On 21 May 2020 the Vice-Chancellor of Cambridge University made a statement outlining its response to the COVID-19 pandemic and how the university is likely to function in the future. Professor Toope explained that the University would not be able to deliver all face-to-face lectures for the academic year 2020/21 and that these are likely to be replaced by online lectures. However, it is acknowledged that lectures are only one component of a successful university experience and that other elements such as small-group teaching, supervisions and practicals are expected to continue in person but taking account of social distancing requirements. Other UK universities have made similar statements.
Impact on student recruitment
There is a real possibility that students will not wish to attend university in 2020/21 due to the fear on missing out on the traditional university experience, that the alternative provision will not provide the same quality of learning, concern about living away from home or because of public health concerns. Students may defer until 2021/22 or suspend plans on a longer-term basis. Analysis by London Economics estimates that as many as 110,000 students in Britain could delay going to university in 2020/21 if classes remain online, causing a “severe” financial hit to academic institutions. Total decline in international students alone is expected to be 120,755 across UK universities. With higher fees paid by international students this could have significant financial impacts in the short term.
If 1st year students are not registering for courses and returning students are not attending in person then this has the potential to have huge consequences on towns and cities that depend on students to ensure the vitality and viability of its communities. If learning is going to be online then the need for student accommodation as well as other supporting facilities is reduced.
Impact on student accommodation sector
The reduced number of students registering and number of existing students deciding to study from home via online classes is likely to have a significant impact on the student accommodation sector in the short term. This includes student accommodation owned by the institutions, private housing stock as well as private purpose-built student accommodation.
Purpose-built student accommodation has seen a boom recently with schemes coming forward in most university towns and cities. Purpose-built student accommodation has become increasingly popular for students. The benefits are clear: often, a better standard of living, on-site facilities as well as increased security and the benefit of not having to deal directly with landlords/agents. I discussed this in a previous blog.
Purpose-built student accommodation schemes that are currently under construction for occupation by the class of 2020/21 as well as existing operational buildings may no longer be in a position to attract the number of students (especially international students) initially anticipated and planned for due to the reduced number of students attending in a post COVID-19 world. Unsurprisingly, this creates a headache for the developer as the return on investment anticipated will not be realised in the short term. Clearly this is not a sustainable position and therefore it will be necessary to review whether the asset can be used for another purpose in the interim so that some income can be achieved, otherwise there is a risk that the financial asset becomes a burden.
Many Section 106 agreements or planning conditions restrict purpose-built student accommodation to students on full academic years, some even to specific institutions. Now is the time to seek agreement from the Local Planning Authority to permit use by students from other educational institutions, such as language colleges or the like who have short-term needs for accommodation but struggle to place students, this will further add to the resilience of the stock along alongside considering temporary changes of use.
Planning permission for temporary change of use
The circumstances we find ourselves in currently are not normal and there is, in our opinion a need for pragmatism and flexibility from local planning authorities in terms of allowing purpose-built student accommodation buildings to be used for an alternative use temporarily until student numbers recover. From our experience some authorities already take a pragmatic view on temporary uses and acknowledge that it is sensible to allow buildings being completed in the middle of an academic year to be occupied by non-students until the start of the new academic year. It is already common practice for purpose-built student accommodation blocks to function as apart-hotel accommodation outside of term time catering for peak tourism demand. Lichfields has been successful in securing this flexibility on a number of schemes across the country.
The format and configuration of purpose-built student accommodation range from studio rooms with a bathroom (and sometimes kitchen) as well as communal areas to bedrooms in a cluster flat with shared communal kitchens, bathrooms and living space. This appears to point towards potential suitable alternative uses such as hotel or hostel (use class C1), short term private rented accommodation (use class C3) or a combination of these uses such as aparthotels / serviced accommodation. In addition, there could well be a scenario where part of the building continues to be used for student accommodation and part for the alternative use. This will depend on how the building functions internally and the anticipated number of students.
Residential space standards will apply (in England) and therefore a robust case will need to be put forward to argue for some deviation. A building with communal space, including outside amenity space could mitigate for smaller rooms and the fact that the permission is temporary should find support with pragmatic Local Planning Authorities.
We note that in Cardiff, Fusion Students have recently applied to continue using up to 401 rooms within its Zenith scheme as serviced apartments (Use Class C1) instead of student accommodation. They had previously been successful in securing permission to use the building in this way for a period of 12 months. Fusion note that this approach is being taken on other sites throughout England and Wales. In this instance the non-students are able to use the communal spaces and facilities together with the students. It will be important to consider how this will work in practice.
The takeaway message
The purpose-built student accommodation market is likely to be significantly affected by COVID-19 in the short term and therefore it is important to review contingency options for schemes that are impacted and to open dialogue with the local planning authority as soon as possible.
Lichfields is well placed to negotiate onerous planning restrictions on use, Section 106 clauses or planning conditions as well as making the case robustly for temporary changes of use to support the purpose-built student accommodation recovery from COVID-19.
Contact Lichfields to discuss any planning queries that you may have.
 Coronavirus (COVID-19) Update from the Vice-Chancellor (University of Cambridge - May 2020) Impact of the Covid-19 pandemic on university finances (London Economics – April 2020) Serviced apartments use extension sought for Cardiff scheme (Insider Media Wales - May 2020)
Both the English and Welsh planning systems through the National Planning Policy Framework (and Planning Policy Guidance) in England and Planning Policy Wales (and the Development Plans Manual) in Wales respectively have recently moved towards a policy of requiring viability assessments for sites at an early stage of the development plan making process.
In England, the PPG (Paragraph 002 Ref ID: 10-002-20190509) states:
“The role for viability assessment is primarily at the plan making stage.”
“It is the responsibility of site promoters to engage in plan making, take into account any costs including their own profit expectations and risks, and ensure that proposals for development are policy compliant.”
Similarly, in Wales, PPW (paragraph 4.2.19) explains that:
“At the ‘Candidate Site’ stage of development plan preparation land owners/developers must carry out an initial site viability assessment and provide evidence to demonstrate the financial deliverability of their sites.”
The rationale behind this frontloading exercise is reasonable as it seeks to ensure that all sites that are adopted in local plans are deliverable within the timescales of the plan and clearly for a site to be deliverable it needs to stack up from a financial perspective. However, the approach is not without its difficulties which we summarise below:
Lack of information at the early stage of plan making
At the candidate site stage, it is unlikely (without having to spend an inordinate amount of money) that one promoting a site will have detailed information about ground conditions, drainage strategy, construction methods etc. Alongside this, the planning obligations that are likely to be sought (affordable housing, education and CIL) are also unlikely to be known at this stage. The lack of available information makes presenting a worthwhile viability assessment difficult, and in any case the obligations may reduce moving forward as further evidence on the viability of development comes to light.
The passage of time between the viability assessment and the planning application
The period of time between candidate site stage and the determination of the application could easily be 10 years or more in which time a number of prices and costs could have changed for example sales values, price of materials and cost of labour. In addition, new unknown costs may have been introduced (for example the introduction (in January 2016) of compulsory fire sprinklers in all new build housing in Wales, sustainability standards, or requirements for electric vehicle charging points).
The implication of these factors is that a scheme that is found to be viable during the plan preparation process might not be able to sustain the same level of affordable housing, s.106 or CIL provision when (years later) a planning application reaches determination. The current approach to the front-loading of viability suggests that a reassessment of viability would only be permissible in exceptional circumstances; no provision is made for regard to be given to the most normal of circumstances – the passage of time.
Yet another hurdle to navigate
Notwithstanding the lack of information and the dynamics of prices and values, the requirement for viability assessment creates an additional expense that needs to be borne at a very early stage at risk. This could result in large fees being incurred by those promoting sites that may be incompatible with the Council’s preferred spatial strategy which will not have been publicly identified at the candidate site stage. The impact of this is likely to be disproportionately significant on small and medium housebuilders, despite the Welsh Government and MHCLG seeking to boost the delivery of homes from such operators. The same may also apply to landowners and social landlords meaning that, rather than encouraging a wider representation of sites in the planning process, an unintended consequence of the new approach might be a polarisation of those that are able to promote such land.
Impact on the timescales for preparing a local plan
When considering the practical implications of this new requirement, one must ask whether local planning authorities will have the resources to review all of the sites, especially when viability assessments are normally dealt with externally by consultant surveyors or the District Valuer, and what impact it will have on the timescales for preparing plans?
The impact on the length of the Local Plan examination is also likely to increase given the need to review the Council’s viability assessment in much more detail.
So, what is the solution?
A potential solution could be to allow candidate sites to progress to a later stage of the development plan process where there is some certainty that, subject to viability, the site has a good chance of being allocated before a viability assessment is required. At this stage, there will be more information about potential s106 costs and affordable housing requirements. Landowners may also have progressed deals with developers who will be able to finance further supporting documents (i.e. ground conditions, drainage, contamination) to better inform a viability assessment. This would then assist in avoiding abortive costs for proposers of sites that are not suitable.
However, this solution does not change the fact that significant time may pass between the viability assessment and the determination of the planning application. Whilst the respective governments are keen to remove viability assessments at the planning application stage we consider that it is inevitable that this will remain a key part of the development management process. This is because prices and costs are dynamic and there will be a need for the most up to date robust figures to be included within an assessment. This is allowed by MHCLG and the Welsh Government but dependent on exceptional circumstances being identified and substantiated by evidence. For example, PPW explains that:
“Such circumstances could include, for example, where further information on infrastructure or site costs is required or where a recession or similar significant economic changes have occurred since the plan was adopted.”
Despite these concerns, the front-loading of viability testing is here to stay and those promoting development either through development plans or planning applications will need to be aware of the need to take a more robust approach earlier on in terms of presenting viability evidence. It would be erroneous to assume that planning obligations can be remedied at application stage. However, there is also a risk providing too much information may mean that the site is deemed unviable and therefore not able to proceed to the next stage of the development plan making stage. A balance is clearly needed.
Lichfields has significant experience in providing robust viability advice for parties wishing to promote land through the development plan process and my colleagues and I are happy to discuss this.