💼 Why Section 106 Affordable Rent Is Attracting RPs and Long-Income Funds
As housing delivery challenges mount and planning authorities remain firm on affordability quotas, Section 106 obligations continue to shape the landscape of UK residential development. But far from being a drag on profitability, these affordable rent units — when structured correctly — are becoming a sought-after asset class for both Registered Providers (RPs) and institutional long-income investors.
🏘️ What Is Section 106 Affordable Rent?
Section 106 agreements, also known as planning obligations, require developers to deliver a percentage of new homes as affordable housing — often split between affordable rent, social rent, and shared ownership.
Affordable rent units are typically:
- Let at up to 80% of market rent
- Sold to Registered Providers (RPs) at a discount to open-market value
- Legally restricted in use and tenure (protected long-term as affordable housing)
✅ Why Are These Units Attractive to RPs?
1. De-Risked Pipeline
Section 106 homes are:
- Often delivered off-plan or turnkey
- Pre-agreed through planning
- Delivered at cost or near-cost, meaning RPs don’t compete in the open land market
2. Meets Affordable Housing Mandates
- RPs have funding targets, Homes England obligations, and strategic housing goals
- Section 106 purchases help them fulfil unit delivery quotas efficiently
3. Sustainable Rental Yields
- Affordable rents generate stable income
- Rent increases often CPI-linked
- Lower operating costs compared to higher-support schemes like Specialised Supported Housing (SSH)
🏦 Why Long-Income Investors Are Now Entering the Market
As appetite for predictable, inflation-linked income grows, long-income funds are increasingly backing affordable rent units — often in partnership with RPs.
1. Institutional-Grade Cash Flow
- Affordable rent units offer 20–30 year income streams
- Income is government-backed (via Housing Benefit) and indexed
2. Lower Risk Profile
- These homes are essential infrastructure
- They offer low vacancy, high social need, and political support
3. ESG and Impact Alignment
- Investors can meet Environmental, Social and Governance (ESG) objectives
- Delivering genuinely affordable homes supports social impact mandates
4. Scalability
- With thousands of units delivered under s106 each year, funds can scale portfolios quickly
- Many deals are structured as forward-fund or forward-purchase agreements, with low development risk
🧲 The Opportunity for Developers
For developers, selling s106 units to an RP or institutional buyer:
- Reduces sales risk
- Improves cash flow
- De-risks the affordable element of the scheme
And with increasing demand from institutional capital, competition for high-quality s106 stock is growing.
🤝 Let’s Talk
If you’re a developer with Section 106 obligations — particularly for affordable rent — now may be the ideal time to secure a sale or institutional forward-funding agreement.
If you’d like to explore this topic further, speak to one of our specialist team. We can assist you with the sale of your Section 106 obligation.
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