million in- kind value. Different tenures have different discounts (e.g. If the discount is 50k, you could have 20 AH units or you can mix and match Where a purchase agreement is in place with an RP, actual price information could be used to calculate the discount. The cash portion of the Levy may increase/decrease, but the number of AH units is fixed. • The monetary value of the ‘Right to Require’ is represented by the cumulative discount of the affordable housing tenures on a scheme. • It is this cumulative value that is offset from the Levy liability and represents an in-kind contribution.
  • 10. How to calculate the monetary value of the ‘Right to Require’ • For example, the calculation for one AH unit is as follows: Unit Open Market Price Percentage discount for RPs Discount price RP receives AH units on site AH Unit (1) £200,000 50% £100,000 10 = (£1mill/100k) AH Unit (2) £200,000 25% £50,000 20 = (£1mill/50k)  LPAs may lower their ‘right to require’ on a site-by-site basis. For example, the LPA may want to receive a greater proportion of the Levy in cash on a particular scheme to help fund a new road, school, or GP surgery.  Different AH tenures will take up different amounts of floorspace, and represent different monetary discounts from the open market price.  Whilst the cash proportion of the Levy may change depending on final GDV of the site, the number of AH units is fixed.
  • 11. Turning the ‘Right to Require’ into onsite units: The Process Example information to determine the ‘Right to Require’ Example Right to require (proportion of Levy liability to be met as in-kind delivery of on-site affordable homes) 50% Tenure mix Social rent 50% Affordable rent 25% First Homes 25% Assumed discount for each tenure Social rent 50% Affordable rent 35% First Homes 30% Cumulative assumed discount for all tenures (50% x 50%) + (25% x 35%) + (25% x 30%) = 41.25% • We expect LPAs to have a good understanding of the likely discounts for different AH tenures. • These assumed discounts form part of an IL charging schedule. • Using these figures, you can estimate how any AH units will make up the RtR in-kind value on any given site. • At the application stage, developers will be required to seek RP partners for AH units, so the actual discounts can be inputted into the calculation to produce a more accurate figure.
  • 12. Overview Stage 1 Pre-application • LPA publishes (largely assumed) information in its Infrastructure Levy charging schedule. Stage 2 Application • Information provided in a planning application, combined with the information from the IL charging schedule, allows the calculation of an indicative Levy liability. • This indicative Levy Liability comprises the value to be paid in cash and value to be delivered as in-kind AH units. • Then, the proportion of floorspace to be used for the AH units can be calculated and the LPA can apply its tenure mix to calculate the exact tenure-by-tenure split. Stage 3 Pre-commencement • The developer seeks an RP partner to purchase AH units to provide data on the actual discounts for AH, rather than assumed discounts from the charging schedule. • A re-calculation is required using the actual discounts provided by RPs. • The number of AH units to be provided on site as an in-kind contribution is fixed at this stage. Stage 4 Pre-completion • Developers are required to pay a provisional liability payment which will be the initial payment of the Levy. • A re-calculation of the Levy liability can be required if the LPA/developer requests a third-party evaluation. • If a re-calculation occurs, the amount of AH remains fixed, and the collective discount is re-calculated and offset from the new Levy liability. The developer pays the updated residual cash amount. Stage 5 Post-completion • After sale of the development, either party can request a final adjustment calculation to reflect actual market values. An adjustment payment is then made. • This stage does not affect the delivery of affordable housing and affects only the cash portion of the Levy liability.
  • 13. Discussion 1. What are your views on the ‘Right to Require’? 2. What do you consider to be the key challenges and concerns? 3. Do you think the ‘Right to Require’ will give LPA’s stronger protections over AH delivery?
  • 14. Flexible use of Levy funding to fund AH  LPAs can secure further onsite affordable housing units through the flexible use of Levy receipts.  This allows the LPA to buy more units onsite using Levy receipts and provide subsidised rental units.  LPAs could also work with housing associations, providing a grant for them to purchase units from developers at open market prices. LPA secures AH units on Scheme A through their 50% ‘Right to Require’. This equates to 39 AH units (of various tenure) on Scheme A. The LPA is able to use Levy receipts (collected from previous developments) to provide further AH in addition to the 39 secured through the ‘Right to Require’ The LPA uses Levy receipts to top up the price an RP is prepared to pay for AH units. Example: If an RP is prepared to pay 80k for an AH unit, and the open market value developers want is 100k, the LPA will use 20k from Levy receipts to top up the RP. Example: This means the RP still pays 80k and the developer still receives 100k for the unit as expected – the LPA has paid the difference. Example: Overall, the LPA spends 100k through this mechanism, which equates to 5 additional AH units Example: Scheme A now provides 44 AH units (39 units through RtR mechanism, and 5 units through the grant pot mechanism)
  • 15. Exempting 100% and high- proportion AH schemes  We do not want to charge the Levy on schemes which consists of 100% affordable housing.  We envisage a similar approach to cross-subsidised schemes where there is a high proportion of AH.  Where the value of the cumulative discount of affordable housing on a cross-subsidised scheme exceeds the Levy liability payable as cash on the open market housing on the same scheme, we propose exempting the entire scheme.  Would this pose a risk to such schemes being accepted by LPAs, given no Levy liability would be payable?  Integral infrastructure will still need to be provided on-site to mitigate the impact of development. Floorspace of proposed development Overall Levy liability Right to Require (percentage of total Levy liability) Cash proportion of the Levy liability In-kind AH contribution AH floorspace Market housing floorspace 10,000sqm £8 million 0% £8 million £0 million 0m2 10,000m2 50% £4 million £4 million 1,905m2 8,095m2 100% £0 £8 million 3,810m2 6,190m2 100%+ £0 million £8million+ 5,000m2 5,000m2 100%+ £0 million £8million+ 10,000m2 0m2
  • 16. Discussion 1. To what extent will LPAs use the ‘Grant Pot’ model to fund AH (alongside other infrastructure priorities)? 2. To what extent do high-proportion/100% AH schemes come forward? Do you agree they should be exempted from the Levy? 3. How is infrastructure usually delivered alongside such schemes?
  • 17. Key information • The consultation will be open until Friday 09 June. • Responses encouraged to use Citizen Space. • Questions should be directed to: InfrastructureLevyConsultation@levellingup.gov.uk