The government’s scheme to allow developers to bypass the planning system when converting offices and shops has been a roaring success in boosting the number of new homes. So how come so few voices have been heard to counter calls to ditch it?
When former communities secretary Eric Pickles announced in 2013 the relaxation of rules governing the conversion of offices and shops into homes, he presented it as an opportunity to “regenerate town centres” and provide “badly needed homes”. But it wasn’t seen as a major shift: the government’s own analysis suggested that the creation of this new permitted development right, which effectively allowed developers to bypass the planning system, would see just 140 applications per year.
Six years later, getting on for 100,000 homes have been created through this brand-new development route – all approved without getting close to a planning committee. For critics, the inevitable result has been schemes like Terminus House in Harlow (pictured) – a monolithic 1960s office block now containing 222 affordable flats for rent over its 11 storeys, where the council has placed people in housing need. One local councillor has described the scheme, which has no outdoor space for children to play and has been linked by police to a 45% spike in local crime, as “human warehousing”, with some residents telling the BBC it was “a nightmare” to live in. Tenants include formerly homeless families as well as ex-offenders, with more than 10 families living in studio flats.
“One of those moments when [the government] actually did something that genuinely helped those trying to get onto the housing ladder and the economy at the same time”
Mark Horner, Progressive Property
Growing concerns over schemes like Terminus House last week persuaded the Labour Party to announce it would abolish the government’s extensions to permitted development (PD) rights were it to get into government. And this is far from an extreme socialist plot – august industry bodies such as RICS and the British Property Federation (BPF) have raised significant concerns. But defenders of the system – not least the government, which is to expand PD rights still further – argue it has been a vital response to the housing crisis, providing much-needed low cost homes, and accuse critics of snobbery and nimbyism.
For some contractors and consultants, too, schemes brought forward under PD rights are likely to have made up a significant chunk of their workload in recent years. So should PD exemptions be cancelled, and what would the impact on the industry be if they were?
The government’s 2013 changes to PD rules introduced a number of significant new exemptions – in particular, giving developers the right to convert offices, shops and agricultural buildings to housing without specific permission. Under the permitted development system, developers are able to evade planning fees, affordable housing contributions and local space and amenity standards, and instead must simply submit a stripped-down “prior approval” notice for consideration by officers, with limited grounds to refuse. While the government’s impact assessment forecast limited uptake, developers quickly realised the opportunity was too good to miss, given the disparity between commercial and residential land values.
“Everything the government does on quality is completely undermined by their commitment to PD development, a large proportion of which is very, very poor indeed”
Nick Raynsford, former housing minister
Mark Horner, co-founder of agent Progressive Property, described the move in his property blog as a “stroke of genius […] one of those moments when [the government] actually did something that genuinely helped those trying to get onto the housing ladder and the economy at the same time”.
Given the interest, the number of conversions spiked dramatically. The government’s net new housing additions figures show conversions, which had been running at between 11,000 and 13,000 per year since 2010, suddenly increased to over 20,000 in 2014/15, reaching a high of 37,190 in 2016/17, with around half coming from permitted development. Last year, an RICS study on the impact of PD rights extensions found that between 86,000 and 95,000 homes had probably been produced under PD rights by 2017.
Supporters of PD rights extension say this shows how effective it has been at tackling the housing crisis, with conversions now contributing around 15% of all new-build homes. Akeel Alidina, is managing director of Caridon Property, which owns a 1,000-strong portfolio of flats from PD conversions, including the much-criticised Terminus House, and has hundreds more in the pipeline. He says the policy has been essential in allowing his firm to develop homes that can be rented out at affordable rates to those in housing need, pointing out that all homes have to meet building regulations, and go through the “prior approval” process. “In the absence of PDR,” he says, “where’s the provision of new affordable homes going to come from? You’ve lost those homes that would have come forward.”
And while he admits that there have been some limited anti-social behaviour problems at the development, he says these have been dealt with in partnership with the police, and that Terminus House has given families self-contained units where the alternative might have been sharing bathrooms and kitchens in a privately run home of multiple occupation.
“There’s a greater good. This policy allows us to bring schemes to market quickly. We’re making a difference to those in housing need,” says Alidina, who claims criticism of the scheme has been “really disheartening” and upset residents, the “vast majority of whom are very happy”. “A lot of the rhetoric around PDR has been driven by snobbery and nimbyism. Abandoning it will affect the poorest people.”
“It’s a really good thing that people are looking at repurposing buildings, but it can’t be a free-for-all where you can create what you want. It’s not acceptable”
Félicie Krikler, Assael
Read more: Development update - residential
The case against
Critics, however, point out that the rush to provide new homes shouldn’t mean that the quality of places suffer – and claim that through PD, that is exactly what is happening. A report last year into the functioning of the planning system by former housing minister Nick Raynsford, commissioned by the Town and Country Planning Association, was particularly critical. It found that PD, in bypassing planning requirements on issues such as space standards, affordable housing, play space and school provision, was “creating the real and alarming prospect of a new generation of slums”, and, in some instances, “development which has serious adverse implications for people’s health and wellbeing”.
The figures from the RICS study of this issue are certainly striking. It found that not only were 77% of the homes built studio flats (compared with 35% of homes permitted through the planning system), some of these were as small as 15m2 or 16m2, compared with a minimum space standard of 37m² in London. In general, less than one-third of PD homes studied met space standards. It also saw homes with no access to private or communal amenity space, developments with “barely any changes” from prior office use, and residential schemes in the middle of industrial estates. Some were of “extremely poor quality”, it found, with quality “significantly worse than schemes which required planning permission”.
Critics say this cuts completely against the government’s housing quality agenda, as exemplified in the recently formed Building Better, Building Beautiful commission. Raynsford says: “Everything the government does on quality is completely undermined by their commitment to PD development, a large proportion of which is very, very poor indeed.”
In addition to the quality concern, several studies have bemoaned the lack of PD development’s contribution to affordable housing. The RICS study valued this cost to local authorities at £50m to date, while the Local Government Association has estimated it means up to 10,000 affordable homes have not been provided that should have been. In total, RICS says councils have missed out on up to £70m in contributions and planning fees because of the existence of PD, money that developers have been able to pocket.
Given this, there have been large profits to be made. For example, according to Land Registry data, office building Emerald House in Croydon was sold in 2014 for £10m without prior approval for conversion to residential. Once the conversion right was established, the site was resold a year later for £19m – a 90% profit margin.
And in an October 2018 presentation at the University of Reading, the authors of the RICS study claimed an agent told them of a PD development so lucrative the promoter could have provided 90% affordable housing and still made money. But because it came under PD, no affordable housing was provided.
The conclusion of the RICS study was that office-to-residential PD “has been a fiscal giveaway from the state to private real estate interests”, which had left “a legacy of a higher quantum of poor quality housing than is seen with schemes governed through full planning permission”.
For a government committed to building 300,000 homes a year, this presents a dilemma, as the homes from PD appear to have provided a useful and significant boost to numbers. However, Neil Hudson, founder of research firm Residential Analysts, says the exact impact of the PD extension on numbers is not quite as definite as the figures might suggest – because it’s not clear how many conversions would have happened anyway through the traditional route. “The debate about how useful PD is for supply is complex,” he says, while admitting there is a “tension” between the need to drive numbers and the government’s housing quality agenda: “If PDR is cancelled,” he says, “there’ll be some developers who are hit, and there’ll inevitably be some sites which are no longer viable.”
In fact, there are also now signs the market for PD development is starting to wane, with the most recent government figures showing the number of conversions fell in 2017/18 for the first time in five years, by more than one-fifth.
Is the PDR boom waning, asks Joey Gardiner
Labour’s announcement that it will scrap the government’s widely-used permitted development extensions if it gets into office has been greeted with a noticeable – and potentially significant – silence from many of the industry’s trade bodies. Organisations such as the British Property Federation, which, given the profits made from this trade over the last few years, you would expect to be defending the policy to the hilt, have said very little. The RICS, likewise, has issued no statement, and its associate director Tony Mulhall talks not about defending the policy, but simply trying to find a way to improve quality without turning off the development tap.
So why are these bodies not leaping to the defence of a policy that has resulted in the creation of tens of thousands of homes that ultimately would never have come forward otherwise? The first reason is that the concerns about quality are genuine, with the RICS, particularly, having a duty to consider the public interest beyond the commercial interest of its members. The British Property Federation, too, has moved to a position where it feels the wider interests of its members – who own much town and city centre property – are best protected by policies that allow councils a measure of control over property use, to prevent the piecemeal decay of town centres through the opportunistic decisions of individual owners.
But there are also straight commercial reasons. Though data is sparse, anecdotal reports suggest the interest in PD conversions is starting to wane. Indeed, the government’s own net additions figures back this up: after three years of stellar increases, the volume of residential conversions fell back sharply in 2017/18 to 29,720, from over 37,000 the year before. While still miles above the numbers seen pre-PDR, it indicates activity is ebbing.
It is not clear exactly what is behind this shift, but most commentators point to a combination of factors. Firstly, the decline in the residential property market in London
and the South-east means that the differential between the value of commercial and residential schemes is much reduced. The hot spots for PDR development, including outer London boroughs such as Hounslow and Croydon, and commuter towns like Reading and Luton, are among those where residential prices have been challenged.
In addition, much initial interest in PD came from developers building homes for rent, but there is a sense that build to rent developers are now instead looking to develop their own bespoke properties from scratch. Finally, it may be that the supply of shops, offices and light industrial premises that are in any way suitable for conversion is starting to run down given the frantic activity of the past few years. As the BPF’s Ian Fletcher says: “The low-hanging fruit has been picked – developers are now left with the more challenging ones.”
Development using PD appears to have been largely the preserve of smaller developers able to work quickly to grab the opportunity. What is not known is how quickly and easily these developers would be able to move on to other types of development if the PD conversion loophole is closed. But if the government is looking for industry support to defend the continuation of its PD exemptions against Labour’s attack, so far it appears relatively thin on the ground.
Given this combination of the market naturally moving away from the product, and the difficulty of defending the exemption of so many schemes from normal standards, many parts of the industry seem either to actively welcome Labour’s stance, or at least be resigned to the idea that PD exemptions have to be reformed. Félicie Krikler, director at housing architect Assael, says such schemes don’t form a major part of the workload of quality architects. “This market is all about profit; it’s often pretty rubbishy rooms they’re creating. It’s a really good thing that people are looking at repurposing buildings, but it can’t be a free-for-all where you can create what you want,” she says. “It’s not acceptable.”
Ian Fletcher, director of policy at the BPF, says there were good reasons to bring the PD exemption in, at a time when housebuilding was at its lowest level since the 1920s, and that the “vast majority” of developments have been good quality. However, he says the BPF is now ambivalent about it, and that the government would not see a strong push-back were it to rein it in. “Things have changed. We’re now in a situation where high streets need to be curated. The key thing is for authorities to have more control over what happens,” he says.
Given the findings of the RICS study, this organisation too is calling for reform of PD rights, rather than defending the industry’s strict commercial interest in its continuation. “There is no check on quality,” says RICS’ associate director Tony Mulhall. “There’s a lack of a way of stopping developments that are really not suitable.” He thinks PD residential conversion rights need to be combined with some minimum standards in order to fix this. “The question is what safeguards you need. This policy has provided additional homes, but they’ve been poor quality. The question is, how can you keep these conversions happening but provide better quality,” he says.
It is possible that the industry won’t have to wait too long to find out. While announcing a commitment to further PD exemptions in spring, communities minister James Brokenshire also revealed that he was reviewing the residential conversion PD exemption in the light of quality concerns. Whether this review ends up endorsing or criticising the government’s approach seems likely to influence the government’s next step.