Planning matters

In the idle moments spent waiting for the much-anticipated NPPF update, we decided to take a quick look ahead at some of the new powers that might be on the horizon next year to be introduced through the ‘Levelling Up and Regeneration’ Act (‘LURA’)[1]; some of which the power to make regulations comes in from Boxing Day 2023 (how festive).

One such set of powers the LURA introduces relates to a development’s build out; with the following:

1. Commencement notices (s111): A notice submitted to an LPA setting out expected date of commencement and potentially other details (i.e. expected rate of delivery);
2. Progress reports (s114): A planning condition will require an annual ‘progress report’ to be submitted to an LPA. This will likely require the number of homes built in a year and trajectory of future delivery; and
3. Completion notices (s112): Once the development is ‘complete’ the developer submits said notice to formalise this and ‘terminate’ the permission.

It is not yet clear to which types or sizes of developments the regulations – once in force – will apply. Further, the exact questions or general contents of the above are still to specified. This will come through secondary legislation which, as of writing, has not been published (and for which there is no timetable); but it can be reasonably assumed the above will be required of major housing developments.

The aim of the provisions appears to aim to better track a development’s progress but is also part of a response to oft-cited concerns at the pace of build out, and perceived ‘land banking’ (an allegation the CMA has concluded[2] as being either misplaced or a function of the planning system).

One of the powers is set out under s112(93H)(2). An LPA could serve a ‘completion notice’ to in effect terminate the planning permission on a specified date if the LPA is of the opinion the development will not be completed within a “reasonable period” (albeit, a developer can appeal). This might leave a permission unbuilt, or part built out but with the associated permission terminated.

In addition, LPAs will have the power to decline to determine a new application if the applicant has another extant permission within the same LPAs for a development which has (1) not begun; or (2) has begun but has not been substantially completed and the LPA is of the opinion delivery has been “unreasonably slow” (s113). On the latter point, the LPA must have regard for previous commencement notices and any timescales set out in that notice.

These are quite clearly strong powers but equally it is unclear how or when they might be used. One would hope that reasonable prior negotiation would avoid these powers being utilised and that Councils will be pragmatic to onsite issues and the reality of a market. The risk of appeal for ‘completion notices’ also means that LPAs will very much need to be sure they are confident of their position and use this as a tool of last resort. The ability to decline to determine might also only help the larger LPAs (by area or market size) as it relates only to where earlier permissions are within the same LPA boundary. 

We can see how they could be of use albeit in very rare but egregious situations; for example, where a developer makes a technical start but refuses to build out for reasons not logically explained by reasonable behaviour in a competitive market. An LPA in this case might reasonably ask ‘why should we grant permission for your next scheme when you haven’t even started the first’? However, in reality we suspect their use might be limited – but maybe that is the point; the threat is enough.

The proposed system has yet to come into force and much of the detail is unknown. However, our current view is that it is difficult to envisage the provisions having a material affect on lead-in times or rates of build out.

Ultimately, a developer will in almost all circumstances build out as many homes as it thinks it can sell at a price consistent with the price paid for the site, and then hope to do so as smoothly as possible. Each site is its own and will have its own specific issues and surprises: i.e. unexpected contamination, below ground constraints, or unforeseen archaeological remains. Delivery might be tied to off-site infrastructure that is not delivered as expected or the site might, out of nowhere, become subject to nutrient restrictions before the last pre-commencement condition is discharged. The economic backdrop might deteriorate, a supplier or contractor might go bust, and national policy or housing incentives might change (i.e. ‘help to buy’ or stamp duty cuts). If the land has been purchased (at a residual value set relative to an assessed development value), cutting prices to maintain build out would have to be deducted from margins. If policy compelled build out at fixed rates despite a market downturn, necessary investment in schemes with increased market risk would demand increased developer margins that would – under current planning policy - in turn reduce the amount of value able to be captured for affordable housing and other s.106 obligation[3].

The above all serve to demonstrate that housing delivery is not simple and will impact on how a developer builds out a site. In our experience, there are invariably practical explanations for slower implementation and/or delivery on specific sites.

This leads us to question how much the ‘stick’ elements will realistically be used if a developer can appeal with a reasonable explanation. A developer won’t suddenly build more quickly than it can sell the homes or finance their construction just because it said on a ‘progress report’ that they previously anticipated they were going to.

So what we really have here is a new housing monitoring system. There will be more administrative costs / burdens for both LPAs and developers. But the system could still be a positive one.

This process would in effect replace much of the evidence gathering a monitoring officer undertakes for assessing an LPA’s 5YHLS and in preparing a local plan trajectory[4]. LPAs and the Government will eventually gain a much better understanding of local and national lead-in times and delivery rates and will be better able to forecast future supply as a result (which – in hoping this data is published - will make preparation of the 4^th edition of our ‘Start to Finish’ report a breeze[5]).

The problem with the current system has always been that when LPAs have asked developers for evidence on delivery rates/lead-in times:

1. The LPA does not receive a response and then needs to make an assumption for delivery which is not supported by site-based evidence, drawing on reasonable average lead-in times and delivery rates; or
2. If a return is made, it can contain unrealistically bullish lead-in times and build rates. This might be simply a function of genuine optimism bias. But also, there is little incentive for a developer to be openly negative about their prospects of building out expeditiously.

Through this new system, developers’ submissions in progress reports may act as a counter for optimism bias. There are incentives not to overinflate the rate of delivery because the risk of under-delivery then impacting on future permissions. Or developers might be incentivised to ‘under promise’ and hedge against unexpected events impacting delivery. In due course, this more realistic approach could make Local Plan housing trajectories more realistic and thus resilient to wider economic and other shocks. 

What we have here is (1) a new administrative burden (and who doesn’t love that?); (2) a new system of sticks that are unlikely to be widely used but might give some LPAs a tool to better manage delivery in specific circumstances; and (3) a new quite positive housing monitoring system that, while a bit more burdensome, might really help LPAs more realistically manage their current and future land supply with known local lead-in times and delivery rates.