Planning matters

As the ongoing COVID-19 pandemic continues to reshape our daily lives, one thing has also become clear: we need to think more seriously about the links between the built environment and our physical and mental health. To date, this discussion has generally been weighted more towards access to open space and suitably-sized homes with windows, but the issues are more broadly based. Even though the Government’s Planning for the Future White Paper has charted some radical reforms to planning obligations, the current planning obligation framework will continue to be in force for a few more years, and there are some critical issues which will continue to need to be addressed over this interim period. Planning for health Pre-pandemic, the revised National Planning Policy Framework (2019) [NPPF] sought to include a stronger emphasis on health and well-being; it states that the planning system should support “strong, vibrant and healthy communities” (Para 8b) and should take account of “local strategies to improve health… for all sections of the community” (Para 92b). But, it also introduced the notion of addressing inadequate ‘services’ (Para 81b). The development industry in large part accepts the need to contribute to providing capital funding for education and health infrastructure, but despite the NPPF’s subtle shift to include services, little consideration had been given to what role, if any, the development industry should play in helping to address healthcare services revenue funding challenges (beyond its contribution via general taxation). By contrast, the NHS has proverbially left the running blocks. Faced with budget cuts, resource constraints, and need to keep up with an ageing population, one NHS Trust has been seeking s106 funding for acute healthcare services from via planning obligations since 2014. These initial requests were successively rejected at planning appeals, as the Inspectors considered that such funding requests were not in accordance with Regulation 122 of the Community Infrastructure Levy (CIL) Regulations (2012) and did not relate to the development. However, two appeals, recovered by the Secretary of State [SoS] in 2016, concluded that such requests were material to the consideration of the applications, were acceptable in principle, and were necessary to make the development acceptable in planning terms.[1] The ‘Securing Section 106 and community infrastructure levy funds’ (September 2018) guidance followed this, in which NHS Improvement and Trusts highlighted the capital and revenue opportunities for NHS trusts impacted by local development.[2] An un-funded funding gap So how are Trusts impacted by development beyond infrastructure requirements? The key issue for Trusts is the Government’s current funding mechanism. Trusts are commissioned by Clinical Commissioning Groups [CCGs] to provide planned and emergency acute healthcare to the population of areas under the terms of the NHS Standard Contract. However, this contract is an outturn activity volume-based contract which is agreed annually with CCGs and is based on the previous year’s activity. The contract, therefore, does not account for in-year population increases until the next year, and any additional healthcare activities resultant from an increase in the population of an area – which Trusts are legally obliged to undertake – remain unfunded. Simply put, there’s a potential hole in Trust’s budgets arising from population growth in an area, and a greater number of NHS Trusts are now turning their attention to the development industry to plug these ‘funding gaps’ through S106 contributions. Having dealt with a number of these requests, we can see there are practical concerns about how some NHS Trust’s are seeking s106 contributions. The Regulation 122 Tests requires s106 requests to be “fairly and reasonably related in scale and kind to the development”. In this regard, it is important that Trusts only make requests for the un-costed ‘new persons’ that would likely and reasonably present themselves for treatment because of a proposed development. This is because some of the population of the development will have moved from within the area, and will have already been considered within the service provider’s funding model. At present, there are legitimate questions regarding whether the Trusts’ calculations address this. In addition, these requests are typically made well into the determination period of planning applications. Indeed, one Trust submitted four s106 requests to developments which had already been determined by a planning committee in Worcester – requests which were subsequently rejected.[3] Consequently, there is little room left for the negotiation of additional s106 monies beyond which has already been agreed or found viable. A return to marginal viability debates? Turning to the latter point, and setting aside broader concerns about the Trusts’ calculations, the manner in which Trusts are currently engaging in the planning system is somewhat at odds with the spirit of the NPPF, and more importantly, likely to hinder the Government’s ambition to ‘build, build, build’. The revised NPPF shifted the consideration of the ‘viability’ of sites from the decision-making stage to the forefront of the planning process – plan-making – and is clear that Local Plans “should set out the contributions expected from development… [and] such policies should not undermine the deliverability of the plan.” (Para 34).  In the context of education contributions, the Planning Practice Guidance [PPG] states that obligations should be set out in the local plan, so that they are subject to examination [4]. The aim of this is to ensure that these obligations are sufficiently certain and “can be accurately accounted for in the price paid for land”.4 This is particularly important, as paragraph 57 of the NPPF serves to limit the scope for re-testing the viability of developments post-Local Plan examination. As such, developers are likely to find it more difficult to justify diverging from planning obligations on viability grounds. However, currently, few authorities have grappled with the revised NPPF through local plan reviews, and few, if any, local plans contain an explicit reference to the need for developments to fund healthcare services, let alone including a standardised approach. It is therefore difficult for the development industry to factor these ‘unknown’ costs into the viability of the development. Whilst the economic implications of COVID-19 are still crystalising, the viability of sites will invariably be at the forefront of many plan-making and decision-making discussions. This is likely to limit Trusts further, as the viability assumptions of sites will have already been ‘baked-in’, and the economic uncertainty of COVID-19 will invariably impact the viability of some schemes. Moreover, LPAs may have to make tough decisions in the balancing exercise, to ensure that planning obligations align with their area’s particular priorities: fund the NHS? deliver affordable housing in an area where there is already an acute shortfall? Or ensure this brownfield site is brought back in to use? The Government has been clear that a critical part of our economic recovery plan is to ‘build, build, build’ the homes and infrastructure this country needs. But there is still uncertainty from Councils and the Government as to whether such requests are acceptable. Fareham Borough Council rejected a c.£6m S106 request for the Welborne Garden Village in October 2019[5], and the SoS recently rejected a £1m request in Teignbridge in June 2020. Coupled with eleventh-hour requests, discussions and negotiations between LPAs, applicants and Trusts, there is a risk that such requests will delay the decision-making process for applications which are proposing to deliver housing to meet needs, which also deliver wider economic benefits. What the above highlights is that, increasingly, LPA officers will have to weigh up the importantance of further S106 requests in the planning balance, and make difficult decisions as to which best align with the LPA’s priorities, and importantly, which can be viably be delivered. Despite opening up planning obligations to the provision of public ‘services’, the Government is seemingly silent on whether planning should cooperate and integrate with service providers. Historically, whilst both NHS Trusts and CCG’s have been consulted in the preparation of local plans, this has largely in respect of the infrastructure-related impacts of planned housing growth. If planning is to play a role in mitigating the impacts of development on service funding – and evidence from the West Midlands indicates that Trusts believe it should – there is a cogent need for them to engage more proactively in the planning system form an earlier stage, or more specifically, the plan-making process. In the interim, we would urge our developer and housebuilders clients to have a more keen regard to these potential planning obligations when acquiring land and considering site viability, and to discuss this with us. [1] Appeal References: APP/T3725/A/14/2221613 and APP/T3725/A/14/2229398[2] https://www.hsj.co.uk/south-warwickshire-nhs-foundation-trust/massive-pool-of-untapped-cash-for-nhs-from-property-developers/7020202.article[3] https://www.worcesternews.co.uk/news/17918031.city-council-agrees-reject-hospital-39-s-plea-millions-massive-housing-developments/[4] PPG ID: 23b-004-20190901[5] Application Reference: P/17/0266/OA

Simplifying how local authorities calculate their housing need number for the purposes of plan-making has been a key element of improving efficiency in plan-making and will continue to be as Government proceeds to ‘overhaul’ the planning system. The current standard method (introduced in 2018) was a step in the right direction, but it became quickly evident that it was not without its issues: It relies upon authorities doing more – much more – than their minimum figure (which was a collective 270,000 nationally) to achieve 300,000 homes a year. There were too few ‘carrots and sticks’ to get authorities to do more, and little evidence that enough authorities were doing this voluntarily; The method also relies heavily on household projections – in theory a sensible measure of housing need. But these are published every two years (much more frequently than a plan-making cycle), can be subject to significant fluctuations (creating real uncertainty over long-term prospects) and have a reinforcing negative cycle whereby housing under-supply in areas has the effect of lowering the trend (for migration and household formation) that in turn drives future projected growth; At a national level the projections have recently yielded progressively lower figures, further undermining the 300,000 ambition (this led government to direct authorities to continue using 2014-based figures, even after more recent projections were published). More delay, more uncertainty; not the outcome government wanted from this method; and The projections were also at odds with the desire to help ‘level up’ the midlands and north. It piled need into London and the wider south east where projected household growth was high and affordability was worse, whilst doing the opposite in the north. Significantly boosting housing supply across the country? Clearly not.   What’s changed? It became clear that government needed to set the bar high – really high - if it wanted anything close to 300,000 to be delivered. Aiming high and delivering fewer homes deemed far more likely to yield the desired result than setting the bar low and asking them to jump higher. Government has responded; in its consultation on Planning Reform published on 6th August it set out a new standard method which now yields 337,000 homes a year nationally. It follows a similar approach to the current method (Figure 1), but with some important changes: The baseline was previously solely based on household projections. It now uses the higher of the household projections or5% of stock growth. This helps level up authorities where projections are unduly low and implies a ‘fair share’ approach where each authority does its bit; The affordability uplift is now designed “deliver greater overall emphasis on affordability than in the current standard method”. Instead of uplifting solely based on how unaffordable an area currently is, the method now also uplifts based on the change in the ratio over last 10 years. The removal of the cap has also had a significant impact; previously in place to ensure the numbers were ‘deliverable’, Government now believes the cap is ‘not compatible’ with the objective to boost housing supply quickly (an interesting change of tune). This open-ended approach has now led to some significantly higher numbers across London and the south where affordability has significantly worsened since 2009. This will no doubt be a difficult pill to swallow for some areas, but Governments’ intention to concentrate need in areas of poor affordability is abundantly clear. Figure 1 – Difference between current standard method and proposed standard method for assessing housing needs (simplified) This new method is clearly meant to induce a step-change in delivery (indeed it needs to); it’s around 140,000 more homes per year than planned for existing local plans and around 100,000 homes homes than were delivered last year (Figure 2). All this suggests there could still be land needed for around 4 million homes required by 2040*, but this assumes the method remains in place for the foreseeable future (and we already know that may not be the case due to White Paper proposals). But what can we actually expect to see, on the ground? Figure 2 – National totals – Current Local Plan requirements, recent delivery, current standard method and proposed standard method. Source: Lichfields analysis/MHCLG. Current Standard Method figure calculated as of August 2020 – this is lower than the 270,000 figure yielded when the current method was initially published for consultation in September 2017 due to changes in the underlying data   London calling….for yet more housing It cannot be ignored that London’s needs – at over 93,000 – account for almost a third of the national figure. This alone tells us that the 337,000 won’t be delivered, because London will fall short by at least around 50,000 homes per year (and that’s assuming it can sustain the recent peak in delivery of 40,000). Without the duty to co-operate to redistribute this need across the wider south east, this shortfall certainly won’t be picked up elsewhere. Read more about our thoughts on the implications for London in Harry Bennett’s blog. We do like to be beside the seaside… (and the Green Belt, the AONB, the SSSI and the national park) The even greater emphasis on affordability has inevitably led to the greatest impact in the wider south east (in terms of the proportional difference between the new method and recent delivery rates, as shown in Figure 3). Many parts of the home counties would need to see the biggest step-change in housing delivery (shown in Table 1). But in many cases, these are highly constrained areas, be that in relation to the sea, Green Belt, flooding, environmental or heritage designations or a combination, for example Coastal West Sussex, Surrey and South Essex. With these scales of change needed in areas of such high constraint, coupled with commitments from Government to continue protecting such areas, further questions are raised in relation to whether 300,000 will be delivered. The message from Government remains a clear though – poor and worsening affordability = greatest need for housing. Table 1 – Top 10 increases by housing market area between proposed new method and recent delivery. Source: Lichfields analysis Figure 3 – Difference between proposed new standard method and recent delivery (%) by housing market area. Source: Lichfields analysis. Recent delivery refers to 3 year average up to 2018/19 from MHCLG Live Table 125 Moving on up… to higher numbers in the midlands and north With its reliance on projections and affordability, the current method resulted in a strange and undesirable situation across the midlands and north, suggesting that in the future many parts of those regions needed to deliver fewer homes than had actually been built in recent years. Although the new method does not completely resolve this issue (as evident from Figure 3 above), it does take a step in the right direction. In the North East, North West and Yorkshire, the proposed method yields a higher number than the current method across many areas. In the East and West Midlands though, the proposed method is higher than the current method and is a boost on recent delivery levels across virtually all areas, as shown in Figure 4. Figure 4 – Difference between proposed new standard method and current standard method (%) by housing market area. Source: Lichfields analysis. Current standard method figure calculated as of August 2020 The third (and final?) step As I’ve already said, the introduction of the current standard method was a step in the right direction, helping shift debate away from number and on to how needs are addressed. The new method? It looks set to be another – potentially bigger – step in the right direction, creating an ambition somewhat more in line with the overall objective to build 300,000 homes a year. The message from Government is clear; it expects many areas to be faced with difficult decisions on how to significantly increase their housing delivery. Yet at the same time, there remains the perenial tension between the objective of really boosting housing supply and the physical, environmental, policy, fiscal and political barriers which lie in the way of doing so. But not for long. Because just as quickly as Government proposed this new method, it is laying the groundwork for a third (and hopefully final?) approach to housing numbers. Proposal 4 of the White Paper proposes a futher new standard method which distributes the national target of 300,000 homes, taking into account both need and constraints, removing the need for authorities to debate whether they can meet their need at all. In effect, it will do the balancing exercise to apply the ‘policy off’ estimate of need and review of constraints to arrive at the ‘policy on’ requirement That balancing exercise is the one that vexed regional planning, it has vexed localism, and now Government proposes a standard method to resolve it all nationally. All this of course creates more questions; not least around the practicalities of how this would even be calculated; but there is a feeling of coming full circle, away from true localism’ and back to the ‘top-down’ approach vilified just 10 years ago… Find out what the proposed method yields for individual local authorities and housing market areas, including how this compares with current plan requirements and recent housing delivery, here. Follow our blog for upcoming updates on what the consultation means for local regions across the country. *For the period 2025-2040, assuming 5 years of current plan requirements (for the period 2025-30, yielding roughly 1m homes) and 15 years’ worth of need based on the proposed standard method (yielding 5m homes). Does not take account of increases in delivery due to stepped trajectory or backlog, thus true number may be lower.