Everyone from the mayor of London to the British Toilet Association has joined the residential conversion debate. But it’s not their leadership that we need.
Is converting stock from other uses an answer to our housing shortage? Maybe. But the need for clear thinking from central and local government is paramount – and worryingly absent.
The lavatory lobbyists said a couple of weeks ago that more than 600 public toilets had been shut for good in the past 18 months – with planning permission for many to be turned into homes. Toilet-to-resi conversions will do little to deal with an estimated shortfall of 750,000 homes around the country by 2025. But, the government hopes, other conversions might.
Its big idea is to transform permitted development rights to allow offices to be converted into residential uses. Councils who want to seek exemptions from the new rules have until April to do so. The response has been overwhelming, Manchester and other regional centres have requested opt outs, as have all but four London boroughs. Boris Johnson himself has done so on behalf of the core office districts that cover much of zone one in the capital.
And there the problems begin.
With so many exemptions, the policy could be rendered redundant for much of the country. Some will have to be overruled for it to credibly survive. And even then, say critics, the policy is half-baked. The likely impact of lost community infrastructure levy and business rate income does not appear to have been thought through, nor the impact on affordable housing provision.
Residential and business usage does not always mix well and creating more residential without a corresponding increase in facilities (education, medical and so on) will not build communities or create desirable places. Others, rightly, say retail conversion must be part of the debate, and with the government’s response to the Portas report imminent, the two policies should be joined up.
With housing need so great, the government needs to act. But this feels like using a sledgehammer to crack a nut. And with residential returns still significantly ahead of those generated by offices, shops and industrial assets the policy will pique the interest of certain investors.
But there is an opportunity to create a considered solution to what can seem an intractable problem. And this isn’t that.
A flurry of encouraging regional activity this week. In the South East investors are closing in on more than £80m of office stock. More tantalisingly, Scotland’s largest office project of recent years is under way, with Norwegian oil services company Aker Solutions agreeing to buy a third of Miller Developments’ 93-acre land holdings close to Aberdeen International airport. The city saw more prelet take-up than even London last year and shows no signs of slowing down.
Elsewhere, an Estates Gazette reception in Manchester this week was buzzing, so it was little surprise that Jones Lang LaSalle’s Big 6 regional cities report later confirmed that the city had completely overtaken Birmingham in terms of take-up. Meanwhile, Edinburgh grade-A take-up is up 60%.
Overseas investors are increasingly spooked by London’s prices and many are now willing to look elsewhere around the country. Regional assets cost 22% less than those in central London, with prices not driven up by irrational overseas investors, to borrow JLL’s phrase. They are 40% cheaper than Frankfurt and Moscow to boot.
But let’s keep things in perspective. In Bristol, grade-A take-up is down 80%. Indeed, grade-A take-up for all the big six cities outside London would fit in the Shard – with 100,000 sq ft left over. And in investment terms, 2006’s £2.8bn total from 125 transactions was 2012’s £511m from 30 deals. Recovery remains a long haul.
