Most housebuilders are running like hell from the government’s plan to make them build local homes for local people. But others believe the upcoming reforms will be to their - and the locals’ - advantage

Leeds council’s decision to halve its housing targets announced last week will be seen by most developers as the latest proof of how damaging the coalition government’s planning reforms are to housebuilding.

The decision by communities secretary Eric Pickles to do away with regional spatial strategies - documents that set annual targets for the number of homes built in each council area - has already prompted councils across the country to scrap plans for thousands of homes (at least 85,000 if you believe the National Housing Federation).

Former growth areas such as Milton Keynes and Ashford are reviewing their published plans in the light of the new localism, and considering whether or not to rein in their housebuilding ambitions.

As you might expect, the housebuilding industry, in the shape of the Home Builders Federation and the House Builders Association, has expressed its concern that the country may be heading for a prolonged development hiatus. Everyone - apart, it seems, from housing minister Grant Shapps - thinks the shift to localism has been a shambles so far, causing unnecessary pain and uncertainty. But is the reality so bleak?

By announcing the abolition of housing targets before bringing in financial incentives to reward housebuilding and introducing a proposed presumption in favour of development in the planning process, the government has almost guaranteed confusion and inaction. When Aylesbury Vale council abandoned work on its core strategy last week, it sent a letter to developers citing the government’s failure to detail incentives as one reason why it cannot make any sensible decisions about its future plans.

Andrew Whitaker, head of planning at the Home Builders’ Federation, says: “We can see that you could ultimately run a system under localism. But we begged the government when in opposition to introduce transitional arrangements and they agreed. Instead, we’ve now got a policy vacuum.”

This much is fairly uncontentious. Much more controversial is whether the current hiatus actually matters much. Shapps has previously told Building that, while he is not happy to see councils stopping development of their core strategies and reducing housing numbers, if you are going to transfer to a very different planning system, you may as well face the inevitable interruption during a period where the economic environment dictates that few homes will be built at all.

Property consultant Savills suggests that about 45% of planning permissions gained are not built out, so it could be argued that getting new permissions is not the problem. The Home Builders Federation and the House Builders Association protest vigorously against this logic, saying that many permissions are unbuildable in the current market, and that the hiatus will store up problems. But others buy it, Yolande Barnes, Savills’ head of research, being one, and Mark Clare, chief executive of Barratt, being another. He says: “It arguable that as the industry is asking for fewer approvals than ever before, we’ve got six months or a year to make this change.”

Shapps has long argued that the top-down system never delivered what it was supposed to, even in the boom years, and it’s hard to disagree. In 2009, 93,000 homes were started, against a government target of 240,000. Had you canvassed developers 18 months ago on what they thought of New Labour’s planning system, you’d have been hard-pressed to detect the enthusiasm displayed for it now.

Nigel Moor, a planning consultant and Conservative councillor in Wallingford, Oxfordshire, says: “I don’t recall any builders saying they were happy with the way things were. This sudden enthusiasm for regional planning is a bit inexplicable.”

There is another reason to regard the advent of localism optimistically. In the past, developers were often guilty of relying on getting planning refusals overturned on appeal, rather than winning the support of local people and politicians.

Tellingly, supporters of the new policy are starting to emerge, including a number of the most respected housebuilders, who think that, by forcing developers to listen to what communities want, the system could improve the quality of developments.

Graham Cherry, chief executive at Countryside Properties, thinks the change could provide a real competitive advantage for his firm, playing to its reputation with local authorities for creating quality places, such as Great Notley Garden Village and the Greenwich Millennium Village. “We definitely see this as an advantage for us,” he says. “Everyone’s going to end up having to engage with councils. We’re doing it now.”

For one well-known developer, who asked to remain anonymous given the strength of feeling over the issue, the issue is more stark. He says: “There’s no better example of how much housebuilders have lost the plot than their opposition to these changes. If you’re in the business of developing sites that are fundamentally opposed by the communities they are in, then good luck to you. It’s an approach that looks increasingly difficult.”

Barratt’s Clare is another who, like Cherry, thinks that a housebuilder’s reputation with local authorities for quality will quickly become a key success factor. He says: “There are lots of examples of where we’ve engaged with communities and got better outcomes as a result. The challenge - and I don’t underestimate it - is how we do that everywhere. [Previously] the top-down targets immediately created a mismatch between what councils thought was appropriate and what central government wanted, and the industry got used to relying on those targets.”

There are potential opportunities for canny operators in the new world, too. Sites ruled out for years because of their failure to be included in the regional plan could now be brought back into contention. Moor thinks intelligent developers will also use garnering local support as a way to sidestep tricky central government requirements.

He says: “Clever operators are seeing an opportunity. If they can sell it locally and get support, it’ll be hard to justify turning them down, even if there are policy or technical hoops applications don’t meet.”

For Clare, changing his business to address this challenge is fundamental, and it looks as though the implications for housebuilders’ business models could be enormous.

If your company’s success is based on your ability to prove to communities and councils you care about making great places, then you’re more likely to take a long-term interest in your developments, so the short-term trader model that most housebuilders follow no longer looks like the best bet.

Savills’ Barnes says: “Winning planning permission and creating viable plots will now require a different business model. Housebuilders will need to create and generate value over longer time periods and may need to start valuing their operations more like great estates than current traders.”

How the localist policy developed

Sep 2009 shadow communities secretary Caroline Spelman tells Tory councils opposed to housebuilding to delay planning decisions in advance of the election.
Feb 2010 David Cameron publishes a planning green paper, Open Source Planning, confirming that regional plans and housing targets will be scrapped.
May 2010 After the election, Eric Pickles, the communities secretary, signals his intention to end RSSs.
June 2010 First planning applications turned down because of RSS change. Later National Housing Federation publishes research saying plans for 85,000 homes have been affected.
August 2010 Housing minister Grant Shapps hits back at critics, and writes to councils to reassure them he intends to offer incentives to encourage development.