Planning matters

1. Changing the formula for local housing so that in aggregate, areas need to plan with the aim of achieving 370,000 homes a year, nationally;
2. Requiring LPAs to maintain a five year land supply, without which the presumption in favour of sustainable development applies;
3. Changing Green Belt policy so that:
   
   1. areas must review Green Belt in their Local Plans and, where justified, release land in order to meet housing need; and also
   2. ‘provide opportunities for so-called ‘Grey Belt’ land to be developed ahead of a local plan by way of planning application;
4. Strengthening the strategic planning approach such that one might expect a greater amount of unmet need from constrained areas to be provided for in neighbouring areas; and
5. Requiring that proposals for housing on previously developed land should be regarded as acceptable in principle. 

1. The inevitable lag period in which any planning decisions in support of new homes (in the form of allocations or permissions) would be unlikely to achieve real world housing completions for a period of at least 2-3 years[3], meaning that in the short term, delivery is largely a function of the inherited planning pipeline and economic conditions; and
2. The Government’s proposals for transitional arrangements on local plans in which:
   
   1. areas with adopted Local Plans at the time of the adoption of the NPPF would continue to apply their pre-NPPF housing requirements for five year land supply purposes for five years from the date the plan was adopted; and
   2. areas that submit a Local Plan for examination within a month of the publication of the NPPF will see whatever housing target emerges in that plan once adopted as the basis for its housing trajectory and five year land supply for up to five years, depending on when a replacement plan is adopted, with the pace of the new plan partly dependent on whether or not the emerging plan is within 200 homes of the proposed new Standard Method.

1. We have categorised every LPA as being either:
   1. ‘Constrained’ where housing delivery is largely a function of the capacity of the area, based on past rates of net housing completions, but with an increase of 13% based on the impact of the proposed change to para 122 (c) on publication of the new NPPF and a further increase of 13% on adoption of a new Local Plan. This uplift is based on the analysis in the January 2024 London Plan Review of the impact of the 2012 NPPF presumption in favour of sustainable development. In general terms, our assessment assumes a constrained LPA has a ‘cap’ on its realistic ability to meet the new standard method in the current operating environment and thus will be a generator of ‘unmet’ need.
   2. ‘Receiver’ authorities where in principle they have the ability to meet their Standard Method housing need and accommodate unmet need from ‘constrained’ LPAs.
2. All LPAs have been grouped into sub-regions that are a best fit for existing or possible future sub-regional strategic planning areas.
3. We have identified the Local Plan housing requirement for each LPA where this is from a Strategic Policy in a Local Plan adopted within the past five years. We have assumed this number applies for five year land supply purposes until it is five years old, whereupon the proposed new Standard Method figure applies[5].
4. We have identified the LPAs that have, or are identified as being likely to, submit a Local Plan for Examination before January 2025 (based on the assumption that the NPPF is adopted December 2024) and are thus likely to benefit from the transitional arrangements. We have assumed that Local Plans are found sound and adopted with the same housing requirement as when the plan was submitted, although clearly this might change depending on the process of the Examination.
5. We have identified when a new Local Plan would be put in place for every ‘receiver’ area and then applied a housing target for that plan that:
   1. Meets its own Local Housing Need (based on the new standard method);
   2. Makes a contribution to meeting unmet need from ‘constrained’ LPAs within its sub-regional strategic planning area. We have taken assumed that ‘receiver’ LPAs would meet a proportion of the unmet need for the sub-regional strategic planning area equivalent to their contribution to the overall Standard Method housing need for the area. By way of an example, Shropshire’s Standard Method housing need of 2,059 makes up 20% of the total target for the Western Midlands (Stoke, Stafford, Shropshire & Worcestershire) sub-regional strategic planning area. Therefore, Shropshire is allocated a further 20% of the 750 dpa unmet need for Western Midlands (equivalent to 154 dpa), giving a total housing target of 2,213 dpa. In most strategic planning areas, unmet need is mopped up, but some areas (with fewer 'receivers') fall short.
6. For assessing actual forecast housing delivery, we have:

   1. Assumed that the OBR March 2024 Economic and Fiscal Outlook assumption applies for the period 2024-2027 on the basis that what is to be built in those areas will largely be a function of what already has/or will shortly receive a permission and the underlying economic circumstances that apply. Some might say this forecast is itself optimistic so it therefore in our view captures the possible benefits of short term Government measures, for example on funding, social housing, or tackling problems like water or nutrient neutrality.
   2. For the period from 2028 onwards, we link the delivery of homes by i) for 'constrained' LPAs, to their past rate of delivery plus the 13% uplift to account for para 122 (c) and a further increase of 13% on adoption of a new Local Plan that we assume brings forward additional sites/capacity; and ii) for 'receiver' LPAs, to their planned housing target from the period three years prior, with an assumption that delivery runs at an average of 92% of the target, based on how current delivery relates to the Housing Delivery Test benchmarks.
7. We then look at what this means for total planned targets and for housing delivery for the first five-year period of the new NPPF (assuming adoption from December 2024) and for the second five year period (years 6-10). We then identify the difference between the planned target based on with the transition period and without it.

Figure 1 - Regional Housing Target Trajectories

Figure 2 - Housing shortfall (2025-2029)

Figure 3 - Housing shortfall (2029-2034)

Figure 4 - Local Plan target shortfall against Standard Method

Figure 5 - Local Plan target shortfall under Transitional Arrangements

Figure 6 - Overview of forecast Local Plan targets against Standard Method and Housing Delivery
 

1. Constraints to supply in some LPAs, and especially in London, means that the long term ‘run-rate’ for planned housing targets and its delivery could sensibly reach over 300,000 per annum in the medium term. This is to large extent achieved by virtue of boosts to delivery in areas current constrained by Green Belt. In the context of the past few decades, and the circumstances as they are today, this would still be a positive achievement.
2. However, the transitional arrangements proposed – in which five year land supply and application of the tilted balance in many areas will be determined by current adopted or emerging local plans – act against the Government’s stated objective and will limit the immediate boost in flow of permissions that is necessary to significantly increase delivery within years 4-5.
3. Compared to a situation where there are no transitional arrangements in the NPPF, and the new Standard Method applies immediately in all LPAs, the impact of the transition equates to 70,000 fewer homes being planned for in years 1-5. The transitional arrangements have a ‘double whammy’ impact:

1. 1. Where an LPA has a plan set at lower than the new Standard Method, it bakes in that lower target for five-year land supply purposes until that plan is replaced by a new NPPF-compliant plan, and for those areas that have or will submit a Local Plan before the new NPPF applies, that is unlikely before 2029, if at all.
   2. Where the LPA is a ‘receiver’ in an area likely to face taking on-unmet need from constrained LPAs, the transitional arrangements are likely to result in the unmet need remaining unaddressed ahead of the new post-NPPF local plan coming into play from 2029 or later. The 200-home threshold for emerging Local Plans ignores the presence of unmet need within a local area, meaning that some areas pressing ahead with plans close to their own standard method, but without engaging with higher levels of unmet need in their sub-region, will not need to address it before new Strategic Plans might emerge, which even if all runs smoothly is likely towards the end of this decade in areas outside the existing Mayoral/Combined Authorities.

1. Maintain the current proposed transitional arrangements: based on our assessment, this would appear likely to undermine the Government’s ambitions to boost supply. But were transitional arrangements kept, it would still be necessary to give a cut-off period for a plan submitted under the transitional arrangements to be adopted, otherwise it risks an LPA ‘gaming’ the system to draw out the period of examination and adoption to extend the period in which lower housing requirements apply. The Government may wish to consider alternative thresholds based on a percentage of total housing in an LPA rather than a flat-rate of 200 dpa, which can equate to a significant proportion of overall need for smaller LPAs. Overall, though, we consider sticking with the draft proposals is least consistent with the Government's stated objective.
2. Remove all transitional arrangements: this would mean that immediately on adoption of the new NPPF:
   1. Any plan that was at Examination ahead of adoption or receipt of the Inspector’s Report would need to be examined against the new NPPF and Standard Method. Some Local Plans might well be in a position to be modified to accommodate higher housing targets (their own or neighbours), but others might find themselves having to be withdrawn because the proposed changes cannot be addressed within six months (pursuant to the Minister of State’s instruction to PINS on 'pragmatism' referred to above). This might lead to otherwise welcome housing allocations – including in areas of Green Belt – falling away. This latter risk could be mitigated by providing in the NPPF for draft allocations in emerging Local Plans that have been through Reg 19 to carry some weight in favour of development being granted permission were planning applications for those sites submitted ahead of a fresh local plan being prepared; and
   2. Irrespective of when an existing or emerging Local Plan was adopted, the five-year housing land supply for an LPA should be immediately based on the new Standard Method figure, not the adopted requirement figure, until a new NPPF-compliant Local Plan was in place;
3. Hybrid transitional arrangements: this would provide for emerging Local Plans to proceed as submitted in order that emerging housing allocations and policies are given the chance to proceed in a sound plan, but any existing or emerging strategic plan examined before the new NPPF would not set the housing requirement for five year land supply purposes unless it was higher than the new figure for that LPA in the new Standard Method and would in any event be subject to immediate review.
   
   None of these would directly address the problem that, ahead of a strategic plan or the duty to cooperate applying to new Local Plans (which are unlikely to be in place at least before 2029), the unmet housing need arising from the Standard Method (and the fact some areas face constraints) will likely remain unaddressed (falling between the cracks). The Government could seek to resolve this to some extent in the short term by a further change:
   
   
4. Within twelve months, use a Statement of Ministerial Policy to identify a series of strategic planning areas (based on Mayoral/Combined Authorities and other logical geographies, including emerging devolution deals) where the Government considers unmet development need is likely to be significant and either:
   
   
1. prescribe quickly within those areas a preliminary estimate of how unmet need should be distributed for five-year land supply purposes as an adjustment to the Standard Method, pending a formal distribution through the eventual strategic plan; or
2. identify that within the strategic planning area, it should be assumed that there is no five-year land supply in any LPA ahead of a strategic plan setting the distribution.
   
   

Appendix 1 LPAs falling under Transitional Arrangements

Footnotes

[1] See analysis in this blog here

[2] The OBR Economic and Fiscal Outlook is here

[3] See the benchmarks in Start to Finish

[4] See the examples as reported in Planning Resource here and here (£)

[5] We have not modelled the individual backlog position on 5YHLS based on adopted Local Plans and assume the annual requirement applies for each year.

[6] The London Plan Review is available here

[7] Which, under the new NPPF, all falls to be addressed via the duty to cooperate, compared to the current NPPF where the 35% urban uplift does not need to be addressed in neighbouring LPAs if it cannot be met within the urban area.

[8] See letter to Chief Executive of the Planning Inspectorate here

[9] That is not the case with all plans. A number claim to be able to already demonstrate a five year land supply even without their Local Plan. Their new Local Plans are therefore more focused on addressing need for years 6-10 and 11-15 of their period. 

 

Source: Property Data / Lichfields analysis

What should influence an appropriate BLV?

• how much premium above EUV is necessary to “reflect the minimum return at which it is considered a reasonable landowner would be willing to sell their land”[7].

• The uplift necessary to secure the investment in land promotion (converting its EUV to its BLV through the securing of planning permission[9]); and
• Funding up-front infrastructure/servicing of plots for housebuilding.

1. The appropriate premium above current use value should be determined locally. If the value does not reflect local discussions and conditions and cover all relevant costs, including tax and fees, there is an increased risk that land will not be released. The premium should consider the key landowners in the area, as those with longer-term investment horizons may require a higher premium than those more inclined to sell.
2. Non-urban sites and urban extensions are more complex, as landowners are typically not distressed sellers and may have longer-term perspectives on land disposal, potentially making a once-in-a-lifetime decision over an asset that may have been in the family, trust or institution’s ownership for many generations. Large greenfield sites often demand significantly higher premiums due to the long-term nature of landownership and the significant implications of selling.
3. For smaller, edge-of-settlement greenfield sites, landowner expectations may be higher than larger greenfield sites (and more in line with urban areas) because landowners will have in mind the prospect of securing a beneficial permission at some point in the future.
   
   

• Research has found the costs of evidence to support an outline application for SME builders is now estimated at £125,000 plus application fees[15];
• Henley Business School at the University of Reading presented a case study of a 2,000 home scheme with promotion costs of £1.5-2m[16];
• The North Essex Garden Communities SPV reportedly spent £6.8m to promote its three sites through the Local Plan, of which only one was eventually allocated[17]. This excludes any planning application costs;
• The CMA found the direct costs associated with making planning applications can range from around £100,000 per application to around £900,000 per application depending on the size of a site[18]; and
• If taken to appeal, the costs of an inquiry can easily reach £200,000-500,000[19].
• Knight Frank estimate a cost of £25,000 - £40,000 per gross acre to promote new settlements[20], and in our experience this is comparable with other large sites.

1. Identified four notional typologies of sites with gross areas of 1, 5, 10 and 50 hectares;
2. Derived net developable areas based on typical site ratios ranging from 0.4 (for sites of 50+ha) to 0.9 (for sites of one hectare) to which is applied a density of 40 dw/ha. This reflects that sites need to accommodate landscape/open space/bio-diversity net gain and infrastructure.
3. Developed two bookend scenarios (high and low) for applying our various assumptions;
4. Assumed promotion costs per hectare of £75,000 to £100,000 for a site of one hectare, ratcheting down to 60% of those costs per gross hectare as site sizes increase up to 50 hectares, with a rate of return for the promoter of between four and five times that cost. We then identified the necessary BLV to support that return if it were 40% of the total increase in land value achieved (and 50% for the small site of one hectare) albeit in many promotion agreements what is assumed is 10-15% of the uplift (which would necessitate an even higher uplift);
5. Applied bookends for what a willing landowner would require to motivate them to sell their site to between 10 and 20 times EUV for sites of 5, 10 and 50 hectares, with a EUV+£500,000 for a site of one hectare;
6. Applied a capital gains tax rate of 24% to the uplift in land value for each of the 'willing landowner' bookends after deducting 15% for the land promotion return to identify the net return to the landowner and then identified what the BLV would need to be for the landowner to achieve the same return if CGT applied at 45%.
7. Assumed that up-front costs per plot (not total infrastructure costs per plot) to service land of between £2,500 and £5,000 for sites of one hectare increasing in stages to between £10,000 and £20,000 per plot for sites of 50 hectares and identified what the BLV would need to be to secure a loan at 60% LTV.

The outputs from this modelling exercise, which are to illustrate a concept, not to set what should be used for a BLV in any given area, show the BLV as a multiple of EUV (assumed to be £20,000 per hectare in all cases) for each driver of the BLV are shown in Figure 2 below.

Figure 2

1. It is unlikely that 50% affordable housing will be viable in most Green Belt LPAs under the current approach to viability. Although some locations - such as those with residential values of £4,000 or more per square metre (equivalent to 41% of the Green Belt) – might see 50% as being achievable on some sites, this will be the exception (particularly outside the South East – see Figure 1) and explains why the majority of LPAs even in the most prosperous markets set affordable housing requirements in local plans at no more than 40%. Although having an affordable housing premium for Green Belt is politically understandable, setting a flat national target at 50% is likely to mean viability testing is required on the majority of Green Belt and Grey Belt sites that might come forward, adding cost and uncertainty, especially for any applications or allocations that were made under existing (to be previous) NPPF policy.
2. Given the above, applying the proposed new approach immediately on adoption of the new NPPF would catch a number of live sites/applications where landowners, promoters and housebuilders agreed commercial terms in good faith based on current Local Plan affordable housing targets, and undermine their ability to come forward.
3. It would appear imprudent to set a national BLV for Green Belt sites, especially at the lower end of the 10-40 times EUV range, given the multiplicity of different factors influencing this value across different locations. Setting it nationally at a high level might mean it over-estimates the BLV in some places and sees less value capture. The Harman Review made clear that BLV was influenced by local factors, and this is reflected in the current PPG guidance on how LPAs should determine viability for their local plans, setting BLV locally in consultation with landowners, developers and other stakeholders.
4. There is no evidence to support the idea that reducing BLVs for Green Belt land below what would result from the approach generated by current PPG guidance to other comparable local land would be consistent with delivery. As it stands, in many areas it would not be willingly made available by landowners, be promoted, or produce fundable schemes at any scale if a lower BLVs are imposed for these reasons:
   
   a) Landowners are often reluctant sellers and take a long-term view which informs the value they demand. They will have in mind what their land is worth, taking into account that although Green Belt is a restrictive policy, there has been a persistent flow of Green Belt land developed over past decades. In most cases, they will have to pay capital gains tax at 24% on any net receipts they receive after promotion costs are deducted, and there is speculation this may increase to 45%. Set the BLV too low and it will simply not be worthwhile for many owners causing a ‘land strike’.
   
   b) Land promotion is a necessary part of the planning system and it relies on the private sector investing in the lengthy and expensive process, spreading the risk across a portfolio of sites, reflecting that an implementable permission may or may not transpire, dependent on whether i) land is allocated in a plan (which may or may not be produced) and/or ii) a costly application is approved or refused by LPA. Taking into account the costs and risk, it is easy to see how land values may need to absorb costs of £100,000 or more per ha before the landowner’s return and require BLVs that are 40 times EUV. An examination of why land promotion activity requires the rate of return it does, needs to look beyond simple planning approval rates at application or appeal, and consider the time it takes, and the extent to which much promotion activity does not even make it to the application stage.  
   
   c) Developments require up-front funding at anything between £2,500 to £20,000 per dwelling (depending on the site, its size, location, abnormals etc) to deliver infrastructure that services plots for building homes. The land value is often used as collateral to support loans at a 60% LTV to unlock the sites before income from house sales is forthcoming. Our modelling suggests this factor alone requires a BLV of up to 38 times EUV on sites of 5ha or more.
   
   
5. Although there is a theoretical role for the public sector to acquire sites – including through CPO – and then fund up-front infrastructure, this is not a feasible solution for bringing Green Belt land forward at necessary scale or timeframes, because:
   
   a)  The Government’s goal of 1.5m homes by July 2029 is fundamentally dependent on sites being promoted ahead of local plans, often in areas where LPAs are at best ambivalent (and often hostile) to Green Belt development in the first place;
   
   b)  It is simply inconceivable that the 180 LPAs with Green Belt across England or Homes England will – in the next five years – have either the resources or inclination to speculatively invest in acquiring multiple sites at EUV and then preparing and submitting multiple applications at any scale, particularly in areas where local residents are hostile to the idea of Green Belt development;
   
   c)  Even through the local plan process - which might be relied upon for sites that deliver in the next parliament - the legal and policy obligations on plan makers rely on scores of alternative site options being available to support the testing of reasonable alternatives and for evidence to be available that demonstrates the ultimate deliverability of prospective allocations. This promotion activity – with all its costs – applies to every local plan cycle.
   
   d)  There is not sufficient funding resources or administrative bandwidth – currently identified – for Government (itself, via Homes England, or through LPAs) to up-front fund (or under-write) infrastructure investment at the scale required to bring forward new homes on multiple sites in every LPA.

Recommendation

1. Any Green Belt site should apply the same affordable housing policy requirement as the existing/emerging Local Plan requirement that would apply on any greenfield site as there is no real-world difference between the sites that would impact on its viability.
2. If an affordable housing premium for Green Belt is to be maintained (and the political rational is understandable), this should be set in national policy at a level linked to the existing local percentage requirement from the most recent Local Plan, for example at five or ten percentage points above.
3. Viability assessments, where necessary, should be carried out based on the current approach to viability in the existing PPG including locally-set BLVs.
4. To ensure the new policy does not disrupt the flow of existing Green Belt sites, a transition arrangement should apply to exempt from any new ‘golden rules’:
   
   a) current planning applications submitted within a month of the publication of the new NPPF to allow for schemes that are currently submitted or were formulated (and commercial agreements formed) pursuant to existing national policy proceed; and
   
   b) applications submitted at any point on land that was allocated for development having been removed from the Green Belt in a local plan prepared pursuant to the existing NPPF.

Footnotes

[1] The other ‘Golden Rules’ identified in b) and c) of para 55 of the proposed Framework requiring “necessary improvements to local or national infrastructure and the provision of new, or improvements to existing green spaces” are unlikely to represent a significant change from what would be necessary in any event.

[2] The Planning Practice Guidance on viability already states “ The price paid for land is not a relevant justification for failing to accord with relevant policies in the plan” and “under no circumstances will the price paid for land be a relevant justification for failing to accord with relevant policies in the plan.”. See at ID: 10-002-20190509 and ID: 10-006-20190509. Late stage reviews are already part of the planning firmament, see PPG ID: 10-009-20190509 and of course in London (they are not without complications, not least in terms of extending the time it takes to agree s.106 agreements).

[3]Due to the absence of Local Plans that provide for anything close to the higher levels of local housing need.

[4] This is explicitly recognised by the proposed changes to the NPPF at para 152 with triggers for the development of ‘Grey Belt’ land.

[5] In St Albans – which has some of the highest house prices outside London – the evidence-based requirement is 40%.

[6] Prepared pursuant to an instruction from the Home Builders Federation (HBF) and the Land, Planning and Development Federation (LPDF)

[7] See PPG ID: 10-013-20190509

[8] See blog here

[9] A separate activity to the developer profit that is reflected in the 15-20% return on Gross Development Value within the viability appraisal.

[10] Viability Testing Local Plans – Advice for planning practitioners • (June 2012) available here

[11] Fine Margins: Viability assessments in planning and plan making (2021) see here

[12] Bramley, G 2024, Housing Requirements in England Revisited. Heriot-Watt University - available here

[13] See MHCLG analysis here

[14] See this piece in the Times (£) which says “Capital gains tax (CGT) is paid on the profits made from the sale of property (other than your main home), businesses, shares and most possessions worth more than £6,000. Basic-rate taxpayers pay 10 per cent CGT on most gains, but 18 per cent on property. Higher and additional-rate taxpayers pay 20 per cent CGT but 24 per cent on property gains. There is widespread speculation that Reeves could increase the rates so that they match up with income tax, which would mean 45 per cent for additional-rate payers.”

[15] Lichfields, Small builders, big burdens, September 2023 available here

[16] See this analysis by Henley Business School at Reading University

[17] See the media coverage in EssexLive here

[18] See para 4.30 of the CMA Housebuilding Study Final Report here. These costs exclude internal staffing costs and the work ahead of a planning application, including promotion through the Local Plan process. We assume they also exclude appeal costs.

[19] Whilst an appellant can sometimes seek and secure an award of costs where an Inspector judges the LPA’s behaviour unreasonable, this is rare.

[20] See Knight Frank analysis here. It has been a valuable source of information for the analysis in this paper.

[21] Homes England’s role is to support release of housing land in a more targeted way and/or through strategic partnerships, not to oversee the promotion of all potential housing land.

[22] See analysis here of the challenge facing the Government in achieving 1.5m homes in this parliament.

[23] A figure validated by Lichfields discussions with specialist land promoters.

[24] Already referenced, available here

[25] Current pressures in the Registered Provider sector are likely to make this more rather than less challenging

[26] The three-times EUV referenced in the Bramley paper is not a remotely credible proposition for greenfield land.

[27] As a broad indication of the scale of the challenge, one might reasonably assume that land sufficient for 75,000+ homes is needed on Green Belt land each year, equivalent to perhaps 1,000-1,500 individual active developments each year (delivering 50-75dw per year), which across 180 LPAs with Green Belt land means the equivalent of perhaps 5 – 8 projects in each LPA every year. Given the ambivalence of many planning committees to Green Belt sites, this would require more than 5 - 8 applications being submitted every year as some might be refused. The total up front cost of promotion would be significant.