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Party Politics (Labour) – How aligned are Labour either side of the Severn Bridge?
The UK’s political landscape faces changes in 2024. The Prime Minister has indicated a general election will be held in the ‘second half’ of the year[1] and Wales’s First Minister has already confirmed his resignation, sparking a leadership race within Welsh Labour.
First up is the Labour (and Senedd) leadership race in Wales, between Vaughan Gething MS and Jeremy Miles MS. The result will be announced on 16 March. We do not yet know what either candidate will say about the development industry through their campaigning, but manifestos and promises will in due course be the subject of rigorous analysis. For now, perhaps, it is more fruitful to consider the broader (and possibly emerging) political picture within which this contest is to be run and its implications for the development sector.
Later this year the UK will see a general election. By-election results and polling indicate it is more likely than not to lead to a Labour Government for the first time in 14 years. In Wales, Labour has had control of the Senedd (formally Welsh Assembly), since devolution in 1998. With the next Welsh election not due until 2026 (accepting this might change under the new leadership), it seems increasingly likely that the Senedd and UK Parliament will be on the same political page for the first time since 2010.
But are they on the same page when it comes to development?

For the UK, the headlines are already out there. Labour’s ‘How not If’ statement of October 2023[2] lays the foundations for a way forward that captures a desire to promote growth, through:
 
  • Strengthening powers to approve homes in areas with out-of-date local plans;
     
  • Enforcing local housing targets;
     
  • Improving the speed of local plan making (including recruiting planners!);
     
  • Adding flexibility to the affordable housing program – acknowledging soaring interest rates and increasing uncertainty that harms delivery;
     
  • Increasing delegated approval powers to speed up decision making;
     
  • Introduce ‘off the shelf’ environmental mitigations – to cut down on surveys and costs;
     
  • Promote a raft of New Towns; and,
     
  • In urban centres, accelerate sustainable brownfield development.
Alongside this has been talk about opening up a discussion about Green Belt, with a view to releasing poorer quality land – so-called ‘grey belt’ – for development[3].
This direction of travel has sought to create a dividing line with the Conservative Government, solidified by the recent changes to the NPPF which – despite the Secretary of State’s long term plan for housing initiatives, and interventions on various local plans and in London and Cambridge and Leeds[4] – has been seen as a concession to backbench MPs that will lead to less development overall[5].
But what of Wales? Of course, the Welsh and English contexts are very different, hence why planning is a devolved matter, to allow, in theory, for a more nuanced approach to local issues. But if Labour does win the General Election and both UK and Wales are led by the same party, with shared political identities, then it is worth considering to what extent Welsh Labour’s current approach aligns with the Labour’s UK call to action, and perhaps offering food for thought for the Welsh leadership candidates on how they might shape their approaches to the housing and development sector:
 
  1. UK Labour has placed housebuilding at the heart of its mission to grow the economy, with a promise for “shovels in the ground and cranes in the sky” to deliver “more beautiful cities [and] more prosperous towns”. Labour has recognised that housebuilding can be a key economic driver and one where value capture can achieve investment in infrastructure with less calls on the public finances[6]. There has been no equivalent expression of support for boosting housebuilding as a vehicle for economic growth and home ownership from Welsh Labour so far
     
  2. As has been well documented, the Senedd abolished the requirement for a five-year land supply in 2020. As a result, LPAs in Wales set and monitor targets locally, with very limited enforcement for under delivery. The recent amendments to the NPPF have seen some softening in the five-year land supply requirement in England[7] - although still far from disapplied. However, Labour (UK) has pledged to reverse these NPPF changes and seeking to reinforce housing targets and strengthen the enforcement of delivery, – noticeably at odds with Welsh Labour’s approach.
     
  3. Setting housing targets in Wales remains to be determined through each individual LDP with household projections as the starting point. Household projections are essentially trend based so reflect past levels of housing delivery rather than provide an assessment of future needs. Whilst Welsh Government assessments of housing need include a policy uplift for affordable housing delivery no such adjustment is expected for market housing delivery. There is no indication that UK Labour would seek to fundamentally change the current approach in England, which sets central estimates of housing need targets to boost housing delivery (both market and affordable) in areas where houses are least affordable to account for past undersupply.
     
  4. UK Labour will focus on the delivery of all types and tenures of housing, including market housing with an explicit effort to “save the dream of home ownership”. By contrast, Welsh Labour’s focus, monitoring and targeting is based largely on the delivery of affordable housing and more narrowly defined, focused largely on social rent which is seen as a core tenure.
     
  5. UK Labour is proposing to invest in New Towns, whereas Future Wales (Wales’s National Development Plan) explicitly rules them out.
     
  6. Whilst UK Labour is suggesting it will support and enable development to proceed in areas with out-of-date local plans, Welsh Government has continued to prioritise the plan led system irrespective of whether an LDP is time expired. There is no effective sanction to secure continued housing delivery where an LDP is not being reviewed in a timely manner.
     
When it comes to determining how to deliver new homes and economic growth through development, Labour UK and Labour Wales appears to be promoting very different approaches. Indeed, right now the Labour-led Welsh Government appears almost to have a stronger policy alignment with the current UK Government, as crystallised by the Secretary of State’s recent NPPF changes. Accepting the principle of devolved powers, and a different economic, social and environmental context – can this political difference within one political party be sustained?  
This is perhaps something both Vaughan Gething MS and Jeremy Miles MS should be pondering, before considering how their Manifestos might address planning and development…  
 

[1]https://www.bbc.co.uk/news/uk-politics-67883242
[2]https://labour.org.uk/updates/press-releases/how-not-if-labour-will-jump-start-planning-to-build-1-5-million-homes-and-save-the-dream-of-homeownership/

[3] In his October Conference speech, Sir Keir Starmer MP said: ““And no, this doesn’t mean we’re tearing up the green-belt. Labour is the party that protects our green spaces. No party fights harder for our environment. We created the national parks. Created the green-belt in the first place. I grew up in Surrey.  But where there are clearly ridiculous uses of it, disused car parks, dreary wasteland. Not a green belt. A grey belt. Sometimes within a city’s boundary. Then this cannot be justified as a reason to hold our future back. We will take this fight on. That’s a Britain built to last.”

[4] See the SoS WMS here: https://questions-statements.parliament.uk/written-statements/detail/2023-12-19/hcws161

[5] See this commentary here: https://www.ft.com/content/1f0adb36-612d-4a34-bb0f-1643a841c417

[6] A link made in this Times article: https://www.thetimes.co.uk/article/starmer-knows-houses-can-rebuild-economy-9ntkwmfwl

[7]https://lichfields.uk/blog/2023/december/20/changes-to-5yhls-under-the-revised-nppf-not-great-not-terrible

 

 

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Where the constant is the variable - RICS Draft Guidance on Viability in Planning
Following the Parkhurst Judgment[1] and the advice that Holgate J appended to it, RICS were somewhat obligated to update its guidance on the practice of appraising development viability (see my colleagues blog for more details). This process began in May 2019 with the publication of 1st edition of a new RICS Professional Statement on “Financial viability in planning: conduct and reporting”.
RICS has since followed with the publication of a consultation draft “Assessing financial viability in planning under the National Planning Policy Framework for England, 1st edition”.
The consultation runs until February 9th 2020.

RICS context

The focus of the RICS document is the role a Financial Viability Appraisal (FVA) might play in plan making and decision taking. The document neatly sums this up on pages 19-20:
“The purpose of an FVA estimates whether planned developments with policy-compliant levels of developer contributions are able to provide:
  • a minimum reasonable return to the landowner (defined as the EUV plus a premium), and
  • a suitable return to the developer.
If the FVA shows that the specified landowner and developer return are not enough to satisfy these benchmarks, the development typology is unviable at the level of developer contributions being tested at the plan-making stage. Similarly, a development site is unviable at the level of developer contributions set out in the plan at the decision-taking stage. If the FVA illustrates that the typology or scheme is not viable, the plan-maker will need to adjust policy requirements (for example by reducing developer contributions or changing design standards) to return the typology or scheme to one that is viable. Amendments to the scheme (such as increasing density or altering the mix of uses) may have a similar result.”
The revised RICS guidance now aligns with the PPG in respect of the importance given to ensuring that Local Plans are robustly tested to deliver their objectives.
On first glance, the RICS guidance suggests that if a site is not found to be viable, the contributions asked of it must be reduced. However, the RICS now aligns itself with the new PPG to ensure that  the many variables of a FVA are set so as to ensure the site does all that it can to maximise contributions it makes.
There are a significant number of variables that could be considered (including Existing Use Value, Costs, Sales values, late stage reviews etc.), however for the purpose of this blog we consider the two that go to the heart of the RICS FVA:
  • Developers profit/return; and,
  • Landowner incentive to sell.

Developer Profit/return.

The PPG considers a reasonable return to the developer of 15-20% of Gross Development Value (GDV) – although it notes that a lower return may be more appropriate in certain circumstances, where risk (presumed market enabled) is reduced. This approach is supported by  the RICS guidance which makes it clear that the target return is risk adjusted and therefore already compensating the developer for taking on the risk of development (in other words – the profit is the reward for the market risk, if this risk is reduced then the profit target should fall). An example of this can be seen in respect of affordable housing, which has lower market risk and therefore a reduced return is more generally accepted.
RICS guidance, aligns with PPG, agreeing that on occasions ”much lower rates of return should be used” (pg. 28), subject to the use of appropriate evidence. This seemingly gives the plan maker/decision taker opportunity to adjust developer profit as a means by which to deliver policy expectations. In this sense perhaps setting Developer Return at a standard 20% on GDV for all forms of development should be approached with some caution.
And as the RICS guidance is at pains to point out – “where land is overpriced in relation to plan policy, profitability will have been sacrificed and it is not the role of an FVA to protect the developer return in these circumstances.” (pg. 33).

Landowner Incentive to sell (the premium)

The “EUV plus” relies on setting an existing use value (a debate for an entirely different blog) plus a premium which offers the land owner a reasonable incentive to sell – thus setting a benchmark land value (BLV). The RICS guidance makes it clear that in setting the premium it should still allow for policy requirements to be met, in line with the PPG.
Whether it’s at plan making or decision taking stage, the premium must allow for a reasonable incentive to sell whilst having regard for the policy requirements. But as the RICS guidance (pg. 36) points out, “there is no standard amount for the premium, and each assessment needs to the properly evidenced”. This reflects the approach taken by Holgate J in Parkhurst who emphasised that a simple percentage uplift would be inappropriate – one size does not fit all circumstances. Scope therefore exists for a flexible approach to setting a premium to allow development to meet policy expectations. It is for the plan maker/decision taker to make the final decision on the appropriate amount.

Who blinks first

If properly evidenced, reasonable adjustments to Return and Premium may be appropriate if it can maximise public benefits from development. But what happens in marginal cases and where do you draw the line before adjusting policy expectations in lieu of seeking to reduce Premium or Developer Return?
The panacea is clearly a plan-led approach whereby site viability is established at the outset allowing (Evidenced Council adjusted/agreed) developer return and premium whilst delivering schemes with contributions meeting identified local need. And if market conditions have changed prior to the submission of a planning application, the Council may need to adjust its required contributions and/or the developer return, accordingly.
However, life is not so straight forward. The guidance and policy are designed in such a way that they contain a significant number of variables, many of which are to be determined by the Council. For the developer this creates significant uncertainty. If Councils are able to set premiums and reduce return levels then developers may be left with sites that become marginal or not viable despite having been purchased on seemingly reasonable assumptions. Likewise, at plan stage, it risks stalemate in land release if premiums are set too low removing incentive to sell.
But the jeopardy is not just for the developer. How does a local authority deal with meeting its targets and delivering infrastructure through contributions if plan stage viability shows that to do so offers no reasonable developers return or incentive to sell? Do Councils have to push their emerging Local Plans through regardless, making viability the new battle ground at Examinations or do they sacrifice infrastructure delivery in order to release housing sites by reducing contributions – risking unsound Plans on the basis of failure to meet their wider needs?
The existence of risks for both sides will necessitate collaboration if plans are to be found sound and sites are to come forward for much-needed development.
The RICS guidance does what it needs to do, in the same way the PPG does. Neither could reasonably be expected to provide more detail or certainty. Afterall, as the RICS guidance points out “Land and property markets are cyclical, and the impacts of developer contributions change in periods of both economic/market upturn and downturn” (Pg. 16). Not to mentions the extreme variables between land parcels. To be more prescriptive would be to risk being out of date or irrelevant the moment pen is put to paper. Both PPG and RICS now move in the same direction – and that should be welcomed – however the scope for uncertainty and complications remains.  

[1] Parkhurst Road Limited v SSCLG and London Borough of Islington (2018) EWHC991 (Admin)

 

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