Planning matters

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From demand to supply: the rise of ‘build to rent’
With newspaper headlines on the plight of ‘generation rent’, the proliferation of TV adverts for landlord’s insurance and debate on the ‘housing crisis’, most will be aware that private renting is on the increase. Since 1991 the proportion of households privately renting has been steadily increasing and approximately 20% of English households now live in the private rental sector (PRS), up from 9% in 1991. Despite significant and growing demand for housing in the PRS, most properties are still owned by part-time landlords and the sector is overwhelmingly made up of second-hand stock, with few new homes designed specifically for PRS tenants. This is in contrast to many European countries and the USA, where a significant number of homes are built specifically for the needs of private renters, often at scale and in the single ownership of an institutional investor - much like many prime commercial properties in the UK.This is now beginning to change. In October 2015, British Property Federation (BPF) research found that over 21,000 dwellings (including 14,276 in London) specifically designed for private renters and aimed at the institutional investment market (or ‘build to rent’) had planning permission in the UK. By the February 2016 update of these figures planning permissions for build to rent had surged to over 30,000 dwellings, a 47% increase in just five months. Since the New Year, investment in the sector has continued apace with the likes of L&G and U + I announcing significant new investment and RBS allocating £1bn to fund ‘build to rent’ development. While permissions for ‘build to rent’ dwellings are small in comparison to ‘for sale’ housing, in the prevailing brownfield-first policy context they are important. Despite increasing housing starts in 2015, new housing supply is still lagging significantly behind housing need. With no immediate prospect of substantial Green Belt review, both Sadiq Khan and Zac Goldsmith as London mayoral candidates have recently affirmed their commitment to this political sacred cow, development on brownfield sites will need to intensify.‘Build to rent’ is well suited to this challenge. There is minimal overlap between would-be buyers and tenants and so such developments can be delivered alongside traditional ‘for sale’ housing without directly competing with it. The BPF research has also suggested that delivery rates for ‘build to rent’ could significantly exceed those of ‘for sale’ developments. Furthermore, the timescales for returns on PRS investments are much longer term than ‘for sale’ housing and this means investors retain a strong, long term interest in the local area. Such schemes therefore potentially can be a significant bonus and boost to regeneration and estate renewal projects, increasing the speed of delivery and ensuring that a powerful advocate for an area’s regeneration remains in place after homes are developed and the initial media attention ebbs away.Considering the above, it is no surprise that ‘build to rent’ has attracted political interest. Since Sir Adrian Montague’s Review of the barriers to institutional investment in private rented homes (2012), ‘build to rent’ has garnered increasing political support, including reference in the Mayor of London’s Housing Covenant (2013) and the establishment of the Government’s build to rent fund. This has also begun to translate into planning policy; the 2015 Further Alterations to the London Plan set out the requirement for Local Development Frameworks to provide “positive and practical support to sustain the contribution of the Private Rented Sector in addressing housing needs and increasing housing delivery”. The Mayor’s Housing SPG, published 15 March 2016, fleshes out what this support entails under the heading ‘Build to Rent’: Housing Mix: policies requiring larger units as part of the housing mix “could be applied flexibly to ‘built to rent’ schemes” in central or highly accessible locations (para. 3.3.11); Viability: the SPG notes that in some cases due to “distinct economics of the sector”, ‘build to rent’ will not be able to support the same level of affordable housing as ‘for sale’ development. The SPG advises that provided a scheme is secured for private rent for a fixed period through a covenant (in the s.106 or other legal agreement) reduced affordable housing provision, where justified with a viability assessment, would be acceptable provided that a ‘clawback’ mechanism was in place to secure additional contributions if any dwellings were sold outside of the long term PRS market. It notes the ‘clawback’ period should be a minimum of 15 years (paras. 3.3.6 to 3.3.8); Affordable Housing: intermediate rent, which qualifies for mandatory CIL relief, can be delivered in place of traditional affordable housing (para. 3.3.10). This is beneficial to ‘build to rent’ developers as it allows the retention of single ownership and management. This new guidance is broadly helpful, however, it primarily captures what has already been going on, and while formally setting this out in planning policy is no doubt useful, some obstacles remain. Minimum space standards, contained in the London Plan (and other development plans) are not always particularly  suited to ‘build to rent’ development which is primarily aimed at young professionals, who move more often, and have usually accumulated less ‘stuff’. The Housing SPG does, tantalisingly, advise that Boroughs are “encouraged to work proactively” with ‘build to rent’ developers “recognising its distinct economics and, where appropriate, design requirements” (para. 7.6.7), but minimum space standards are not explicitly addressed. ‘Build to rent’ developments are well-tailored to the needs of occupiers and often include additional communal facilities such as meeting rooms, dining rooms, ‘spare’ bedrooms for guests, hire shops, gym and leisure facilities. If reduced floorspace can be justified, having regard to the overall design of the development and the intended end users, a flexible interpretation of space standards makes sense. It would after all be somewhat perverse if the rigid enforcement of high minimum space standards for the relatively few people who live in new homes stymied the creation of the new supply which may ultimately help to address the chronic overcrowding of many existing (much less well-maintained or spacious) rental properties.‘Build to rent’ is of course no cure-all, there is only so much available brownfield land and while the end product will not be in competition with ‘for sale’ housing, competition for land will remain. It also does nothing to address the supposed generational inequity in the overall housing market, with the involvement of big institutional funds the tenant is still more or less paying someone else’s pension.These caveats aside, the rising role of ‘build to rent’ is significant, turning hitherto latent demand for high quality, purpose built accommodation into new supply which can be delivered alongside, and not in competition with, ‘for sale’ housing.  The majority of permissions (and vast majority of completions) have been in London, and with cupboards in Clapham (allegedly) commanding the same rent as three bedroom houses in Cumbernauld this is perhaps no great surprise. However, build to rent developments are also being planned in Bristol, Manchester, Leeds and Liverpool - clearly suggesting that building to rent is not simply a symptom of the chronic undersupply and high rents which characterise the London market. Such schemes can be delivered rapidly with investors retaining a long term interest in the building and surrounding area. With new housing development being directed towards brownfield sites and housing estates, these attributes mean ‘build to rent’ is likely to play an important role in the delivery of much needed new homes over the coming years, particularly if the remaining obstacles can be ironed out.NLP is currently assisting a number of clients in delivering new homes for rent and looks forward to working on more projects in this expanding sector over the coming years. If you have any questions, please contact us.  

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Court of Appeal Judgement provides clarity on the NPPF “relevant policies for the supply of housing”.
Yesterday, a Court of Appeal Judgement was handed down in the case of Richborough Estates Partnerships LLP v Cheshire East Borough Council and Secretary of State for Communities and Local Government.The Judgement provides clarity on the phrase “relevant policies for the supply of housing” (‘the phrase’) found at paragraph 49 of the  National Planning Policy Framework (NPPF). There have been inconsistent conclusions from six other High Court cases that have considered the issue.This Judgement is important to the development industry because paragraph 49 of the NPPF sets out that where a Local Planning Authority (‘LPA’) does not have a five year supply of deliverable housing land (‘5YHLS’) relevant policies for the supply of housing should not be considered up-to-date. NPPF paragraph 14 explains that where the development plan, or relevant policies are out-of-date, planning permission should be granted unless any adverse impacts of doing so would significantly and demonstrably outweigh the benefits, when assessed against the NPPF as a whole.In short, where a LPA cannot demonstrate a 5YHLS permission for new housing should be granted unless there are significant and demonstrable adverse impacts.The Judgement is clear that the interpretation of ‘the phrase’ is not confined to policies in the development plan that seek to plan positively for the delivery of new housing in terms of numbers and distribution or the allocation of sites. Importantly, the Judgement held that the phrase extends to plan policies whose effect is to influence the supply of housing land by restricting the locations where new housing may be developed and goes further to acknowledge that such policies could include policies for: the Green Belt; the general protection of the countryside; conserving the landscape of Areas of Outstanding Natural beauty and National Parks; wildlife; cultural heritage; or other policies whose purpose it is to protect the local environment by limiting development. This Judgement is important to clarify to developers and decision makers how this policy is to be applied in planning decisions. However, it must be noted that that the Judgement does not make such policies as those listed above irrelevant if they are deemed to be out-of-date; it remains a matter for the decision maker as to what weight is attributed and whether any adverse impacts significantly and demonstrably outweigh the benefits of the proposal being considered.Click here for a copy of the Judgement.Should you have any further queries, please don’t hesitate to get in touch.  

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