Holding developers to account

Developers will have two years to “use or lose” a planning permission

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The Housing White Paper aims to “hold developers to account” (paragraph 2.35). It includes various proposals to improve transparency, certainty and accountability in relation to the delivery of new homes. Key amongst these is a reduction in the default length of a planning permission from three to two years.

The Government is clearly keen to encourage faster delivery. This is likely due in part to its commitment to deliver a million new homes within the current Parliament (albeit it remains to be seen whether or not this is still a “commitment”). However, the proposal to reduce the default length of a planning permission to two years introduces a “use it or lose it” mentality. When coupled with some of the other proposals in the White Paper – such as a requirement for developers to provide information on the “…timing and pace of delivery…” and considering an applicant’s track record when determining an application – it indicates that the burden of solving the housing crisis is being increasingly placed on the development industry.

The Government appears to have bought into the argument that one of the causes of the housing crisis is developer land banking. The White Paper notes the Government’s concern that “it may be in the interest of speculators and developers to snap up land for housing and then sit back for a while as prices continue to rise”. Irrespective of whether or not land banking is an issue – which has been debated at length in recent years – the proposed reduction in the default length of planning permissions aims to address it.

The Local Government Association (LGA) identified land banking as an issue in 2016, noting that housing delivery remains low despite a large stock of planning permissions. In particular the LGA noted that the overall number of new homes with planning permission was 475,647 as of 2014/15, whilst the number built in that year was 170,690. However, this is an overly simplistic view of the situation. It is unrealistic to assume that every single planning permission will be implemented or that every single dwelling with planning permission will (or can) be built simultaneously. There are many reasons why a permission may be abandoned, including a failure to secure investment, or unexpected site abnormals which introduce physical or viability constraints. It is for this reason that many local authorities now include a ‘lapse rate’ when planning for housing delivery. Similarly, the Local Plans Expert Group in 2016 recommended that authorities identify ‘reserve sites’ equivalent to 20% of their housing requirement when preparing a Local Plan.

Nevertheless, the rate of delivery is growing and it is doing so in tandem with an increase in planning permissions. This is illustrated in Figure 1, which compares the number of homes securing permission annually with the number delivered on the ground. Whilst this is somewhat crude, it shows a clear correlation between the two, with both permissions and delivery growing at a similar rate. The figure shows that housebuilding is continuing to recover following the economic downturn in the late 2000s, and that in 2016/17 it seems likely that the number of homes built will exceed 200,000 for the first time in almost a decade.

Figure 1: Comparison between permissions granted and dwellings built

Click on the graph below to enlarge it

Figure 1: Comparison between permission granted and dwellings built

It is unlikely that a reduction in the default length of a permission will have any meaningful effect on the rate of delivery. A two-year period for implementation may be achievable for smaller, simpler developments which secure detailed planning permission. However, larger developments which secure outline permission often experience much longer lead-in times, particularly where they are led by a developer rather than a housebuilder. In such circumstances, before the permission can be implemented the developer must market the land to a housebuilder, conclude a legal agreement, prepare and secure reserved matters approval, discharge pre-commencement conditions, and mobilise materials and contractors. In our experience this often takes longer than two years, sometimes significantly so.

The key barriers to undertaking this process more quickly are often the number and complexity of conditions which are applied at the outline stage and the resources within an authority to deal with the reserved matters/discharge of conditions applications in a timely fashion. It remains to be seen whether some of the other proposals in the White Paper in respect of these issues will have sufficient effect to materially reduce lead-in times. Reducing the timescales for implementing a permission will not tackle these external constraints.

In this context, it is difficult to understand what shorter timescales might achieve, other than providing fresh impetus for developers/housebuilders to act quickly (albeit this is not a problem in our experience). If anything, the ‘lapse rates’ for planning permissions are only likely to increase if there is less time to implement them. Indeed, it can take longer to implement developments on brownfield land, given the relatively greater challenges in terms of abnormals and viability which often need to be overcome. It is therefore somewhat ironic that the proposals of the White Paper may have unintended consequences for regeneration programmes in inner-urban areas.

The key to boosting housing supply is to increase permissions given the apparent correlation between the two. In this regard, the proposals in the White Paper to place more restrictions on permissions might hinder, rather than help, efforts to tackle the housing crisis. However, it should be noted that the reduced two-year timescale for implementation is likely to be applied flexibly, with the White Paper stating that it will not be enforced where it would “hinder the viability or deliverability of a scheme” (paragraph 2.41). This indicates that the timescale for a permission could be negotiated on a case-by-case basis. This is a sensible approach given that there is no-one-size-fits-all lead-in time which can be applied to different developments. It will, however, be important for applicants to specify the permission timeframe which is being sought, with appropriate evidence as to why the two-year default should not be applied.

13 March 2017