Planning matters

The 23 November Autumn Statement only said that the much anticipated Housing White Paper would be published ‘shortly’; the Communities Secretary has since confirmed the date of publication as January, 2017 in an Oral Answers to Questions session in the House of Commons on 28 November. He stated:

Housing and Planning Minster Gavin Barwell also noted that the White Paper would set out further details to increase housing supply and tackle rising housing costs.

The White Paper has been much anticipated and its likely content discussed in Communities and Local Government Select Committee evidence sessions, during the Neighbourhood Planning Bill Second Reading and Committee stages, at the Conservative Party conference and in the property press.  The former sources refer to its likely content including:

• National Planning Policy Framework (NPPF) changes, some of which were consulted on from the end of last year (and any related national Planning Practice Guidance changes), which could reflect the ‘new’ Government’s stance;
• The Government response to DCLG’s ‘Technical consultation on implementation of planning changes’, which included questions on the resourcing of local planning authority (LPA) departments, planning fees, permission in principle (‘PIP’) and brownfield registers.  There may well be a reference to the detailed content of some or all of the secondary legislation required for these changes and when it will all come into force;
• The non-primary legislation required for implementing (at least some of) the Local Plans Expert Group’s (LPEG) Government-supported recommendations, including the detail of circumstances when and how the Communities Secretary might intervene in the local plan process, and recognition of the time and costs associated with the production of a local plan;
• Endorsement of, and encouragement for modern construction methods, potentially through policy and/ or financial incentives (and/ or encouraging financial institutions to meet the needs of that sector);
• The future policy and legislative approach to starter homes;
• The detail of the anticipated permitted development right to demolish offices and rebuild residential; and
• the outcome of, and Government response to, the community infrastructure levy review.

The White Paper may also:

• promote Build to Rent;
• suggest ways of penalising developers for not implementing planning permissions;
• propose additional support for small and medium housebuilders;
• provide an update on locally-led garden settlements; and
• refer to the work of the estate regeneration panel (co-chaired by Lord Heseltine - its strategy is due before the end of the year).

The day after the Autumn Statement, the Communities Secretary told the National House Building Council:

‘We’ll soon be publishing a White Paper setting out reforms that will get more of the right homes built in the right places. I’m not talking about small tweaks, building a thousand homes here or a thousand homes there.  I’m talking about major, long-lasting reform that will carry on delivering homes well after I’ve left office.’

He used the same speech to announce that he had lifted the holding direction issued six months ago to Birmingham City Council, requiring the LPA not to take any step towards adopting the Birmingham Development Plan 2031.  Javid said:

‘The plan is supported by the independent Planning Inspectorate. But it’s fundamentally a local decision made by local people. They’ve looked at all the options. They’ve considered all the implications. They want to build homes for their children and grandchildren.  And Westminster politicians should not stand in the way of that.’

Birmingham Council now intends to adopt the Birmingham Development Plan in early 2017.

As an aside, there is no update at present on the holding direction issued to Bradford Metropolitan Council only this October, but the words chosen by the Communities Secretary, and the above referred- to provisions and clauses in primary legislation relating to local plan intervention could well apply here too.

Looking at the bigger picture, the Housing White Paper will, in our view, be one of the most important documents to be published by Theresa May’s Government - and several of its anticipated elements are expected to affect planning generally, not just housing. Its apparent delay has not been explained nor much of its detail specified yet directly by Government. What we do know is that it will take centre stage in the Government forming and then pursuing a more balanced direction in national housing and planning policy. This can only be ‘a good thing’, particularly as the development sector and (most certainly) house builders are all in need of consistency, certainty and clarity – as they have been for some considerable time now. We accept the frustrations felt by having to wait for the Paper until the New Year but because its aim is to draw together a vast range of existing, emerging and new policy positions coherently, it is better that the Government spends as much time as is necessary on trying to get it right.

 

The Mayor’s long-awaited ‘Homes for Londoners, Draft Affordable Housing and Viability Supplementary Planning Guidance (SPG) 2016’ has now been published (on 29 November). His new guidance on bidding for grant funding from the £2.171bn Homes for Londoners Affordable Homes Programme 2016-21 has also been published, setting out how housing providers and developers should be considering bidding for grant funding from the Programme.

Turning first to the draft SPG, consultation will close on 28 February 2017. It is important to underline how once finalised, the SPG will supersede section 3.3. (Build to Rent) and Part 5 (Viability) of the March 2016 Housing SPG; the rest of the Housing SPG is to remain current.

The new draft SPG provides guidance on a wide array of affordable housing-related issues, which broadly fall within three main topics:

After having been mooted for a few months, the proposed 35% affordable housing (to be measured in habitable rooms) threshold (‘This SPG does not and cannot set a fixed target for affordable housing in developments’) is now ‘official’. The so-called ‘threshold approach’ is meant to incentivise developers to deliver 35% or more affordable housing in their schemes, by not requiring them to submit viability assessments (‘Route B’) if that proportion can be delivered without public subsidy and respecting other requirements (such as tenure mix). The draft SPG underlines that where Boroughs adopt different approaches to delivering a higher average percentage of affordable housing (without public subsidy), their local approach should continue to apply.

When a scheme does not meet the 35% threshold (‘Route A’), viability evidence would have to be submitted, and review mechanisms should apply to ensure that ‘any future uplift in values contributes to the delivery of the maximum reasonable amount of affordable housing’. These review mechanisms would consist of early review, where an agreed level of implementation progress is not made within two years of the permission being granted, and near the end of development, once 75% of units have been sold. If a surplus profit were to be identified, ‘this should be split 60/40 between the local planning authority (LPA) and developer’. Applications which propose off-site or cash-in-lieu contributions, which involve the demolition of existing affordable housing or where the applicant claims the vacant building credit applies would all have to submit viability evidence.

The new ‘Homes for Londoners: Affordable Homes Programme 2016-21 Funding Guidance’ that has been published alongside the draft SPG specifies the incentivising circumstances in which the Mayor will make funding available to guarantee an increase in the number of affordable homes delivered. For Route A schemes (viability evidence is required), grant will apply to all affordable homes if the affordable housing delivered with grant is more than 40%; if the affordable proportion with grant is lower than 40%, the grant will only apply to the additional units ‘over and above the baseline level of affordable housing […] viable on a nil-grant basis’. For Route B schemes (viability evidence NOT required), grant will only be available if this allows the proportion of affordable housing to increase above the nil-grant position to a level of 40% or more.

Further details are provided on the London Living Rent (LLR) – expected to ‘offer tenants (whose combined income is below £60,000) the right to purchase their LLR home on a shared ownership basis’ after a rental period of 10 years – and on intermediate housing products, as well as starter homes (‘the Mayor will provide an update on how any starter homes requirement might affect the details of this SPG once the Government’s position has been made clear’).

Finally, the Mayor’s view on the national Planning Practice Guidance’s Vacant Building Credit (VBC) is that this will not be appropriate in London ‘in most circumstances’, as developments on brownfield land would come forward anyway. The draft SPG also underlines that if an applicant claims a scheme qualifies for VBC, community infrastructure levy relief cannot be claimed through the Regulation 40 vacancy test.

Given the importance placed on viability assessments as the means for scrutinising schemes that fail to hit the 35% affordable housing threshold, the draft SPG provides guidance on how these assessments should be undertaken. The draft guidance offers detailed explanations on different appraisal requirements, development values and costs, including:

• How abnormal costs should be considered (these ‘are assumed to have influenced the level of premium above the existing use value a land owner would expect’);
• Built cost inflation, which should not be included; and
• Developer’s profit, which is recognised as being ‘scheme specific’ and that it needs to be justified by applicants, taking account of ‘individual characteristics of the scheme’, the potential risks of the development and comparable schemes.

Furthermore, the Mayor underlines his preference, in terms of viability assessment approaches, for the ‘Existing Use Value plus’ (EUV+) approach, where ‘the benchmark land value is based on the current use value of a site plus an appropriate site premium’, as this is considered ‘the most appropriate approach for planning purposes’. Therefore ‘in most circumstances the Mayor will expect this approach to be used’; alternative approaches will only be considered in exceptional circumstances but a ‘market value approach’ will generally not be acceptable for the Mayor.

Finally, LPAs are invited to consider a more tailored approach to affordable housing for Opportunity Areas and Housing Zones, taking into account the characteristics of sites, while for Strategic Industrial Locations (SIL), the Mayor recommends that ‘when the release of SIL is deemed appropriate (in local plans), it fully contributes to other important planning objectives, in particular new affordable housing’.

The last section of the draft SPG focuses on Build-to-Rent (BtR); the Mayor openly expresses his support for such development and particularly recognises the ‘distinct economics of the sector’, in comparison with more mainstream ‘build for sale’. The draft SPG has therefore defined specific requirements for these schemes.

In recognising that one of the major constraints affecting BtR developments is the lack of an appropriate legislative/ planning framework, the Mayor aims to propose a ‘BtR pathway’, the key principles of which are:

• A clear definition of BtR, this being: schemes of at least 50 units, with homes (all self-contained and let separately) to be held as BtR under a covenant of at least 15 years; unified ownership and management, including professional and on-site management; longer tenancies being offered (ideally three or more years); and where the property manager is a member of a recognised professional body;
• Recognition of a specific affordable housing type associated with BtR, as all homes in BtR schemes should stay under single management and therefore discounted market rent (‘preferably at London Living Rent levels’) is to be preferred;
• The design of schemes, in terms of space standards, should be in accordance with Policy 3.5 of the current London Plan (with the draft guidance however recognising ‘flexibility to consider innovative design where they meet identified need and are of an exceptional design and standard’);
• A specific approach to viability, recognising ‘the distinct economics of the sector’ – the threshold approach (Route B) would not apply to BtR schemes and viability information would be required; and
• Management standards, as BtR schemes should ‘showcase the best management practice in the rented sector’.

Looking then at the Mayor’s new guidance on bidding for grant funding from the £2.171bn Affordable Homes Programme 2016-21, it provides all the detail for providers and developers considering bidding for grant funding. In terms of timing, funding bids will have to be submitted using the GLA’s new ‘Open Project System’ (OPS) between 31 January and 13 April next year. The assessment of all bids will take into account: deliverability (including consideration of a provider’s delivery output under previous funding programmes, when a bid is for ‘Indicative proposals’ i.e. those just showing the number of homes to start in each financial year); feedback from the London Borough; and Regulator feedback (e.g. on the provider’s business plan).

Announcements of allocations will then be made in May, with the GLA’s ‘partners’ contracted by the end of June, 2017.

With the Programme being for 60,000 starts on-site by 2021, eligibility to bid for grant is limited only to organisations intending to own the completed affordable homes. If properties are to be funded as London Affordable Rent or London Living Rent, the landlord also has to be registered with the Social Housing Regulator. As explained above, BtR developers are expected to provide some units in their developments for sub-market rents. Where set at the level of London Living Rent, providers retaining a legal interest in these homes will be able to bid to secure grant from the GLA, if the landlord of the properties is registered with the Social Housing Regulator (such properties would not have a mandatory right to shared ownership).

Funding bids are also encouraged from London Boroughs.

As regards process, there are three bidding mechanisms: the ‘Approved Provider’ route (available if at least 50% of the provider’s housing starts in London between April 2015 and March 2021 are affordable homes); the ‘Developer-led’ route (for all schemes with less than 50% affordable housing, or with an ‘in lieu’ off-site provision that proposes more affordable homes than required under the s106 obligation); and a route for negotiated grant rates (for supported or specialist housing).

Schemes using the ‘Developer-led’ bidding route are incentivised to provide more affordable homes. Where the percentage of affordable housing proposed is more than 35% but less than 40%, funding is only available for the homes over and above the 35% level. If however grant would enable the level of affordable housing to be viably increased to 40% or more, it can be applied to every affordable home in the project. And if a development could viably achieve 40% or more affordable housing without GLA grant, providers can use the grant-funding to increase the level of affordable provision to an even higher level.

A recent report published by Scape Group[1] has revealed the extent of the school places’ challenge across all regions in England. The report analyses primary and secondary pupil projection numbers from the Department of Education and local authorities and identifies that by 2020 there will be an extra 366,000 primary school age pupils and an extra 362,000 secondary school age pupils (an almost 10% increase in the current total number of state school pupils). To accommodate this significant increase in pupil numbers, over 24,000 extra classrooms - or more than 2,100 new schools - will need to be built. To put that into perspective, it equates to the development of two new schools every day.

Looking further ahead to 2025, current projections suggest the secondary school population could rise by 574,000, according to Department of Education Projections[2]. There is therefore significant pressure on Government to ensure that this need is met.

Unsurprisingly the majority of the pressure for school places is seen in London, where more than 500 of the new schools are needed. Also as would be expected, closely following behind London is the South East. The below table taken, from the Construction Enquirer², breaks down the need by region.

Living and working in the Thames Valley, this is a story I read about frequently. Barely a week goes by without seeing an article in the local press about local residents’ battles for school places for their children. As someone who hopes to have children in the future, this is something that weighs on my mind, and like many others, is a key factor in determining where to live to ensure there are sufficient spaces in nearby schools to accommodate my future offspring. And this is before even considering any Ofsted assessments.

So what can be done to ensure the provision of enough school places?

It is clearly increasingly important that school-building is prioritised. There are already a number of Government initiatives in place seeking to increase the supply of schools, such as the rise of free schools and academies, where funding is received from Central Government rather than local authorities. The Department for Education (DfE) has invested £2billion to purchase land for new school sites, under its pledge to deliver 500 new free schools by 2020[3]. As part of this initiative, DfE has set up ‘LocatED’, a property company wholly owned by DfE, established to buy and develop sites for free schools in England. Whilst a positive step from Government, if the free schools initiative is successful in setting up 500 new free schools by 2020, this still leaves a shortfall of almost 1,500 new schools needed to be built according to the Scape Group figures.

Therefore, more still needs be done to deliver new school capacity. With many local authorities in the process of preparing new local plans, or reviews of adopted plans, it is imperative that adequate policy provision is made, alongside the allocation of sufficient land for the development of new schools in the wider context of housing and other development needs within the plan-making process.

Creative solutions to the delivery of new schools should also be explored. Scape Group Chief Executive Mark Robinson within the report states:

“It is vital that we continue to deliver high quality school places quickly, and that we consider creative solutions to get the job done. Super-schools, standardised design, classroom extensions and more effective use of land to deliver mixed-use developments are all options we need to look at to deliver more school places in time.”

Active engagement between central government, local authorities and the private sector to deliver new schools should be at the forefront of the new schools agenda.

It is also important to recognise the potential length of the lead-in time for the grant of planning permission before construction can begin. Often, months of preparatory works are required before an application can be submitted, including pre-application discussions with the local planning authority (LPA), together with local consultation and engagement with stakeholders and communities. There is then the statutory application determination period to take into account (either 8, 13 or 16 weeks, dependent on the scale and nature of the application proposals), plus the need to discharge any pre-commencement planning conditions prior to works starting on-site.

NLP has significant experience in obtaining planning permission for new schools for local authorities, public bodies and developers, including as part of mixed-use schemes, such as our recent success in Amberley, Sussex. For more information on our experience or to discuss any potential development opportunities please do not hesitate to contact us.

Most people now agree that we need to build significantly more homes than we currently do. And the Government wants planning to think big in how it goes about achieving this objective. With its ‘locally-led’ Garden Towns and Villages agenda and last December’s consultation on proposed changes to the National Planning Policy Framework to encourage new settlements, local planning authorities and developers are being encouraged to look closely at bringing forward large-scale housing development projects.

On paper, this emphasis on large sites is useful – with just one site of several thousands of homes, a district can meet a significant proportion of its housing requirement. Moreover, their sheer size can stimulate the local economy and drive innovation as the site and infrastructure are developed.

However, large sites are not a silver bullet. Their scale and complexity mean that they take time to plan and require significant upfront capital investment. Furthermore, there is a need to be realistic about how quickly they can deliver new homes – such sites are not immune to the challenges and risks of the market.

Our latest research report, Start to Finish, provides wide-ranging insight and analysis on the lead-in times, planning period and delivery phases of housing sites. This blog post sets out the key findings from the report.

Before any homes can be built on-site, an outline or full planning application needs to be submitted and planning permission (followed by reserved matters approval for outline applications) has to be granted. A s106 obligation will generally need to be entered into. Pre-commencement conditions need to be discharged before any development start on-site. Our research shows that both the planning period (from application to decision) and the period of time between permission being granted and the first home being built depends on the complexity of the site, which frequently correlates with its size.

The larger the site, the longer the planning application determination period. Sites outside of London of between 100 and 499 units take, on average, 2.5 years – at least half the time required for sites of over 1,000 units – reflecting differing levels of site complexity.

Smaller sites take longer to deliver the first home after planning approval. This period of development takes just over 18 months for sites - outside of London - of under 500 units, but perhaps surprisingly, this is significantly quicker on larger sites; in particular, on the largest 2,000+ dwelling sites the time period from planning to first completion was under a year. This could be because larger sites may more often have larger housebuilders on board by the time an implementable permission is secured, thus be able to mobilise resources quicker.

It is widely recognised that build rates on sites are dictated by the number of sales outlets and market absorption rates. Self-evidently, large sites will frequently have more than one housebuilder building and selling homes. The larger the site, the greater the number of outlets (different housebuilders) on-site and the faster the delivery rate. Based on our research, we found that, on average, sites of 100 to 1,000 units will typically deliver 60 units, each year while sites of 2,000 or more will deliver over 160 units per annum. However, it is worth noting that while larger sites have a higher delivery rate due to the number of additional outlets, they take longer to plan and start on-site. There is also significant variation from the average – some sites can be quicker, others slower. And there are fluctuations from year to year.

Our analysis shows that markets really do matter for housing delivery rates. Using estimates of land value with residential planning permissions at local authority level – as a proxy for market demand and economic strength – relatively stronger markets tend to have higher delivery rates. This raises an important point about absorption rates – in stronger areas, housebuilders are able to build homes at a faster rate and sell them at the value they expect.

Housing sites with a larger proportion of affordable homes deliver more quickly, where viable. For both large and small-scale sites, developments with 40% or more affordable housing have a build rate that is around 50% higher compared to developments with less than 10% affordable housing.

The relationship between affordable housing provision and delivery rate is complex and rests on a variety of factors including viability and the level of grant or subsidy available to housing associations. On large sites, securing affordable housing ‘sales’ can benefit housebuilder cash flow by providing financial certainty, which can be beneficial, particularly early on in a larger scale development. However, it does demonstrate that – where viable - a tenure mix that extends beyond just housing for sale can help overcome the natural limitations associated with absorption rates. So the introduction of self-build and private rented properties might similarly increase rates of development.

If we are serious about achieving the Government’s target of one million homes built by 2020 (or indeed, deliver the 300,0000 per year that are needed), we need to recognise that it is about much more than just having a headline number of units in plan allocations or with planning permission. We need to understand trajectories of development – the length of time it takes for sites to come forward and the rate at which they deliver homes. Every site is different, and there is a need for local authorities to understand the barriers and drivers of delivery in their area, seek to allocate appropriate housing sites in response and then closely monitor their progress.