When councils approve new private housing, it is usually granted on condition of a section 106 deal, requiring builders to provide a certain number of affordable homes on their developments. These are then typically sold to housing associations to operate.
However, small housebuilders in particular are struggling to get affordable homes built because they can’t find housing associations willing to take them on.
While housing associations are non-profit organisations, their finances are under pressure from capped social rents, limited government grants and rising maintenance costs.
One developer, who does not wish to be named, tells The Telegraph that his business has secured permission to build homes in the South West, a quarter of them affordable. The builder has approached 25 housing associations but has not received any responses.
This has left the whole site on hold despite years of pouring money into the planning process, leaving tradesmen without work and potential buyers in limbo.
James Hodgkinson, a researcher at the Adam Smith Institute, says: “It’s a system that paralyses development and critically, nobody wins.”
The boss of another medium-sized housebuilder, who does not wish to be named, describes how his team has had to start several sites without a housing association on board, posing a significant financial threat.
“We are getting extremely low offers when we are able to secure a housing association offer,” he says. “This is further denting margins and putting some developments in a loss-making position.
He claims this, alongside tax rises and growing policy costs, is pushing smaller housebuilders to “the verge of collapse”.
A failing model
Introduced in 1990 in the final year of Margaret Thatcher’s administration, section 106 rules evolved over the years and were significantly expanded by Tony Blair’s government.
At that point, section 106 was viewed as an attractive way to compel the private sector to put more cash into affordable homes.
By the time the Conservative-Liberal Democrat coalition came into power in 2010, the rule had become firmly embedded in the planning process.
What had once accounted for under 10pc of affordable housing delivery had grown to represent nearly half of all affordable homes built in the UK by the early 2020s, says Dawber.
The shift represented a fundamental change in housing policy, moving from direct investment to a system that relies more heavily on the health of the private market.
But that dependence, critics argue, has become the problem. With the open market buckling under mounting taxes, high interest rates and soaring build costs in recent years, section 106 is also suffering.
Government data published in November show that in 2024-25, 36pc of all new affordable homes delivered in England were bankrolled by section 106, down from 45pc in the previous year and a peak of 51pc in 2019-20.
This marked its lowest share since 2014-15.
How to fix it
The Adam Smith Institute believes the rule should be scrapped and replaced with grant funding through Homes England, the Government’s central housing agency.
“Section 106 is a lever that could be pulled quite easily and there’s a big amount of housing that would be unlocked,” says Hodgkinson.
Emma Ramell, at the Home Builders Federation, says the system is under serious strain but stops short of endorsing abolition.
That is despite acknowledging that “the model has increasingly failed” in recent years, which has led to developments stalling and “much-needed affordable homes sitting empty”.