The government’s efforts to boost the development of new homes by confirming long-awaited proposals to convert offices into residential without planning permission could be thwarted in London by authorities.
The plans, which were unveiled by Eric Pickles last month, are due to come into force in the spring. The policy will be in place for three years before a review is carried out. The proposals have been widely welcomed by house builders and developers who are pinning their hopes on them to bring forward development and address the housing shortfall.
However, several local authorities in the capital are expected to seek exemptions by demonstrating to the secretary of state by 22 February that the proposals would cause a significant fall in economic activity and adverse economic consequences will not be offset by the benefits in their boroughs.
The City of London Corporation, Camden, Westminster and Kensington & Chelsea councils are among the London authorities seeking a joint exemption for the Central Activities Zone. A number of London authorities, including those putting together a joint case, are also expected to make individual pitches for their own boroughs to opt out of proposals too.
Potential risk
Mark Farmer, head of residential at EC Harris, says: “The ability of local authorities to opt out will cause potential risk with developers and building owners. They will want early and clear guidance as to whether they have a permitted development opportunity or not. This
issue might negate the positive effect that this initiative might otherwise have brought in terms of stimulating UK house building activity.”
If successful, the impact of exemptions on the supply of new homes in central London could be significant after a period of growth in office to residential conversions through planning permission [see graph].
There are concerns that relaxed planning rules will prevent councils from capturing “planning gain” revenues and S106 contributions for education, health care and affordable housing. This could exert significant pressure on local amenities in areas that see a boom in new homes. An absence of affordable housing could also have a knock-on effect on authorities meeting planning policies.
Critics also argue that the provision of plans will only lead to provision of expensive, not affordable homes, at a cost to the business community.
Rosemarie MacQueen, strategic director for built environment at Westminster council, explains: “I don’t think in a month of Sundays that the kind of residential that will be provided in Westminster [under the new plans] will make any impact at all in terms of the type of housing the borough needs. What we need is intermediate housing, affordable housing and a balance in communities. We want to see a good social mix and not ghettoisation.”
In addition, once offices are converted into residential property, which has a higher value, it will be difficult to turn them back into offices if commercial demand picks up.
At a time when the public purse is under significant pressure, conversions are set to trigger a significant loss of revenue in business rates for central government too if a sizeable number of offices are converted into homes. Peter Chapman, head of rating and compensation at Cluttons, estimates that the Treasury would lose between £30,000 and £40,000 per home per annum in business rates on conversion in Westminster alone.
He says: “I recently investigated the potential impact upon the change from residential flats to offices on two floors of a period building in Wigmore Street in London. If undertaken, I estimate it would increase the current council tax charge of £1,140 to £35,000 in business rates.”
Mammoth value
MacQueen agrees: “The rateable value of premises in Westminster as businesses are mammoth. I wonder what the government is doing.”
However, Ian Fletcher, director of policy at the British Property Federation, points out that local authorities will gain from the New Homes Bonus in addition to council tax receipts from new homes.
The councils now have just a couple of weeks to make their cases to the secretary of state for exemptions in their boroughs.
MacQueen concedes that Westminster council is concerned about how much evidence is required at such short notice.
“We haven’t completely concluded what we are going to be doing. We have a few days left of this short timescale,” she says. “We are probably better off than some of the other 340 local authorities across the country as we have a reasonably up-to-date economic development strategy.”
Chapman concludes: “Clearly London boroughs are between two stalls. They have to adopt new policy but it tends to be a grey area so they have to consider it carefully. With the exception of the City, I think most London local authorities will embrace it.”
annabel.dixon@estatesgazette.com
