Affordable Housing in London Planning: What Triggers Obligations and How They Work

In London, the affordable housing obligation applies to planning applications for residential development above a defined threshold. The London Plan (Policy H4) sets out the approach: For major residential development of 10 or more units in a London borough (or 0.5 hectares or more), the London Plan policy applies. For sites not in public ownership, the London Plan target is 35% affordable housing by habitable room, on a fast-track basis (without viability assessment). Schemes offering 35% or more can access the fast-track route and avoid the scrutiny of the Mayoral review threshold. The 50% target applies particularly to public sector land disposal. Individual borough policies may be more demanding than the London Plan minimum — Inner London boroughs (Hackney, Islington, Lambeth, Southwark, Tower Hamlets, Camden, Lewisham) often seek 40-50% affordable housing on sites of 10 or more units, reflecting their housing need assessments. The threshold below which affordable housing is not required differs by borough. Most London boroughs apply a threshold of 10 or more new dwellings or sites of 0.5 hectares or more. However, some boroughs — notably Islington, Camden, and Tower Hamlets — apply affordable housing requirements to smaller sites, in some cases from 2 or more new dwellings. The specific borough threshold must be confirmed from the borough's adopted Local Plan and supporting viability evidence base. Development below the threshold: A residential conversion of a house into 2 self-contained flats, or a single new house on a small plot, is below the threshold in most London boroughs and does not trigger an affordable housing obligation. However, the local plan policies should be checked — some boroughs have started applying nominal obligations even to smaller schemes in response to their housing need evidence.

The London Plan and borough policies recognise several types of affordable housing, broadly divided into two categories: Social and affordable rented housing: Social Rent — the most subsidised form, with rents set at approximately 50% of market rent. Managed by a Registered Housing Provider (housing association). Affordable Rent — rents set at up to 80% of market rent. A specific London variant called London Affordable Rent (LAR) is available with rents set by the Mayor at specific borough-level benchmark rents, generally lower than 80% of market rent in higher-value boroughs. Intermediate affordable housing: Shared Ownership — purchasers buy a share (initially 25-75%) of the dwelling and pay a subsidised rent on the remaining share, with the ability to purchase additional shares over time ("staircasing"). London Living Rent — an intermediate rent product where rents are set at a third of average household income by borough. London Shared Ownership — a Mayoral scheme variant. First Homes — a nationally introduced product that requires that newly built homes are sold at a discount of at least 30% to market value, with the discount retained when the home is resold. The mix of affordable housing types expected depends on borough policy. Many London boroughs prioritise social or affordable rented housing (which is the most urgently needed in London) over intermediate products.

Affordable housing in a planning-obligated residential development is typically delivered through a Section 106 agreement, which is a legal agreement between the developer, the local planning authority, and a Registered Housing Provider (RHP). The developer builds the affordable units as part of the development, transfers them to the RHP at practical completion, and receives a transfer price (the "affordable housing transfer value") that reflects the affordable unit's value as a subsidised property rather than its open market value. The transfer price for social rented units is typically very low (or even nil) — the value of the unit in use as a social rented property is much lower than its market sale value because the rental income it generates is substantially below market rent. For shared ownership units, the transfer price reflects the value of the percentage share sold to the occupier and the capitalised value of the retained rent on the remaining share. The difference between the market value of the unit and the affordable housing transfer price is effectively the cost to the developer of providing affordable housing — this cost must be factored into the development appraisal. For a development in an inner London borough where the affordable housing requirement is 40% social rent, this cost can be very significant: a 10-unit scheme with a market value of £5M and 4 social rented units transferred at near-zero transfer price has a direct affordable housing cost of approximately £2M (assuming £500K per unit market value × 4 units × near-zero transfer price).