Section 106 & CIL: The Hidden Cost of Development
Building houses isn't just about bricks and mortar. Councils extract millions from developers through Section 106 agreements and the Community Infrastructure Levy (CIL) to fund local infrastructure.
When appraising a new-build development, amateur developers focus on the land cost and the build cost. Professional developers focus heavily on the planning contributions. Local authorities use two primary mechanisms to extract value from profitable developments: Section 106 agreements and the Community Infrastructure Levy (CIL).
The Development Tax
Section 106 is a legally binding agreement negotiated between the developer and the council. It often requires the developer to provide a percentage of 'Affordable Housing' on-site, or pay a massive financial contribution towards local schools or highways to mitigate the impact of the new homes.
CIL (Community Infrastructure Levy) is a more rigid, non-negotiable tax charged per square metre of new floorspace. In high-value areas of London, CIL can run into hundreds of thousands of pounds. Failure to factor these costs into a gross development value (GDV) appraisal will instantly wipe out a developer's profit margin before a single brick is laid.