The ‘mutant algorithm’ for determining numbers of new homes has attracted much attention, but it is not the only important change in the government’s intended reforms to the current planning system. These proposals (an interim package that would take effect now, in advance of more wide-ranging planning reforms) also include securing First Homes through developer contributions, redefining the thresholds for smaller sites, and potentially extending Permission in Principle (PiP) to major developments.
To unpick the implications of the proposals and frame LSE London’s response to the consultation, LSE London hosted a roundtable on September 29th for stakeholders from academia and the private, public, and third sectors. The debate concentrated on issues of land supply, the potential loss of local control over the extent of development, the role of local plans, and the lack of clarity in speeding up housing delivery. Participants also noted with some concern changes to two other elements of the planning system that have already been put in place; use-classes and permitted development.
The ‘algorithm’ or more correctly the formula for a centralised approach to assessing local housing needs starts as usual from projected annual household growth (now over a 10-year period) but modifies the affordability element to include 0.5% of local housing stock in addition to the price/earnings ratio. Participants generally supported the Government’s objective of increasing housing supply and speeding up the planning process, accepted that it was a political decision to calculate requirements central but were particularly concerned that there was no attempt to consider differences in land availability and capacity at the local level.
The formula would have the effect of concentrating development in high-demand urban areas. This would impose additional pressure on London and the South East, where constraints as the Green Belt heavily restrict the availability of land. But in areas where land supply is less constrained, increasing land allocations would not necessarily lead to the construction of new homes, as developers will not build unless house prices at least cover their costs. So even if the result of the formula is a high number (in this case more than 300,000), there is no guarantee that anything like this number of homes would actually be built.
The second main element of the proposals, addressing the government’s policy of encouraging homeownership, is that 25% of affordable housing units provided through developer contributions must be First Homes. This is a new form of affordable housing to be sold to local first-time buyers for 70% of market value, retaining this discount in perpetuity. Participants said the proposals lacked clarity and generated uncertainty, as the product is untried and a blanket 25% First Homes requirement meant planners and developers would have to assess viability several times for the same development. This could have the effect of slowing rather than accelerating the delivery of new housing. The proposals would be disruptive for housebuilders, housing demand, and local communities. It would be better to trial the product first on a limited scale – using grant funding and targeting places with the highest need for affordable homes.
Raising the threshold for affordable housing
The third important proposal is to increase the site threshold at which affordable housing becomes a requirement to 40 or 50 new homes (from the current 10), in order to stimulate small and medium-sized developers (SMEs) and reduce the burden of developer contributions. There was a range of views, but participants said affordable housing was far from the only issue constraining SME developers and would result in large losses of affordable housing. First, such firms tend to refurbish existing stock more than focus on new build. Second, SMEs rely on retail lending more than large developers, so financial constraints need to be addressed in order to speed up construction. Finally, SMEs in particular would benefit from the certainty afforded by clearer, more detailed local plans. Increasing thresholds would not necessarily ensure that SME builders could contribute more to housing delivery because of other complexities in delivering smaller sites. In any case, larger developers might well take advantage of an increased threshold by bringing forward larger sites in phases of 40 or 50 homes.
Extending Permission in Principle (PiP) regime to major developments
Finally, the Government proposes to broaden the scope of the Permission in Principle (PiP) regime by enabling PiP on major developments. Some participants said PiP could offer developers a cheap way of testing whether local authorities would support their application. Others were skeptical about its ability to reduce transaction costs, saying delays in the development process resulted from a wide range of reasons, many of which were beyond the control of developers and local authorities. It is not even clear whether PiP could reduce approval times–indeed, PiP might only delay the discussion of issues usually considered during the pre-application stage.
The PiP procedure does not include assessment of the infrastructure required for development, so extending PiP to major developments could lead to cases where permission was initially granted but the application was subsequently refused. Some participants feared that greater reliance on PiP would reduce community involvement during negotiations as well as the general flexibility of the system. Participants said PiP would frontload responsibility on to local authority planning departments (many of which are already stretched), while at the same time reducing planning fees—a significant source of revenue for planning departments.