Planning for gain – paying for viability!
For political reasons, the Government’s focus is on boosting the 5 year housing supply (which gives ‘short term thinking’ a whole new meaning!).
In practice, this is far too short a period of time in which to restore confidence and boost development to a sustainable level of, say, 200,000 housing units a year. Assuming the Government can face down a hysterical environmental lobby, what are their chances of success, and is boosting housing output a worthwhile objective?
In many ways we are a crossroads in terms of the planning system and housing delivery. The lack of finance both at Government and Local Authority level means that private sector development has been required to subsidise and, in the case of larger Private Finance Initiatives, deliver much of what used to termed ‘community infrastructure’. Arguably, it was in the LAs’ interests to restrict supply so as to ensure that land values remained high and planning contributions remained affordable. That system worked but contributed to a steep increase in land values and house prices, to the detriment of first time and new homes buyers.
The banking crisis and the recession brought a material change in the land market and with it steep falls in land values and lower levels of housing output. So what happens when development falters and land values fall? Outside London and the South-East, there are real concerns about the viability of housing delivery which are exacerbated by the level of planning contributions set by most Local Authority’s.
Over the past twenty years developers had to cope with significant rises in planning contributions and to absorb the cost of delivering a range of Government imposed carbon reduction targets in the form of more energy efficient buildings and specification standards – a long term investment, but one with a greater claim to state funding than many other ‘green initiatives’ such as solar energy.
Over the last four years planning authorities and housebuilders have been circling each other in some form of Mexican ‘stand-off’ where irrespective of the market, builders are offered planning permission on an authority’s terms ‘or not at all’. At a time when the demand for housing is greater than ever this stasis has helped to reduce construction output and increase competition and thus the value of those few sites that make it through the planning process.
The Government, rather belatedly appears to recognise the role the construction industry can play in pulling the economy out of recession. The publication of the National Planning Policy Framework heralds a step change in the relationship between policy makers and those responsible for delivery. Both are required to work together to provide an adequate supply of new homes. The Government has stopped short of returning to central delivery targets, claiming that this is a task for locally elected bodies but is that a responsible approach at a time when we are embroiled in what the Government call an ‘economic war’? How much housing is deemed ‘satisfactory’ in any one area is open to debate and as yet unclear. We expect to see some interesting appeal decisions over the course of the next two years.
There is no sign that planning authorities are ready to loosen their grip on the planning reins and thus it is difficult to believe that we will see much of a change in housing supply over the next three years. This bodes well for new homes values particularly as we are seeing an upturn in the level of funding available to private homeowners and falling borrowing costs. A rise in house prices may be less appreciated by younger couples struggling to find a deposit and working every hour of the day to pay crippling rent increases. No one has given much thought to the impact of such housing pressures on family life and social structures but it is unlikely to be good news for the National Health Service!
It is clear that if one looks outside of the more affluent South-East Region, one can see many greenfield housing proposals that are unviable under current market conditions and planning policy provisions. For this reason, if the industry is to deliver that much needed boost in housing completions, it is vitally important that planning authorities look carefully at the viability of both their existing and proposed Local Develop Plans, determine which sites can be delivered economically and what policy targets and infrastructure requirements are essential rather than ‘nice to have’. It is a difficult balancing act and not one that local Councillors and their officers are well equipped to undertake.
Either way, the Government needs to stop dropping hints to Local Planning Authorities, reset sensible housing delivery targets, remove the obstacles to delivering those new homes, explore new ways to fund local infrastructure and offer buyers a greater choice of housing options, if we are not to price a whole generation of young people out of owning their own home and into the hands of already overstretched and under-resourced housing support agencies. Action now may be too late for some?
Roger Hayward, Senior Partner (Chelmsford Commercial and Development teams)