Covid-19: Testing times for housing delivery - hawks vs doves

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COVID-19: Testing times for housing delivery - hawks vs doves

COVID-19: Testing times for housing delivery - hawks vs doves

Matthew Spry 15 Apr 2020
Housing land supply and delivery may not be top of the Government’s current list of COVID-19 priorities, but those in planning and development must quickly reflect on the likely significance of its impacts:
  • the complete cessation for several weeks of construction activity on most major housing sites;
  • marked delays in planning decision making and plan making; and
  • an economic downturn that the OBR estimates could feature a 35% reduction in GDP[1], with obvious consequences for future strength of the housing market.
This blog looks at the implications of COVID-19 for five-year land supply (5YHLS) and the housing delivery test (HDT), and questions whether the planning policy response should be that of the 'hawk' (aggressively imposing the 'tilted balance' to boost supply) or the 'dove' (relaxing the rules to reflect the unavoidable nature of the current crisis).

Five Year Housing Land Supply

COVID-19 will impact on the ability of many local planning authorities (LPAs) to maintain a 5YHLS. Just last week, the Inspector at a recent appeal in Wokingham[2] justified a potential adjustment to its 5YHLS calculation:
“The Covid-19 pandemic is likely to have implications for the housebuilding industry as with other sectors of the economy. The evidence indicates that a number of developers are temporarily closing their construction sites to protect employee and customer welfare. For those remaining open, the lockdown will impact on the availability of support services. Customer confidence is also likely to be reduced with a consequent effect on the buying and selling of property.
The Appellant has concluded that the effects would be felt for a 3 to 6 month period, which does not seem unreasonable. On that basis the conclusion is that a further 168 dwellings should be removed from the trajectory to take these factors into account. Whilst it is contended that this is an optimistic assessment, it is equally possible that a bounce back will occur once the crisis ends. Indeed, it is reasonable to surmise that housebuilders and their suppliers will be keen to rectify losses if it is possible to do so.” (DL 109-110)
Perhaps LPA 5YHLS positions may not be dramatically degraded by COVID-19, and in some cases could even improve: for example, where the backlog of units undelivered on stalled construction sites is simply added to the maintained pipeline of future sites, where there is a flow of new permissions coming through and - in situations where there is no local plan – where any shortfall (past under-delivery) is ‘wiped clean’ at the start of each monitoring year rather than added to the future requirement.
However, that is not a given. A more reflective view highlights a number of substantive risks:
1. The immediate economic impacts will be very acutely negative, and however strong and quick the rebound, there are likely to be consequences over a longer period, for example:

a. Ongoing challenges for the capacity of the construction industry, including in supply chain and availability of labour for some housebuilders;

b. Changes in the corporate composition of the development and construction sector, if some housebuilders or developers run out of funds;

c. reduced consumer confidence in areas most affected by economic downturn, with a slower rate of sales and/or downward pressure on values[3] in situations where housebuilders are under pressure to maintain sales rates for cash flow reasons.

2. This will unwind the viability of some existing permissions and allocations, leading either to the stalling of sites until the market returns to pre-COVID-19 levels, or the need to revisit existing s.106 commitments or change mix of type and tenure;

3. The lapsing of unimplemented permissions, unless the Government follows the example of Scotland[4] and introduces legislation to extend the life of some permissions nearing expiry;

4. There will be delays to some local plans, including those well advanced and at examination, with impacts on release of land reliant upon allocation in adopted plans; and

5. For areas without an up-to-date plan, the housing requirement figure in the 5YHLS calculation may change in the medium term as a result of adjustment in the ratio of median house prices to workplace incomes (this ratio is used as part of the market signals uplift in the standard method for local housing need)[5].
The NPPF requires sites in a 5YHLS to be ‘deliverable’ and for those in category b)[6] the realistic prospect of housing completions within five years should be demonstrated with ‘clear evidence’. COVID-19 is a planning force majeure which means previous deliverability assumptions in recent Annual Monitoring Reports (AMRs) cannot be taken as read. At minimum, LPAs will need a comprehensive due diligence of their most recent 5YHLS assessments to ensure their judgements on site deliverability remain up-to-date. A failure to keep evidence robust and up-to-date[7] could mean many LPAs will fail to demonstrate a 5YHLS.

Housing Delivery Test

Part of the 5YHLS calculation is the buffer, which is ordinarily 5% unless the Housing Delivery Test[8] (HDT) results are below 85%, when it increases to 20%. From November 2020, an HDT result below 75% will trigger the application of the NPPF’s ‘tilted balance’ – the presumption in favour of sustainable development - in para 11 d), which increases the prospect that permission should be granted for applications involving the provision of housing.
The HDT results due in November 2020 will measure housing provision in the three years to the end of March 2020, which in practice means the impact of the COVID-19 shut down will be de minimis (two weeks out of three years, around 1%).
However, for the next HDT results due in November 2021, the consequences of the shutdown will be more significant, equivalent to several weeks (probably months) of output immediately impacted.  A lockdown of, say, 10 weeks would be 6-7% of the time available for construction activity over a three-year period (significant but not overwhelming), but the reality is that it will take longer for many mothballed sites to be opened back-up and construction resume, with a further suppression on completion rates if the market is depressed over a sustained period. If this year does contain several fallow months of delivery, it will influence the HDT results until November 2024, when the 2020/21 monitoring year drops off the end of the three-year assessment period. 
The 2019 HDT results saw only eight LPAs fall below the (transitional, 45%) threshold for application of the presumption in favour of sustainable development and a further 83 had a 20% buffer. If COVID-19 effects are as significant in 2020/21 as we might fear, the November 2021 HDT (and in subsequent years) will mean many more LPAs become subject to the ‘tilted balance’.

What should be the policy response?

COVID-19 was unforeseeable; nobody in planning or development is at fault for its immediate impacts on housing delivery. In consequence, many LPAs will feel a failure to demonstrate a 5YHLS or achieve the necessary HDT results means they are being unfairly ‘penalised’ by the granting of permissions for housing on unallocated sites[9].
So, what is the appropriate policy response to the likely future crunch in housing delivery?
A planning ‘dove’ might say the Government should cut LPAs some slack for the exceptional circumstances of COVID-19 – perhaps by temporarily reducing the HDT thresholds or relaxing the requirement for a five-year land supply? But by how much? And what if the economic downturn and recovery is uneven between places?
The planning ‘hawk’, in contrast, would advocate that:
  • a gap in housing delivery will mean real households being denied real homes;
  • housing supply (and the economy) requires a significant boost to delivery; and
  • applying the tilted balance should be part of the solution, to help bring forward new housing sites where the downturn is ‘priced-in’ to their viability.
The hawkish approach – the tilted balance, with significant weight given to the need to boost the supply of new housing – was applied with vigour between 2012-15 and helps explain the high level of housing completions over the past three years.
How does the hawk reconcile with the dovish concern about fairness? The answer lies in the fact that the ‘titled balance’ is not applied in isolation – a point recently made plain by Mr Justice Holgate in the High Court[10] - and in the presence of HDT Action Plans[11] (which all authorities must produce if their HDT falls below 95%[12]).
The Elphicke-House report[13] gave lie to the idea of LPAs as passive players in housing supply, and much has been made[14] of the renewed appetite of Councils as landowners and house builders, with tools to intervene directly in the market. There will be many positive things local authorities can do to boost supply: identifying new sites, being flexible on policy requirements in response to changing viability, intervention in the land market, funding or direct housing provision. The COVID-19 crisis should stimulate positive activity on HDT Action Plans for all LPAs over coming months, irrespective of their most recent HDT results.
In applying the tilted balance of NPPF para 11. d) to an application for residential development, and considering how much weight should be attached to the benefit of new housing when there has been a drop in supply, it would be open for the decision maker to take into account how far the LPA’s HDT Action Plan contained proposals that would in any event prove effective in boosting future levels of housing supply in response to the COVID-19 shortfall.
Viewed through this prism, the HDT and 5YHLS are seen not as a penalty but as monitoring tools to help planning authorities exercise their true role as housing delivery enablers, working in partnership with developers and helping plot a way through these challenging times.

[1] OBR coronavirus scenario, 14th April 2020[2] APP/X0360/W/19/3238048, Land north of Nine Mile Ride, Finchampstead, Berkshire, 9th April 2020[3] Para 1.29 of the OBR’s Coronavirus scenario includes an assumption that RPI inflation will be affected by lower mortgage interest payments and lower house prices.[4] In sections 8-10 of Schedule 7 of the Coronavirus (Scotland) Act 2020[5] The impact of this will be positive or negative depending on whether the fall is greater in house prices or incomes. In any event, the change will not be immediate due to the time lag in data.[6] Defined in the NPPF as where a site has outline permission for major development, is allocated in a development plan, has a grant of permission in principle, or is identified on a brownfield register,[7] As required by the PPG ID:68-007[8] The HDT measures the number of net additional dwellings in each local authority area against the number of homes required. Its results are intended to be published in November of each year, assessing the position in the three-year period up to 31st March that year.[9] The question of whether ‘penalties’ should be imposed on LPAs for something ‘outside of their control’ is not new. The presence or not of ‘persistent under-delivery’ in the 2012 NPPF was often contested over whether it was ‘fair’ to impose a 20% buffer to 5YHLS if the historic shortfall was due to a weak housing market. More recently, some critiques of the HDT base their complaint on the idea that housing under-delivery is the responsibility of housebuilders rather than local authorities. [10] Gladman Developments Ltd v Secretary of State for Housing, Communities and Local Government & Anor [2020] EWHC 518 (Admin) (06 March 2020)[11] Guidance on HDT Action Plans can be found in the PPG ID:  68-047 – 054 and via the Planning Advisory Service [12] As required by NPPF para 75.[13] The Elphicke-House Report - From statutory provider to Housing Delivery Enabler: Review into the local authority role in housing supply.[14] See, for example, the research by the RTPI