"New homes are being built, but sit empty with no end in sight, at a time when millions of people are desperate to get on the ladder."
- Neil Moy - Paragon Development Finance
Last month, in a long‑overdue acknowledgement that the planning system is not fit for purpose, the Government introduced emergency Section 106 measures.
Few outside of the development sector may be familiar with the granular, box‑ticking planning clause, but its dry, legal wording belies its power in making or breaking entire housing schemes.
Section 106 legally binds developers to deliver or fund affordable housing and essential local infrastructure as a condition of planning approval, and in recent years, the mechanism and SME developers, as a result, have come under significant strain. This latest reform provides time‑limited flexibility to vary the tenure of uncontracted affordable homes - finally allowing stalled units and delayed sites to move forward.
Currently, according to the Home Builders Federation, between 8,500 Section 106 affordable homes remain uncontracted across England; units that developers were blocked from progressing because registered providers (RPs) such as housing associations have reduced resources amid increasing financial pressures.
All this at a time when the construction sector faces continued strain from several angles, creating a ripple effect across the entire housing ecosystem. The latest ONS data exposes the fragile state of the market. Private new housing output fell by 3.6% in the last quarter of 2025, contributing to a broader 2.1% fall in total construction output.
Despite a raft of policy reform, we’re not seeing results quick enough – in fact, housing completions remain significantly below pre‑COVID levels, with Q2 2025 UK completions down 20.9% vs. Q2 2019. The pipeline is stalling at precisely the moment demand for new homes has never been higher.
Against this context, we have a convincing case for permanent flexibility. I have been explicit about the impact Section 106 rigidity has on SME developers. Time and again we see how SMEs are disproportionately affected, often lumbered with completed or near‑completed stock, unable to meet planning triggers because RPs are not engaging, and, in some cases, even being charged council tax on vacant units.
Let that sink in - new homes are being built, but sit empty with no end in sight, at a time when millions of people are desperate to get on the ladder.
This has ramifications across the market, including for lenders. Uncontracted Section 106 units disrupt cashflow projections, increase risk for lenders and, ultimately, make viable schemes harder to fund. For lenders, predictability around exit values and delivery timeframes is essential. Without that certainty, cash reserves tighten and can leave the smallest players, who already operate on tighter margins, most vulnerable.
At Paragon Development Finance, we see the consequences firsthand. Since 2018, we’ve funded the delivery of over 13,000 new homes, committing more than £3.5 billion to hundreds of SME developers across the UK. These firms are essential to regional housing supply, delivering diverse, thoughtfully designed schemes on plots of land often overlooked by larger housebuilders. When planning obligations stall or become unworkable, there’s often little option for builders to reallocate capacity elsewhere and they typically stall building.
The government’s emergency measures offer a pragmatic solution in the interim by allowing local authorities to renegotiate tenure where no registered provider can be found, and convert units to private sale or rent, with a requirement for equivalent affordable provision to be delivered later or off‑site. This approach recognises the significant limitations such rigid rules place on developers; ultimately, creating a more flexible system is what will produce quality homes.
At the same time, the Section 106 Affordable Housing Clearing Service is showing early signs of promise. Within its first 50 days, over 200 registered providers and councils registered, demonstrating a strong appetite for a more transparent and efficient system.
But let’s be candid: clearing alone cannot fix viability gaps. Without permanent structural flexibility, RPs’ reduced purchasing power and local authority resourcing challenges will continue to bottleneck and stifle housing delivery.
SME developers consistently tell us that bureaucratic red tape is what’s holding back supply, even more so than demand, a frustration I’m inclined to agree with. There’s more that can be done to stimulate that side of the market, too, though that’s for another debate.
Reversing falling output and meeting long‑term housing needs is vital to the strength and stability of the UK economy. The emergency measures offering increased flexibility should serve as a catalyst to develop a more pragmatic, delivery‑focused planning system.
Making these measures permanent would break the administrative limbo, supporting SMEs, boosting confidence for lenders and getting the homes the UK desperately needs built.
