In May 2021, the Government unveiled the new Planning Bill, designed to be the most dramatic shake-up of UK planning law since 1947. It aims to speed up housebuilding by simplifying rules, digitising processes and encouraging responsible property development.
It’s not yet clear when (or even if) the bill will make it to Parliament. Downing Street is already under increasing pressure to scrap the reforms. This pressure exists because it’s clear they’ll significantly impact both developers and property development lending. There are 3 major issues outlined.
1 – Supply and demand
The new regulations aim to loosen planning constraints in some instances, making it easier for developers to build. This includes the creation of so-called ‘growth areas’, which would be subject to little or no planning restrictions.
However, this risks increasing supply in those areas too much, outstripping demand and reducing profits for developers. This, in turn, could make it harder to access property development lending.
Indeed, the new regulations might make it easier for developers to get planning permission, but they won’t necessarily make it easier for them to get funding. Planning permission is only one aspect that lenders look at. A project needs to be profitable. There must be enough demand in the local market and developers still need a demonstrable track record of success.
The new Planning Bill will, therefore, make it more important than ever for developers to know their stuff when applying for property development finance. It’s vital that they have a strong team in place, know their numbers and the market inside out, and have contingency plans for delays and budget challenges. The best lenders will scrutinise your property deal when deciding whether to fund your project, so developers need to make sure they approach investors with the most robust deal memo possible.
2 – Sustainable development
As well as making it easier for developers to get planning permission, the Planning Bill also aims to enhance the Green Space Preservation Act of 2018 by focusing on re-generating brownfield sites and encouraging responsible property development. The bill also stipulates that ‘natural’ features, such as recreational areas and tree-lined streets, are included in all new proposals. It also stioulates that all new homes are ‘zero carbon ready’ by 2025.
These changes are in line with what buyers and renters are already looking for. Recent research has shown that consumers are more desperate than ever for access to outdoor space, with gardens adding up to 16% to a property’s value. Similarly, research found that 63% of prospective buyers wanted to purchase a sustainable home, and 82% of buyers were willing to pay at least 6% more for one.
Modular construction – a work in progress
Sustainable properties offer residential developers a real opportunity to be forward-thinking and innovative, all while maximising profits. Modular construction using the latest eco-technologies, for example, can be a quick, easy, and affordable way to build sustainable homes.
For example, Hilltop is currently partnering with Talo Homes, which is using modular construction and state-of-the-art energy technology to mitigate environmental impacts – while delivering an aesthetically pleasing design.
Talo Homes’ 14-unit development in South Molton Devon uses Structural Insulated Panels (SIPs). These are essentially insulated foam sandwiched between engineered wooden boards. They typically meet the highest levels (4-6) of the Code for Sustainable Homes because they reduce energy consumption and involve the use of fewer and more sustainable raw materials.
Talo is also installing solar PV and smart energy management technology. Such features will enable the development to achieve net zero electricity usage.
With the Planning Bill’s encouragement, developers should follow Talo Homes’ example and increase their focus on sustainability. Firstly, it’s the right thing to do from both a compliance and ethical standpoint. It will also generate a greater ROI and attract more ESG-focused lenders.
3 – Affordable housing
There’s little doubt that the Planning Bill will accelerate development. It will be a key tool in helping the government reach their target of 300,000 new homes a year. But at what cost?
The UK doesn’t just have a housing problem – it has an affordable housing problem. In 2019, the National Housing Federation found that 2.5 million people in the UK were unable to afford their mortgage or rent, with a further 2.5 million stuck in a home because they couldn’t afford to move out.
Unfortunately, affordable housing is typically less desirable for developers and investors because it traditionally has a lower return of investment. The new Planning Bill will make it easier on paper to build affordable housing by cutting red tape. However, that doesn’t necessarily mean that more affordable housing will actually materialise.
Indeed, policy director for the countryside charity CPRE, Tom Fyans, believes the Planning Bill will prioritise developers over local residents and “slow the delivery of genuinely affordable homes in many areas.”
Neither quality nor quantity
Other opponents of the bill fear that if councils lose control over planning, they’ll have less power to dictate the type of housing built. Consequently, they fear this will lead to fewer high-quality affordable houses being built.
“Our concern,” says Darren Rodwell, London Councils’ executive member for housing and planning, “is that ripping up planning regulations will only lead to more slum housing built to maximise profits…There’s so much more the Government should be doing to invest in affordable housing.”
If the Bill passes, developers should therefore be mindful that they’re not putting profits above the communities they’re developing in. Of course, profit is important, but so too is social value and ESG. Equally, property development lending should seek where possible to support projects that include affordable housing, remembering that a lower ROI doesn’t mean no ROI – and that return on investment can be calculated in different ways when you have a long-term focus and partnership approach.
An opportunity for change
Whether or not the Planning Bill goes through is yet to be seen. It faces signifciant criticism levied by the Opposition, the Conservative Party’s own members and the industry. If it does pass, it’s sure to have a dramatic impact on residential property development for years to come. More and more developers will be seeking funding thanks to simpler and fasting planning processors. This means property development lending will be based upon key differentiators to decide which projects to back. Developers will likely need to get more creative in their proposals, putting strong emphasis on sustainability and community to help them stand out.
Even if the bill doesn’t pass, the debate around it demonstrates once more the need and appetite for planning change. We’re facing an affordable housing crisis. This, coupled with growing environmental concerns, gives developers and lenders a real opportunity to be a force for change. Bill or no bill, we’re on the cusp of a new chapter of responsible property development. The right funding partner can help you ride the way.