Used responsibly, and with adequate quality safeguards, PD rules are a powerful tool for tackling the UK’s housing crisis, and must remain in place
For the past six years, permitted development (PD) rights have quietly given a hefty shot in the arm to residential construction. Unlike the headline-grabbing Help to Buy scheme, PD rights are a stimulus little known outside our industry.
Yet in the past couple of months they have been thrust into the limelight for all the wrong reasons. In March the housing secretary, James Brokenshire, revealed the government intends to extend the scope of PD rights, which currently allow developers to convert offices or shops into homes without the need for planning permission.
The behaviour of a few irresponsible developers should not distract from the huge benefits PD can deliver
However, in April his Labour shadow, John Healey, pledged that a Labour government would end the PD exemption – forcing developers who want to convert commercial property into residential units to seek full planning permission.
Ironically the market appears to have already pre-empted Healey’s announcement. New research by Naismiths, which analysed Office for National Statistics records as well as Naismiths’ own data, shows that the boom in PD projects peaked in 2017 and has been on a downward trajectory ever since.
Between Q3 2017 and the same period in 2018, the number of PD schemes recorded across the UK plunged by more than one-fifth (21.4%).
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On the construction front line, Naismiths saw a high-water mark for PD in July 2017, when we were instructed on 12 PD projects in one month alone. Since then our new PD instructions have tailed off steadily, with much of the work shifting to residential refurbishment projects instead.
Several factors lie behind this decline. Falling house prices in PD hotspots like London and the South-east have eroded profit margins, and the flurry of PD activity over previous years has depleted the supply of commercial properties available for conversion.
Sharp practice by a few developers has also prompted lenders to recalibrate the risk they attach to PD schemes. We’ve seen several cases of developers who are well into the construction phase of a PD scheme deciding they would like to extend the scope beyond the original, PD-eligible project for which they secured initial funding.
Such ostensibly eleventh-hour decisions to extend are often nothing of the sort. By triggering the need both for additional funds and for full planning permission, such cute tactics have inevitably created friction with lenders.
While funds are still being made available for PD projects, we’re now working with a number of banks to provide enhanced due diligence and monitoring, right from the loan application through to the planning and delivery phases.
Nevertheless such pushing of the envelope of PD rules is the exception rather than the norm. Just as with the claims made by PD detractors that some of the homes produced have been of poor quality, it’s a nonsense to tar all PD developers with the same brush.
The behaviour of a few irresponsible developers should not distract from the huge benefits PD has delivered – and can continue to deliver.
Since the rules were introduced in 2013, nearly 100,000 much-needed new homes have been created thanks to PD. While PD can never be a silver bullet to solve Britain’s housing crisis, it’s vital that developers retain the option to build this way.
If the government’s target of 300,000 new homes a year is to be more than a pipedream, PD rules must continue to be part of the mix. The housing secretary’s plan to extend them is a recognition of this, and I urge the construction industry to get behind it.
Many of us have been crying out for years for an easing of planning red tape, yet PD already offers a way to get more homes built, more quickly and more cost effectively.
Used responsibly, and with adequate quality safeguards, PD rules are a powerful tool for tackling the UK’s housing crisis, and must remain in place.
Blane Perrotton is managing director of Naismiths