Maintaining a five-year land supply (‘5YHLS’) – a test of whether there will be enough homes to meet housing requirements over the next five years – has long been a major planning consideration under the NPPF.

A lack of 5YHLS engages the titled balance of ‘Paragraph 11(d)’ of the NPPF (2021) and renders the policies affecting housing provision to be ‘out-of-date’. This can and has resulted in developments being approved that might otherwise not have been; helping address housing shortfalls.

On the one hand, it’s a relatively good forward-looking indicator that identifies when there is likely to be a shortfall in the supply of homes (albeit, as we found in London, there is likely some ‘optimism bias’ baked into LPAs and by extension developers forecasts[1]).

On the other hand, it has been a major flash point for some local authorities and local residents who see speculative developments coming forward where a lack of 5YHLS is found, leading some to feel run roughshod by the planning system.

Taking a step back, the reason for allowing development on unallocated land is generally a lack of timeliness in plan making to provide an adequate supply of plan-led housing sites (a subject recently covered in a blog by my colleague, Rachel Clements[2]). A lack of plan-making leads to a lack of allocations, leading to a lack of planning permissions and thus lack of development, which eventually results in a shortfall of supply, and thus speculative development comes forward. While it may be a flash point for some, this is exactly how the planning system is currently designed to work.

In the Government’s Planning White Paper (2020), it was mooted that the requirement for LPAs to demonstrate a 5YHLS might be scrapped as part of wider changes to the planning system (presumably to curb speculative development). We pondered the impacts of this back in our previous summary (see Section 4). However, it looks like 5YHLS has some life left in it yet.

 

Amendment to the 5YHLS requirement has been suggested in the Government’s ‘Policy Paper’ that sits alongside the ‘Levelling up and Regeneration’ bill. It states:

Under this proposed future system, demonstrating 5YHLS would exist not only as a stick but also a sort of carrot. Adopt a plan, keep it up-to-date, and avoid 5YHLS. But those local planning authorities (‘LPAs’) who fail do so will face the consequences. This proposed change shifts the balance between plan-led and so called speculative development; leaning far more to ensuring the number and location of new homes is delivered through plan-making (a trend throughout the new proposals). However, to work, the plan-making process needs to be more effective.

The proposed reforms to 5YHLS are therefore reliant on a number of other proposed changes that aim to streamline the plan-making process. This includes the expectation that plans will be produced in 30 months and must be ‘updated’ every five-years (as per the Policy Paper – see also Tom Davies blog for more detail[3]). I think ‘updated’ is a key word here as it suggests a more thorough process than simply a ‘review’; signalling that any housing shortfalls will be addressed through more regular local plan updates.

However, there will still be challenges and there are some key unknowns at this stage:

 

• Without an annually updated forward-looking measure of supply, we really are reliant on plan-making and monitoring to identify and address shortfalls. The proposed changes to plan-making should speed up the process, but they may not solve some LPAs inherent development challenges that restrict supply (e.g. Green Belt) or local political pressures (e.g. on-site optimisation and development densification);
   
• One key omission from the Policy Paper is the Housing Delivery Test (‘HDT’). Will it be retained or scrapped? If retained, then it is likely to take years for undersupply to feed through to a policy response to boost supply;
  
  
• With a much greater emphasis on development being in accordance with the ‘development plan’; how will the new 5YHLS test be worded in such a way as to enable developer-led application proposals on unallocated sites to make up shortfalls where plan making has failed?; and
   
• Five years is a long time. Lots can happen and not happen in that period. With the lead-in times associated for development (particularly larger scale housing schemes) there could be gaps where schemes are needed now but have to wait for the next round of plan-making to come forward.

There are some other notable changes to the wider planning system that will have an impact of 5YHLS. The proposed new commencement notices, for as-yet-undefined types of development, would require details of developers’ expected delivery rates over the development phases (as shown in the ‘Example’ notice in the Explanatory Notes[4]); replicating to some degree the current requirements to provide ‘clear evidence’ when demonstrating a site is ‘deliverable’.

There may also be less incentive for developers to ‘big up’ their sites’ delivery rates on these forms. This is in part as a result of proposed amendments to ‘completion notices’ (where permission for unbuilt aspects may be lost) but also because by removing the 5YHLS test there is nothing to be gained by submitting over-optimistic rates.

This data should help feed into LPAs own understanding of its supply; aiding plan-making. It should also help the Government[5] to have a better understanding of delivery rates across the country (when comparing expected and actual rates of delivery). It is presently unclear though how these notices will be tested to determine whether the rates proposed are realistic.

 

Firstly, the fact that a 5YHLS test is proposed to live on is a good thing, as its removal would be likely to cause fundamental problems to the ability of the Government to boost housing supply.

Secondly, the ‘problem’ of so-called speculative development outside a local plan process stems from a lack of adequate and timely plan-making which shows no sign of abating in some areas. Therefore, I can only see these changes to 5YHLS working if the parallel proposed changes to the plan-led planning system are achievable.

If plans do come forward quicker and whole-heartedly seek to address housing needs, then we should see developer buy-in. At present, if you miss one local plan you might be waiting well beyond five years till the next is prepared to secure an allocation and, as is often the case, those needs go unaddressed for that period. Under the new system we should see plan-making begin every two and a half years (ish); so far more regularly. We may also see more local buy-in as the prospect of application proposals outside that plan-led process diminishes and more regular local control over where development is located is exerted.

The proof will be in the pudding: can these reforms really overcome some entrenched and inherent problems with plan-making to deliver the quantum (and quality) homes we need in the locations which need them without relying so heavily on an element of so-called speculative development?