Housing plans

Why under-resourced planning departments are hurting housebuilding

Former US president Dwight Eisenhower once remarked: “Plans are nothing; planning is everything.

This maxim is readily appreciated by any competent builder who has had their promising developments halted by the arduous bureaucracy of the British planning process. 

It is, therefore, an interesting irony that the current US president-elect and self-declared most “tremendous” builder ever seems to espouse the precise opposite philosophy, with his vague rhetoric of “big plans, huuuge plans!” However, our own government is in danger of taking the Trumpian approach as the increase in its bullish plans to get Britain building has been met by a concomitant decline in the actual funding and attention allocated towards local authority planning departments. 

We are all aware of the plan put forward by the current government to build 1 million new homes by 2020. In achieving this target, billions of pounds of new funding have been earmarked for large and small developers alike, which the government claims will help to provide hundreds of thousands of new homes over the long term. 

However, a survey conducted by the Federation of Master Builders (FMB) revealed that a full 90% of local authority planning departments doubted that the government will achieve its 2020 target due largely to a lack of resources to deal with existing planning applications.

Without an attendant focus on expediting the planning process, the provision of more funding for builders runs the risk of simply driving more prospective developments into a state of planning purgatory. This situation does not sound the death knell for the projects of larger developers who possess the legal and financial wherewithal to negotiate the vicissitudes of the planning process. Unfortunately, the same cannot be said for SME builders, who often lack the legal expertise and cash balances to survive a protracted and expensive application.

The unequal impact of under-resourced planning departments upon SME builders is borne out by the statistics. A report by KPMG and Shelter reported that since the recession in 2008 and the subsequent spending cuts to local authorities, the number of developers building fewer than 30 units annually has declined by half, while the number of medium-sized builders has contracted by 60%. The House of Lords select committee on housing recently lamented the growing oligarchical nature of the construction sector, where only eight developers were responsible for building over 50% of new homes. 

While large developers are vital in providing the housing that the nation needs, in order to deliver a sustained and robust supply of new homes, the building sector needs to be a balanced eco-system of both small and larger developers.

For instance, SMEs are better placed to swiftly unlock the potential of smaller sites which are unsuitable for larger developers and would thus otherwise be left vacant. Compared to their larger counterparts, SMEs are able to provide faster build out times, greater flexibility in design and increased investment in local jobs and growth. Furthermore, the FMB notes that due to holding smaller cash balances and thus the resultant incentive to turnover sites quickly, SMEs are also more inclined to maintain output during times of economic hardship, while their larger counterparts are more inclined to simply batten down the hatches and weather the storm.

However, due to a lack of resources, the goals of local authorities and SMEs run the risk of becoming mutually exclusive when they should be mutually reinforcing. For example, the workload required to process a site does not scale with the site’s actual size, and as such council planning departments are incentivised to allocate their stretched resources to deal with fewer large sites rather than numerous smaller ones. Compounding this issue is the fact that local authorities often delegate applications for smaller sites to junior staff who lack the requisite experience to process cases in a smooth and expedient manner. In addition, small sites often arise extemporaneously due to windfalls and as such often do not readily integrate into local authorities’ longer-term planning strategies.

In addressing such issues, the government has introduced numerous measures to expedite the planning process and redress the balance between smaller and larger developers. For example, the Housing and Planning Act introduced legislation to enable local planning authorities to grant automatic ‘permission in principle’ to brownfield sites and to enable developers to build new residential dwellings on land inhabited by old office buildings. 

Despite these measures, the FMB identified key deficiencies in local planning departments, especially with regard to expertise in dealing with conditional aspects of planning applications, such as highways, surface water drainage, infrastructure and Section 106 agreements. However, the aforementioned FMB survey suggests that the blame does not reside solely at the feet of local authorities. 

While 67% of SME builders reported that a lack of available and viable land was a major barrier to them building more homes, the survey also found that many SME builders were unaware that local authorities are required to keep a record of all sites with development capacity for five or more units as part of their Strategic Housing Land Availability Assessment (SHLAA). Additionally, the FMB survey revealed that over half of planning applications submitted by developers for small sites were regarded as being of poor quality, and that many SME builders lack a sound understanding of the planning process in general, resulting in further delays and expense.

With this in mind, it’s interesting to note that while 80% of local authorities report that they actively seek to engage with developers during the planning process, the same proportion of SMEs also felt that this wasn’t the case. This contradiction alone suggests that there is a clear lack of effective communication between developers and planning departments. However, there is much scope for improvement in this area. 

The FMB survey revealed that most builders would be willing to pay a premium price to receive a premium service which would reduce the uncertainty and duration inherent in the planning process. Furthermore, many local authorities such as Birmingham City Council have implemented online portals, which allow developers to engage in an ongoing dialogue with planners in a simple, transparent and responsive manner. 

The burden on local authorities can also be lessened by the government devolving powers that enable them to take the initiative on granting planning permission for undeveloped sites. For example, councils could identify small pieces of land such as disused garages, and establish full planning permission in-house before sending them out to tender. This would enable the council to have more control over the design of such sites, while also reducing the risk and workload for developers.

Other models that councils could consider include ‘build now, pay later’ schemes, in which the council permits developers to build out a site and pay for the planning later as and when the units are sold. Risk for planning departments could be reduced by the implementation of shared-equity schemes, whereby the council holds on to ownership of the land until the development has been signed off.

At Zorin, we have shared in the pain that our borrowers have experienced with regard to planning. Even after permission is granted, the process of adhering to the litany of associated conditions and the resultant delay after delay results in unnecessary expense and uncertainty throughout the duration of the build. Every pound and hour spent addressing these issues is a pound and hour not spent on lending more funds and building more homes. Unless the government initiates a step change in the manner that planning departments are funded, and the powers that they possess, their best laid plans will not become best laid bricks.

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