There is no chance of meeting the 1.5 million homes target without smaller firms delivering. This government should be bolder in reforming planning to help them do it, argues Paul Smith
SME developers are in trouble. A third have gone out of business since 2005 and half of those that remain are at risk of going bust before the end of the decade.
But, if we are to meet the government’s housebuilding targets, these smaller firms are more important than ever.
Delivering more homes means building on more sites, each one able to serve a slightly different pocket of demand in the patchwork of micro-markets that combine to create our national housing market.
Small and medium-sized home builders – think those that build from just a handful of homes up to a couple of thousand each year – typically operate on smaller sites that larger developers simply aren’t interested in, helping boost housing supply overall.
Without them, those smaller sites go undelivered, and those homes go unbuilt. This is already happening. The number of homes granted permission on sites of fewer than 100 homes has collapsed by 40% over the last five years.
The growing regulatory burden imposed by the planning system is a key reason for that fall. Successive planning reforms over the last twenty years have increased the range of factors the system is expected to consider, adding to complexity and cost across the board. Adjusted for inflation, an outline application costs more than four times what it did in 1990. New regulations introduced over the last five-years alone have added a further £4.8 billion to the costs of home builders each year.
Delivering more homes means building on more sites, each one able to serve a slightly different pocket of demand in the patchwork of micro-markets that combine to create our national housing market
The Competition and Markets Authority’s recent housebuilding market study noted how “the complexity and cost of the planning system” is “disproportionately impacting SME housebuilders.” According to the CMA, securing permission for sites of between 100 and 500 homes costs around £1,500 per home. For sites of 50 homes or less, that figure rises to £3,500 per home.
A recent consultation on site size thresholds is the government’s attempt to address this. As the consultation observed, “reducing risks and costs, and removing barriers to entry is key to supporting the government’s ambitions for a reformed housebuilding system, with SMEs playing a leading role.”
Having identified the weight of regulation as the problem, it is perhaps surprising that the proposals then fail to do very much about it.
Some of the government’s ideas will no doubt be helpful. Exposing fewer applications for small sites to the roulette wheel of a planning committee vote helps increase certainty. Allowing Permission in Principle applications on sites of up to 50 homes is effectively a return to an old-fashioned outline consent, establishing the principle of housing development quickly and cheaply.
Having identified the weight of regulation as the problem, it is perhaps surprising that the proposals then fail to do very much about it.
Unfortunately, more broadly, the government’s proposals to date make little effort at reducing those wider regulatory costs. Exempting smaller sites from a new regulatory requirement - on build out transparency - doesn’t make the current planning process any simpler. Making it a little bit easier to comply with another relatively new requirement - Biodiversity Net Gain - is welcome but won’t be transformative by itself.
If the government is serious about helping SMEs build more homes, it must be brutal in reducing the burden of the planning system. Each of those policy requirements might be justifiable in isolation, but their cumulative impact is sinking smaller developers. Building homes is a good thing in its own right - socially, economically and environmentally. The need for the planning system to deliver on other objectives needs to be weighed against the benefits of actually building.
There is a glimmer of hope. Parts of the consultation are so broadly written - “ensuring referrals to statutory consultees are proportionate” and “minimising validation and statutory information requirements,” for example - that there is still scope for genuinely impactful change. And there is no shortage of changes the government could make.
If the government is serious about helping SMEs build more homes, it must be brutal in reducing the burden of the planning system. Each of those policy requirements might be justifiable in isolation, but their cumulative impact is sinking smaller developers
Small and medium sized sites - those of up to 50 homes under the proposed new thresholds - should be exempted from a whole host of policy requirements, simplifying the application process, increasing the speed at which applications can be considered, reducing their costs and increasing the certainty of the outcome.
It is easy to argue that sites of this size are too small to ever warrant a landscape and visual impact assessment or an agricultural land quality Assessment, for example. Is the traffic generated from a 50-home development ever significant enough to need a highways assessment? Does a design and access statement really add much value for smaller sites?
Increasing certainty about the principle of development is required too.
Allocating more smaller sites in local plans is helpful but only achieves so much, especially when SMEs might operate in only a small number of local authorities. If a site is included in the housing supply for a local plan, that should guarantee building homes on that site is acceptable in principle.
That might seem obvious but isn’t always the case. Places for Everyone, the recently adopted Greater Manchester-wide development plan, noted that the inclusion of a site in its housing supply “does not imply that the relevant Local Planning Authority would necessarily grant planning permission for residential development.”
To increase certainty for the very smallest sites, infill development should be specifically defined - a gap in a built frontage of up to, say, 20 metres, should always be considered infill - so that developers don’t have to rely on the subjective opinion of a case officer that might change between a pre-application meeting and the final decision.
Design guidance, like that successfully employed in Croydon for a short period, can be used to provide certainty for other types of small-scale development - and introduced nationally if needs be.
Saying you want to do something is the easy bit. To succeed, you sometimes need to make difficult decisions.
Paul Smith is managing director of the Strategic Land Group
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