The recent poll conducted by Development Finance Today found that 60% of property professionals feared more councils would invoke the direction which protects certain buildings from permitted development.
The news comes after Amicus Property Finance found that 74% of developers were expecting to see a PD conversion surge.
However, throughout the beginning of 2017, a number of councils have put in place Article 4 directions to prevent certain buildings, such as pubs and offices, from PD conversions.
Rico Wojtulewicz, policy adviser for the House Builders Association, felt more councils would use Article 4 directions as it allows them to protect against development they feel is out of character.
However, he added: “Rather than putting a blanket ban on development, councils must use Article 4 to deliver appropriate opportunities.
“This may mean accepting schemes that meet a specific need, such as family housing, affordable rent or community self-build.”
Article 4 directions could cause problems for housing market
James Bloom, managing director for development finance at Masthaven, thought there was a danger that Article 4 directions could be used as a general measure by local authorities.
“Based on what I am hearing in the market, I believe councils are already using it to restrict the flow of permitted development applications – this is becoming more prevalent and I think it’ll continue to happen in the future.
“Invoking Article 4 to prevent permitted development could cause further problems for the housing market – stemming the flow of the housebuilding – in a market that is already suffering from a shortage of residential units.”
Michael Dean, principal at Avamore Capital, said it had recently seen issues with a case where an Article 4 direction was due to strike before the building could be vacated and therefore converted.
- 74% of developers expect PD conversion surge
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“We are now actively monitoring Article 4 directions on all of our commercial loans where PD rights is the underlying driver of value.”
Meanwhile, Jordan McBriar of Adapt Finance, added: “We are seeing more and more Article 4 applications being received by the local authorities which is not only worrying developers who bought without the correct permission, but is also increasing competition – and prices – in the areas where there is no looming action.”
‘Councils fear a loss of employment’
Michael felt it was not unreasonable to expect increased resistance to conversion.
“Councils fear a loss of employment generating uses, particularly to maintain strong local economies (and to prevent their areas becoming pure dormitories), and mass conversions in certain areas has left existing office stock very low.
“Furthermore, the equivalent council tax raised per sq ft is much lower than the equivalent business rates.
“It therefore pays for a local authority to have a strong base of business rates.”
Jordan hoped that the decision to invoke an Article 4 direction was an educated one by local authorities because they have larger housing plans.
“In the areas we have seen Article 4s implemented, we have seen increases in planning being passed for new-build homes.
“So, if this was the case across the board, it could in fact be a good thing as vital office space is being preserved, too.”
Councils to gain more control over homes
Michael pointed out that forcing developers to apply for full planning permission gave councils more control over housing and factors such as location, proportion of affordable homes as well as size and quantity.
“It is not uncommon for PD right developers to build micro-flats of just 250-300 sq ft, which on paper look cheaper in absolute terms to new-build apartments, but on a pound per sq ft basis can be 50% more than the prevailing market new-build [pound] per sq ft.
“By forcing minimum size standards on developers, this will lead to improved quality housing – at least in terms of space – however, [Article 4] may have a negative impact in terms of the number of units created.”