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In the midst of every crisis, lies great opportunity
Whilst not unexpected, the recently published ONS figures that reveal a 20.4% contraction in the UK economy in April are still shocking. This decline – which relates to a single month and adds to the decline of 5.8% experienced in March 2020 – is three times greater than the total reduction experienced during the last recession and equates to a fall of approximately £30 billion in Gross Value Added (GVA). The ONS analysis splits the economy into 14 sectors and shows that all of these, except for Public Administration and Defence (which remained stagnant), contracted in April 2020, with 10 sectors experiencing a more than 20% decline in GVA, and 11 experiencing their largest falls since records began in January 1997. In providing an overall figure for the UK economy, this data obscures regional variations. Analysis by Lichfields has shown that South East Wales is at particular risk of short-term economic contraction because of its strong reliance upon hospitality, manufacturing and education sectors. Given that South East Wales accounts for 52% of Wales’ total GVA[1], a severe regional shock will have a negative impact on the wider Welsh economy. Looking to the future The economic impacts of Covid-19 will inevitably be felt for a considerable period of time but many commentators have pointed out that April may be the worst month as there was a partial relaxation of lockdown in England in May. However, a stricter lockdown continued in Wales into June, potentially resulting in a further divergence between the economic performance of Wales and England. As detailed in our Covid-19 Economic Recovery Framework, planning for the longer term recovery is critical to mitigating a risk of continued economic decline. History has taught us that a period of recession can result in opportunities for specific sectors to both lead the recovery and reshape the profile of the local economy. Although the circumstances that have promoted the current downturn are very different to anything that has gone before, and the scale of decline is unparalleled, there are already clear signs of the sectors that are likely to emerge stronger than before. Health / life-sciences As a health crisis, Covid-19 has been fought by front-line health workers and its resolution lies in a health solution. The manufacturing of pharmaceuticals was the only manufacturing subsector that displayed upward growth in April (+4.7%), following on from strong performance over recent months. This growth would undoubtedly have been boosted by the investment and increased activity that has been focused on Covid-19 treatment, vaccines and testing but ONS also reports higher demand for general pharmaceutical products, with strong growth in domestic facing output in April 2020. We anticipate that there will be a greater focus on this sector in the future in terms of both public and private sector investment. Logistics The logistics sector has been instrumental in keeping the country going through the pandemic. Be it through the supply and distribution of PPE to front line staff, delivery of food and other essential items to stores, or the increase in online shopping, the logistics sector has stepped up to the challenge and played a critical role in supporting and protecting people. Globally there was a 25% increase in airfreight volume in March 2020 compared to March 2019[2], whilst increased levels of road and rail freight have been the backbone of domestic logistics during the pandemic. The improved efficiencies that have been forced upon the sector put it in a strong position to continue to meet growing demands as consumption patterns change for good, particularly if a decentralisation in population and economic activity does occur. Energy/environmental More than 200 top UK firms and investors have called on the government to deliver a Covid-19 recovery plan that prioritises the environment[3]. There is an increasing argument that Covid-19 should be viewed as a pivotal moment in the shift to a green economy. Specific proposals that have been put forward include: Increased investment in low carbon innovation and industries; Focusing on those sectors that can support the environment; and, Ensuring that companies that receive government support are operating in a manner that is consistent with climate goals.   A growth in the green economy would align very closely with the Welsh Government’s sustainability objectives and its aspirations for green growth to be fuelled by an increased reliance on green energy.   IT / Communications The UK-wide lockdown forced us all to look to technology for work, entertainment and social contact. Reflecting the importance that we are all placing on video communications, the share price of Zoom has doubled since the start of March[4] and ONS has noted that telecommunication and programming and broadcasting activities have also been resilient to falls in output. It is likely that some of the practices that we have adopted out of necessity will remain commonplace after Covid-19 has passed and that such platforms will continue to enjoy significant growth. In addition, expected increased future levels of home working (compared to the pre-Covid-19 baseline) and growth in key sectors such as life-sciences, green energy and logistics will all rely on continued advances in IT. Tourism / hospitality This sector suffered the most significant contraction in April 2020 (-88.1%) and remains shut-down. Although there are very real concerns about the survival of many tourism businesses, there is the potential that it will grow significantly in the future. This will particularly be the case if restrictions on international travel remain and if people remain nervous about international travel – both of which may encourage them to choose to holiday in Britain instead of travelling to overseas destinations. Implications for South East Wales The objective of the Cardiff Capital Region (CCR) City Deal is to “bring about significant economic growth in the region through investment, upskilling and improved physical and digital connectivity.”[5] The City Deal Investment Framework seeks to “improve the business environment within the CCR, creating rich ecosystems that stretch and support the development of [the following] key sectors in the economy, improving comparative performance against other cities and regions in the UK and internationally.”[6] There are close parallels between these sectors and those that I have identified above: Life sciences and energy & environment are specifically identified by the CCR; The wider energy and environment sector also incorporates transport engineering activities that relate to electric and other ultra-low emission vehicles; Britishvolt has identified St Athan as its ‘preferred’ location for the UK’s first battery Gigafactory, with the first stage of the plant expected to be fully functional by Q3 2023[7]; and, The broad IT sector incorporates compound semiconductors, fintech, cyber security and AI. This synergy gives confidence that these sectors will experience growth and spearhead the much-needed recovery of the Welsh economy. As to the two remaining sectors that I have identified: The strategic location and accessibility of South East Wales, and the scale of its population and strength of its economy presents significant logistics opportunities; and, The region accounts for 41% of total GVA for Wales in the accommodation and food service sector[8] which means that it is well placed to welcome visitors back when restrictions are lifted. The takeaway At a time of ongoing crisis, there are reasons to have some optimism about the future recovery. The latest economic headlines make for grim reading but we must look to the future with renewed vigour. Although the timing and rate of this recovery remain uncertain, its speed and strength will depend on the extent to which close collaboration can be forged between the Welsh Government, CCR, local authorities, business interest groups and individual businesses. Work should start now on ensuring a favourable environment to investment – through the creation of a positive planning regime, support for investment, training to ensure that the necessary skills are available, and a positive approach to residential development as a driving sector of the economy and essential to supporting a growing workforce. We will be considering these individual sectors in more detail in a series of more detailed blogs and Insight pieces, and will also be looking at the direction of the economy in different parts of Wales. [1] Source: StatsWales GVA by area and component[2] Source:  Accessed 16 June 2020.[3] Source:  Accessed 16 June 2020.[4] Source: Figure based on share price on at 1500 BST on 12 June 2020 ($230.39)[5] Source:[6] Source:[7] Source: Accessed 16 June 2020.[8] Source: Experian business strategies forecasts March 2020


Stimulating housing delivery in Wales in the short term: a five-point plan
In their recent blog, Stephanie Irvine and Hasnain Ikram considered the implications of the latest changes to the Welsh planning system. They called upon the Welsh Government to issue a policy clarification letter that would provide support in the short term for the development of sustainable sites outside of the plan-making process. That is absolutely the right thing to do and will be critical to helping the development industry and the wider Welsh economy to recover from the effects of Covid-19. In implementing its recent changes, the Welsh Government has exercised its right to shape the planning system in the way that it considers to be best for the sustainability and wellbeing of Wales. Whilst many in the development industry have concerns about the effectiveness of the new approach, we must work collaboratively to ensure that it does not undermine the delivery of new housing and the growth of the economy. But as we have seen demonstrated in countless ways in the past weeks and months, these extraordinary times demand responses that may previously have seemed to run counter to the Government’s strategic direction. As it is with our personal freedom, healthcare and the economy, so must it also be with policies relating to housebuilding and development in general. A short-term change to the policy approach may be necessary to stimulate development. As we try to chart a course to the future, five things are clear: The development industry has a critical role to play in the post Covid-19 recovery in Wales; but, Even before the outbreak of Coronavirus, the rate of market and affordable housing development in Wales was at an historic low – and lockdown will serve to weigh the figures down even more; On 25 March 2020 (the day before the latest changes were enacted), most local planning authorities in Wales were unable to demonstrate a five-year housing land supply; Now, most local planning authorities are unable to demonstrate effective delivery against their LDP requirements; and, We cannot wait for the next round of LDP preparation and defined housing trajectories to ramp-up delivery rates. Moving towards delivery The question must be how development can be stimulated in the short term in a manner that is consistent with the Welsh Government’s placemaking objectives. I set out five ideas below. First, it must be remembered that windfall sites are not inconsistent with a plan-led approach or with placemaking objectives. All LDPs include a windfall allowance, in recognition of the fact that they will contribute to the housing supply. Given that many LDPs have not delivered allocations as fast as anticipated, additional sites can play an important role in contributing towards housing requirements. They should not be disregarded as undermining the planning principles set out by the Welsh Government, although the development industry will need to demonstrate that they are sustainably located and can contribute towards placemaking aims.  Key requirements will include high quality development that makes the best use of resources, is readily accessible by a variety of forms of transport, includes high quality green space and green infrastructure, supports an inclusive and diverse population, and incorporates a mix of uses. Secondly, whilst the Welsh Government’s preference would be for a larger proportion of housebuilding to be on brownfield land, this should not be taken to overlook the role of greenfield development. There is not enough brownfield to meet total housing requirements and technical challenges arising from historic uses of the land can give rise to viability constraints that may serve to undermine deliverability. A “brownfield first” policy is not unreasonable so long as it does not result in the reliance on land that has limited prospect of being delivered. A binary differentiation is overly simplistic. Some brownfield sites are not sustainably located and are not capable of delivery, particularly in the short term. Conversely, some greenfield sites benefit from highly sustainable locations and have the potential to deliver high quality homes – and places – in a short period of time. The focus now should be on those sites (brownfield and greenfield) that have the best prospect of delivering market and affordable homes as quickly as possible. Third, we support the Welsh Government/Development Bank’s Stalled Sites Fund as a means by which the viability of brownfield sites might be enhanced. However, whilst the £40m fund can make a meaningful contribution to development, we would question whether the loans of between £150,000 and £2m would be sufficient to get sites moving, and whether repayment terms of up to 4 years would be sufficient for the scheme to be delivered and revenue generated to allow for repayment. Moreover, the fund is geared towards SME builders. Viability is conditioned principally by site and market factors, rather than being related to the nature of individual developers. Whilst recognising the Welsh Government’s objectives to support the SME sector, the short-term priority of restoring development activity should be viewed as an overriding objective and consideration should therefore be given to extending the Stalled Sites Fund to larger housebuilders or providing additional forms of financial support to address the viability of housing sites. Fourth, the reality is that greenfield land will be required, but this can accord with placemaking principles, especially if it goes beyond the baseline. The Welsh Government should set out a clear statement of support for exemplar schemes that benefit from high levels of accessibility, can minimise the need to travel, respect the natural environment, and incorporate a high-quality design that is built to last. The fact that such sites are greenfield and might not have been allocated in the current LDP should not be taken as justification to prevent them from coming forward. However, it will again be important to ensure that such sites are viable and the expectations of policy (or for policy exceedance) should not be so high as to threaten deliverability. The housing market in Wales is weaker than that of many comparable parts of the UK and this creates a further risk to viability. As part of site promotion, it will be important to assess the shape of the market and ensure that the mix of types, sizes, tenures of dwellings reflects local demand. Finally, if the aim is to boost housing delivery in the short term, there might be merit in the Welsh Government and local planning authorities considering the use of shorter planning permissions for windfall consents to ensure that they can come forward quickly. The Welsh Government should also work with local planning authorities to ensure that they continue to offer a full planning service and put measures in place to determine applications, even during lockdown. Lichfields’ live tracker on how Councils are working through the Covid-19 pandemic reveals a significant variation in the way authorities are responding. We need as much consistency as possible between authorities and, more than ever, we need applications to be determined in a timely manner. The takeway In considering housebuilding, the focus of the Welsh Government is one of quality over quantity. This is reflected in the placemaking principles and also in the direction of travel of its estimates of housing need. The challenge in the short term is to get house building moving again, and that will involve bringing forward deliverable new sites ahead of the LDP review process. If the houses that are proposed on those sites reflect the Welsh Government’s agenda in terms of design quality, sustainability, and community well-being, then local planning authorities and the Welsh Government ought to welcome them with open arms.