COMMENT: A report by the Home Builders Federation (HBF) in 2017 stated that delivery of houses from small builders had been stymied by increased planning risk and lender attitudes.
Prior to 1990, small housebuilders were responsible for an average of 39% of all new homes built annually. By 2015, this was down to 12.5%. The government says it wants to encourage smaller developers – however, its planning policies are doing the opposite.
The system is too complex
In the two years since the HBF report came out, the government’s tinkering with the planning system has not improved things for small developers.
The more complex a system becomes, the more specialist advisers are required – all of whom come at a cost added on to the development.
Delays to the planning system
Pre-application advice is encouraged, but it is either not available for two to three months or expensive when it is. Small and medium-sized enterprise (SME) developers do not have the resources to load thousands of pounds in costs for an initial view.
One developer I spoke with, despite paying a medium-sized fee to the council for advice and then a slightly larger fee to a planning consultant, was frustrated by the local authority refusing to meet for almost a month and, after agreeing, requiring all possible detail up front.
It is painful when an application, formulated in “pre-app”, passes slowly through the council as a result of staff shortages and then gets politicised by a committee. The stakes are higher for the smaller developer than for volume housebuilders, who tend to have private equity backers or shareholders to fall back on. It can cost more than £50,000 to submit a planning application for a smaller site, and if a scheme gets blocked in the planning process it could be disastrous for the developer.
If an appeal is needed, this doubles the time taken, owing to a shortage of inspectors. Although changes at the Planning Inspectorate following the Rosewell inquiry seem to be having some positive effect, these changes only presently affect inquiries – which most small sites will not go to. It takes from eight to 14 months to get any kind of permission.
The developer cannot make money from land until a development is far enough through the cycle that it can be utilised, ie houses can be lived in or spaces occupied. SME developers will suffer hardest from delays, as they have neither the calibre of financial backing nor the pipeline of sites that the larger PLCs might have.
The cynic would argue for an overhaul of the system. However, in the short term we must properly resource our local authorities. Only 56% of planners now work in the public sector, compared with 70% previously. Don’t try to give a planning officer a proper salary by increasing the levies made on developers; instead, properly fund planning departments.
Permitted development rights
How does one become an SME developer? There are two options: either you have a portfolio or experience working at an established brand, obtain some funding and branch out; or you begin as a one-person band and start building, flip properties and then acquire a few HMOs before the projects get bigger.
HMOs have now been demonised, and further checks are required, which new entrants to the market often don’t allow for. Permitted development rights, like the community infrastructure levy (CIL), touch all parts of the system. Similar to CIL, they have a tendency to vary in application around the country – with elements of a national system being amended by Article 4 directions at local authority level.
Planning obligations – section 106
Policies which impose a burden on small sites, in both time and cost of negotiation, do not help.
In November 2014, the government produced a policy by written ministerial statement (WMS) to provide support for smaller developers and custom and self-builders, and exempted sites of 10 or fewer dwellings from affordable housing and tariff-style section 106 contributions.
That WMS was challenged through the courts in Secretary of State for Communities and Local Government v West Berkshire District Council and Reading Borough Council [2016] EWCA Civ 441, but survived in part to maintain the status of policy. That idea is now a formal part of the NPPF and NPPG.
However, the potential impact on money moving from the development industry to a council’s affordable housing coffers means that, currently, councils will use that need to justify a request where it would otherwise not be made.
It is then for a developer to assert that payment would make the site unviable. In such a case, the council will want to balance a financial viability assessment (to be carried out at the cost of the developer and then reviewed by an independent body for the council) against the local need for the contribution.
The cost, time and expertise associated with this process are disproportionate to what should be a simplified process, reflective of scale. Indeed, the cost of demonstrating that the contribution makes the scheme unviable can be at a similar level to the contribution itself.
Community infrastructure levy
In the six key cases on the operation of CIL, most have as their “victims” smaller developers or householders. The couple where the developer won have an equality of arms battle also won by the developer.
The CIL Regulations 2010 have been amended at least seven times (a further amendment came into force on 1 September), are complicated and are contradictory. They touch all levels of the development industry, from several thousand houses to a large extension, yet the means by which they are explained is unclear.
One developer I spoke with estimated that his company has paid around £1m-£2m in CIL which could have been avoided had they taken advice.
The number of notices are not helpful for an SME developer. It is high time CIL is revisited, and the teething problems of the past decade resolved.
Final word
In November 2017, the government began a consultation to require local authorities to bring forward 20% of housing supply as small sites. The reason for this is twofold. Smaller sites should, in theory, be quicker to get off the ground and contribute to the supply of housing sooner, and secondly a more diverse set of developers bringing housing forward has to be good for competition and supply.
Unfortunately, this aspiration has been stymied by the myriad of less helpful policy decisions set out above.
Stuart Tym is a senior associate at Irwin Mitchell
