Costly Section 106 agreements are pricing some developers out of the market, according to the peer-to-peer lending website Lendy.
The website claimed developers were forced to pay £2.1bn to local authorities last year via Section 106 agreements in order to grant planning applications, compared to £1.7bn five years ago.
It added developers will often be asked to make a lump-sum payment to the local authority without any clear indication on how the money will be spent and some agreements can reach up to £10m or more.
‘It’s no secret that there is a housing shortage in the UK,’ said Lendy co-founder, Liam Brooke. ‘More needs to be done to help support developers – allowing them to get spades in the ground and houses built.
‘Agreements with local authorities for planning permissions can be both complex and costly for developers.
‘You can argue that Section 106 agreements can be beneficial in ensuring the local community benefits from developments, however, the fact that smaller developers are being priced out of the market by these added costs is a real concern.
‘For smaller developers who are already struggling to find funding for their developments, these added costs can be the final nail in the coffin,’ added Mr Brooke.
‘If developers are faced with high costs from local authorities they may need to recoup some of their profits which could mean higher house prices or corners being cut during construction.’