A backward step on Permitted Development

Making it easier to change the use of a building, particularly from office to residential, has been an effective method of increasing the UK’s housing supply whilst preserving green spaces inside urban areas, and the green belt beyond them. From the initial liberalisations in 2010, ‘Permitted Development’ as it is termed was successively expanded to allow greater use of office space in May 2013, retail buildings in 2014, agricultural and warehouse buildings in April 2015, and then light industrial buildings in October 2017.

By 2017, 17 per cent of new housing supply in England was from changing the use of buildings, with the vast majority of this office to residential. Ministry of Housing, Communities and Local Government housing supply statistics for England show a rise from 12,520 homes created through change of use in 2013/14 to 37,190 in 2016/7 – a near tripling of homes. Given the average density of new homes, this policy has protected 2,750 hectares of greenfield land, an area larger than Oxford, Exeter, or around the size of Bournemouth.

However, this increasingly important means of supplying homes, particularly in urban areas where housing pressures are acute, is being undermined by those who are opposed to the principle of allowing people, not bureaucracies, to determine the general use of a building, even where this means no loss of amenity or extra noise or problems for those around it.

Permitted development did not mean a free-for-all for property developers: safeguards remain to ensure the building is suitable for human habitation; you also need ‘prior approval’ on potential highway and transport impacts, contamination and flooding risks.

The Chief Planner, Steve Quartermain, also laid out two exemptions in a letter to all English planning authorities wherein local authorities would require ‘exceptional circumstances’ where their introduction would lead to the loss of a nationally significant area of economic activity, or substantial adverse economic consequences at the local authority level that would not be offset by the proposed new rights.

Misplaced fears

The policy has proved popular with businesses and renters. However, it was not without its critics. Liberalising change of use was resisted by many local authorities and planners, particularly London. Earlier this year, the Local Government Association called for it to be suspended nationally, on the grounds that it was causing a shortage of business space, lower levels of affordable housing, and was creating unsuitable homes. These criticisms are largely unfounded.

  • Fears of a shortage of office space in booming areas like London have been exaggerated, reflected in the somewhat sluggish market for office space in the capital.

  • Arguments about missed contributions by landowners and Section 106 contributions (used by local authorities for building affordable housing amongst other things), are overblown since most are at the lower end of the price scale, and the cost of conversion leaves little or no surplus to pay for PD. MHCLG research has revealed that less than one in three of the 8.5 per cent of new properties coming from a change of use that requires planning permission (e.g. due to fundamental changes over and above use) make any kind of contribution, showing that the capacity to make such payments is limited.

  • Concerns about the quality of the homes are also misplaced. Inspection regimes remain in place to ensure they are fit for human habitation, and though there are complaints about their typically smaller size, this is largely a reflection of the general housing crisis: new builds are similarly criticised. Arguing that we should restrict the supply of new homes because not all are large enough would just push up the price and make the shortage of housing space even worse – particularly in places like London.

In spite of this, the ongoing success of permitted development is by no means assured: threats exist at the local, metropolitan and national level. The most immediate is an increase in ‘Article 4’ Directions. This allows a council to withdraw permitted development rights in a given area, with permanent effect. Despite MCHCLG’s suggestion that there should be a ‘particularly strong’ case for such a direction, its use appears to be rising in London, hindering the provision of homes just where housing need is greatest.

The new Draft London Plan (Policy E1) published by the London Mayor’s office states that ‘existing floorspace capacity in outer and inner London … should be retained, supported by borough Article 4 Directions’. This announcement followed Kensington and Chelsea’s proposed borough-wide Article 4 Direction in September, as well as Westminster and the City of London’s proposed borough-wide Article 4 Directives that were announced in January and February respectively. These threats to Permitted Development by local and metropolitan authorities have failed to provoke a response from MHCLG. Councils, particularly in London, are introducing general exceptions which overrule this policy - which will mean fewer underused offices and shops becoming homes. This attempt to reverse the supply of new homes is backed by the Mayor of London. While in theory MHCLG could stop this by revoking these, so far no action has been taken.

This inaction represents the greatest threat to Permitted Development. The passivity of Central Government has empowered some local authorities to undertake a land-grab to reclaim planning control that PD had denied to them, and ongoing inaction may encourage councils to more to follow suit. The Mayor of London should reverse his changes in the draft London Plan to avoid reducing the number of homes being created in London from change of use.

If the London Plan is not amended, the Government should issue a written ministerial statement or guidance and make clear that they will enforce Article 4 directions very carefully, throwing out those which are not clearly necessary, given how far change of use contributes to new housing supply.

If no action is taken either by the Mayor or Government, this could lead to other councils up and down the country also moving against change of use and restricting the policy in their area. At a time when we need new housing supply more than ever, this would be a change for the worse.

Our full report can be found here.

Our new Planning Change project

The Project for Modern Democracy is launching a new Planning Change project. There is little doubt that housing is now one of the most acute domestic policy issues of our time. The consequences of housing becoming increasingly unaffordable for new generations are playing out economically and politically. Housing is now generally polling as one of the top five domestic issues, and scores even higher as an issue in some areas and for some groups.

While the rate of housebuilding has improved markedly over the past few years, it is still substantially below the target of 300,000 new houses a year that the Government and most experts believe is necessary to meet demand. Both major political parties are prioritising the issue – albeit with significantly different approaches – but existing policy is struggling to deliver new housing on the necessary scale. There is a need for new thinking to help create a long-term framework that delivers the right number of homes, of the right quality, in the right place.

With the Letwin Review on the gap between permissions and homes delivered, a new draft National Planning Policy Framework and related planning guidance, and early thinking about the next Spending Review, this is the time for detailed suggestions on housing and planning.

An approach based on long term consensus and a focus on detail

The housing crisis can often become polarised. Terms like NIMBY or accusations of concreting over the countryside can be thrown around. This is unhelpful, and neither caricature will help solve our housing crisis.

All too often think tank solutions are overly simplistic. Scrapping planning controls is not a serious suggestion. Simply proposing large-scale building of council homes does not tackle the issues of where these would be built, or legitimate concerns around infrastructure and design, let alone how to pay for such a scheme.

This project will begin by looking at the fundamentals of planning policy, tracing the history of planning controls and subsequent reforms, examining how new housing has been provided over the past few decades, assessing the scale and nature of the demand for affordable housing, and framing the fundamental question: how can more homes be built while maintaining essential countryside protections, as well as public and political support for necessary changes?

But as well as this initial work to frame the policy challenge, we want to arrive at practical solutions for reform. Too many think tanks lack the detailed knowledge necessary for well-placed advice which politicians and officials can accept. So as well as setting out the big picture, this project will aim to get into the detail of planning rules and guidance, from the proposed new National Planning Policy Framework downward, in order to make realistic suggestions to improve the quality and quantity of new homes.

We will also be focusing on measures that will build public and political support. We will focus on the areas expected to take the largest number of new homes and consider how we can get this right – because while this is a national crisis, the worst impacts are concentrated on particular areas. The ONS finds that parts of the North have a house price to income ratio below 5:1, while London and the South sees many areas have a ratio of 10:1, and in some areas 15:1 and higher.

This is not to deny this is a national issue. At the peak of the 1980s boom the national house price to income ratio was 5:1, a level even the least stressed areas are close to. Paying between 30-40 per cent of your gross salary in rent is seen as putting you under housing stress. Comparing median monthly private sector rent to median gross monthly salary, most of the country is now in this bracket, with many areas seeing renters paying 40 per cent, and in London often 50 per cent, of their gross income in rent.  

Supply is necessary but other measures need investigating too

While most of us acknowledge the need for more homes, solving the housing crisis cannot just rely on a call for more and more housing. There are other issues that need to be investigated – particularly as they will have different impacts on different areas.  

While more housing is necessary, it is not the only solution and it needs to be accompanied by other measures. A stamp duty surcharge on buy-to-let, with lower Stamp Duty for First Time Buyers and changes to interest tax deductibility helped ensure that in 2017 there were more First Time Buyers than any year since 2006, whilst buy-to-let purchases fell by 17 per cent in December 2017 compared to the year before. House price rises have generally cooled as speculative investment into buy-to-let has decreased.

Measures around removing barriers to effective use of the housing stock, how and when building smaller properties can encourage downsizing, how we can ensure that credit is not poured into a supply constrained system, are all important areas to investigate. In addition, it is disingenuous to pretend that migration is either the main cause of the housing crisis or that it has no impact.

We need a system that better balances supply and demand – but we want to be sure that other issues are tackled too. 

Focusing on the plan-led system and the opportunities of non-legislative change

The current system is termed ‘plan-led’ as it is based on the 1990 and 1947 Town and Country Planning Acts (even if often decisions are often made at appeal primarily using national guidance). This project will not be trying to fundamentally rebuild the legislative structure that underpins the planning system and new homes. But we will be focusing on reworking the existing system to deliver more and better homes in an acceptable way.

The proposed new National Planning Policy Framework and related guidance are a key opportunity. In housing and planning, the most controversial and important decisions are often not legislative. There is a great deal that a government can do in planning and housing, even if it does not have a majority, if some or all of the proposals have cross-party support.

A planning system is present across all developed economies. But the extent to which the system focuses on market mechanisms, property rights, local input, and central control vary from country to country. We will examine the extent to which direct intervention can be justified over solutions that are based on markets, local input, and property rights.

We also want to pay particular attention to pro-growth neighbourhood planning – which can be used to add housing sites and homes in an acceptable way. The Government’s own figures show that neighbourhood planning in an area delivers 10 per cent more homes. But the policy has come under considerable stress where developers have gamed the system and councils have been deemed to have an inadequate five-year land supply. We need to find a way to respect the decisions of local communities when they have taken responsible decisions, particularly where these have been democratically validated in local referendums.

Each area must deliver – or face politically sensitive intervention

In the 2015 Spending Review the Government introduced a delivery test, with the idea being that councils must deliver sufficient homes to meet their local housing need. We think this concept of the delivery test is crucial. An effective delivery test must form the core of any reform to the system.

The National Planning Policy Framework and Guidance must ensure that the delivery test is firm and robust. The current system allows areas without a sufficient land supply to face greater levels of speculative development, where developers can force through proposals using the planning system. But this is not ideal – it does not make up the shortfall in housing supply, and it allows poor development in terms of quality and infrastructure to be pushed onto local communities. Councils and central government simply blame each other – and those who suffer are those who need homes and local people.

There is a growing acceptance that central government needs to act when councils do not meet local need or have a local plan – but the question is how. The Government promised that there would be intervention where local plans were not in place as far back as the 2015 Productivity Plan - nearly three years ago.

We think that to restore faith in the system, it needs to find a way to intervene where local plans are not delivering, based on minimising local opposition to new homes. We will be working on what a sensible local intervention in areas not meeting their local housing supply requirements might look like.

Design and infrastructure improvements to reduce opposition to new homes

We know that local opposition to new housing is on the decline. Polls show opposition declining from 46 per cent in 2010 to 31 per cent in 2013 and 24 per cent in 2016, and support rising steadily, from 29 per cent in 2010 to 47 per cent in 2013 and up even higher to 57 per cent in 2016. Yet this support for new homes in general and in theory is not always borne out when specific projects come through in local areas.

A major problem is that many people see the quality of new homes and the infrastructure that is developed alongside with new housing as insufficient. Only 19-25 per cent in different polls say they would buy a new build home because of quality concerns. This low support for new build properties means both increased political opposition and also that developers are trying to sell their product to a much smaller group of people, decreasing the speed of build.  

Staggeringly, by 69 per cent to 9 per cent, people say that the quality of what is built near them is more important than the quantity, and 73 per cent say they would support new homes if well designed and in keeping with the local area.

Design is not a nice ‘to have’ but a key part of increased housing supply. There is no trade-off between quality and quantity. Building quality homes should increase support for new homes and allow faster build out. The real reason many developers oppose better quality homes is that it cuts against cheap standardisation which lowers their costs – and crucially lowers their build costs below what was agreed in ‘viability’ assessments which the council used to set their profit margin, meaning that they can vary build speed as they need to.

The issue of infrastructure is also critical. Far too often, new homes are built with insufficient infrastructure. The Government’s own 2014 evaluation of the New Homes Bonus found that just 10 per cent of the funding from the NHB was supporting infrastructure for new house building.

This lack of infrastructure makes it harder for people to support specific proposals as they fear the impact on their local roads and schools. The Government has tried to solve this by increasing the money in specific funds – most notably the Housing Infrastructure Fund, which is now worth £5 billion over the next few years.

While this is admirable, there is a danger that this funding largely leaks into house prices or developer profits, without giving local people the certainty that they need. Instead there needs to be a fundamental reorientation of support toward new homes across all public services that ensures that the right levels of capital expenditure follow new homes.

Not letting planning obsessions trump reality

Many planners want to create thriving communities – and planning has always been part of building and development. But in recent years, some planners have forgotten that rules and regulations are not the purpose of the planning system but a means to an end.

Too often the system prioritises abstract goals over practical reality. For instance, restricting new parking spaces with development does not stop car ownership, it simply leads to cars being parked on existing, overcrowded streets and increased opposition to new homes. The answer is not to have ever greater levels of planning, but better and more realistic planning.

Often this means weakening the role that planners play in the system. Ultimately planners are facilitators of what the local community want and is viable for developers to provide. They have a crucial role, but as servants to local communities rather than the masters. 

Ensuring that planning permissions are delivered

There is a real issue around the gap between planning permissions and housing starts. The current level of unimplemented planning permissions stands at 423,544, and even where planning permissions are implemented, meaning that construction has started on site, many years can elapse before the site is completed, with house builders developing very slowly.

The Letwin Review is examining the system and ways to reduce this gap and we will be working to help ensure that the Review puts forward a solution to close the gap without having undue negative impacts on the larger house builders. Not only does this gap make the housing crisis worse, it leads to frustration and cynicism among the communities we need to accept more homes. 

There are a range of options here – from ensuring diversity of supply to contractual obligations – we believe merit investigation. However, we do not think that Compulsory Purchase should be a first step, though we recognise that it may be a necessary last step.

Brownfield where possible – but recognition this will not be enough

The Government has undertaken measures already to boost brownfield, but some of these have been more cosmetic (registers which merely pull together existing sites) than fundamental. Others, such as greater change of use, have made a real contribution to housing supply. The CPRE has calculated that 1 million homes can be built on brownfield land at present – but this is an underestimate as brownfield land is a ‘renewing resource’ with new sites constantly coming forward.

While our goal is to ensure that we meet housing need, we also want to ensure that it is done in a way that protects the countryside wherever possible. Our work will continue to focus on ways to increase housing supply and deliver more homes on brownfield sites, although we will not be using this as an excuse to reduce the overall number of homes being built – but instead to increase the proportion being built on brownfield land.

In addition, not all greenfield development is equal. Local communities should be able to direct development to the areas where greenfield development will be least unpopular as local communities know their area best.

Greater land value capture – but in a way that respects property rights

There is a clear consensus that the current system around capturing land values to recycle this value toward new homes is not working effectively. However, similar concerns lead to the creation of the Community Infrastructure Levy – which is now widely seen as problematic, with a survey by GL Hearn finding that both applicants and local planning authorities thinking that CIL had a negative impact on development.   

We believe that there has to be a better way to capture land values to recycle them into infrastructure, better design, and affordable housing. We are keen to explore options on what this might look like.

If no more effective way to capture land values is not found, then it is likely that a punitive version of compulsory purchase will be created. It is in everyone’s interest that we can find a system which is fair and just while not attempting to take away fundamental property rights – which would not only be morally wrong but legally difficult.

Working with partners

These are some of our initial thoughts as we begin the Planning Change project, but this is a complex agenda with interlocking solutions. We do not pretend to have all the answers, and our research will be objective and evidence-led. So we are keen to consult broadly as we move ahead, and to hear from experts so that we can feed views into our work. If you would like to know more about the project, or are interested in becoming involved or supporting our work, please contact Alex Morton.