Capacity in the homebuilding industry Contents

3Planning reform

Assessing housing need

73.In the preparation of a local plan, councils are required to ascertain what the housing need is in their area. They do this by preparing a Strategic Housing Market Assessment (SHMA), which includes an Objectively Assessed Need (OAN) calculation. However, we have heard that disputes over an area’s OAN can often be a significant cause of delay and uncertainty. For example, John Slaughter from the Home Builders Federation told us:

I have colleagues who spend most of their professional life going around the country taking part in local planning examinations and arguing that local plans are not necessarily providing as much as is justified by the assessment of local need.78

74.In September 2015 the independent Local Plans Expert Group (LPEG) was launched by the DCLG, and it published its report in March 2016. Among its findings was that there were significant shortcomings in the process for agreeing SHMAs and OANs. For example population and household projections can only be considered accurate for twelve months before being superseded, economic forecasts are open to debate and objectors prepare rival SHMAs using different methodologies:

The result is that local plan examinations often struggle to conclude on whether the Local Plan is based on a sound estimate of OAN without considerable debate about rival assessments … [and] some SHMAs do not reach clear conclusions at the apparent request of commissioning authorities where politicians wish to influence the reported OAN to its lowest potentially credible level … The production of SHMA has become overly politicised and has also become an industry in itself for consultants, whilst being one of the largest costs for authorities and the source of greatest concern, risk and uncertainty.79

75.As discussed in paragraph 67, certainty is vital to encourage homebuilding. The continuing debate over how to assess housing need in local planning authorities across the country is a major cause of delay. Our predecessor committee highlighted this issue in 2014 and recommended that the Government should work to produce an agreed methodology.80 We therefore welcome the news in the housing White Paper that the Government now recognises that the debate over methodologies is “causing unnecessary delay and wasting taxpayers’ money”.81 The Government is currently consulting on a standardised approach for assessing housing requirements, but use of the new standardised methodology will be an expectation rather than a requirement. The Government should ensure that there are sufficient incentives for local planning authorities to use the standardised methodology for assessing housing need, and Planning Inspectors should take use of the methodology into account when considering local plans.

Sites brought forward for development

76.As noted in paragraphs 31 to 35, we have found that local authorities tend to identify fewer, larger sites for housing in their local plans, and that their doing so reflects both the limited resources available to them and their awareness of potential political opposition and NIMBYism. Build out rates on larger sites are usually slower with single developers wary of over-saturating a market and larger sites are harder for small and medium sized builders to acquire. As Gavin Barwell told us, “The blunt truth about this is if authorities are not giving small builders sites that they can build on, we should not be surprised that we have a market dominated by large builders”.82

77.We therefore welcome the measures introduced in the housing White Paper. The Government is proposing to amend the National Planning Policy Framework (NPPF) so that at least 10 per cent of sites allocated for residential development in local plans will be half a hectare or less and there will be an expectation that local planning authorities encourage the sub-division of large sites.83 These measures have the potential to ensure that local plans make enough land available for small and medium sized builders, as well as custom builders. However it will be imperative to ensure that once designated, such sites are ultimately used by SME builders. There is a risk that larger developers might view a mixed portfolio of small and large sites as a more prudent approach and a way of maintaining a land pipeline which is less exposed to market cyclicality and risk. The Government is currently consulting on the proposed changes to the NPPF and we look forward to further information on how it proposes to ensure that smaller sites in a local plan are used by small and medium sized builders. The Government must set out the requirements on local authorities to ensure that larger sites are sub-divided.

78.While welcoming measures to increase the number of small sites brought forward in local plans, we are conscious that large sites provide vital infrastructure through developer contributions. Large developments include a section 106 agreement which requires the developer to make a contribution to the required infrastructure. However, as Richard Blyth from the Royal Town Planning Institute told us:

it is often harder to do if you have a spray of smaller sites than if you have one big one, despite the problems with big sites that we have mentioned. If you are going to get a secondary school, how will you do it if you have 50 sites of 10 units each? I am not convinced that the Community Infrastructure Levy is terribly effective at filling those gaps. On the large sites there have been some very impressive deliveries of infrastructure, which have come as a consequence of economies of scale almost.84

79.Increasing the number of small sites will help to challenge the dominance of larger developers and support small and medium sized builders. However they must not come at the expense of developer contributions that provide necessary community infrastructure. This issue must be addressed in the Government’s response to the Community Infrastructure Levy Review.

80.Local planning authorities are required to demonstrate that they have planned for a sufficient number of homes by having a five year land supply identified. In the event of having a less than five year supply, local planning authorities will have less control over development in their area with sites being decided on appeal and the absence of a five year land supply making inspectors likely to approve developments, even if opposed by the council. The Local Plans Expert Group noted that there is often a challenge to the accuracy of a five year land supply. The LPEG explains that “even where a Local Plan has recently been found sound—with a housing requirement that meets OAN—the subsequent publication of new household projections or other data is being cited by developers and others as reason to argue that the plan is out of date”.85 Appeals by developers and the potential for challenging a five year land supply are creating uncertainty and are diverting the resources of developers, planning authorities and inspectors away from delivering the homes needed. We welcome the measures in the White Paper to make it clearer for all parties how the five year land supply should be calculated, and the opportunity for local authorities to have their housing land supply set and agreed on an annual basis, and fixed for a one year period to minimise disputes.86

Permitted development

81.First introduced in 2013, temporary permitted development rights have enabled vacant offices to be converted to new homes without planning permission. In October 2015 the then Housing and Planning Minister Brandon Lewis announced that the change would be made permanent. The extension of permitted development rights has been successful in creating more homes, but such conversions do not incur any Community Infrastructure Levy (CIL) and are exempt from affordable housing requirements and some building regulations.

82.In 2015–16, more than 13,800 homes were added to the housing stock as a result of the extended permitted development rights.87 However local authority representatives told us about some of the negative impacts of the policy. Cllr Peter John, Leader of the London Borough of Southwark, said:

My primary concern is that you are ending up with very poor quality housing in some instances as a consequence. Offices were built as offices and not intended to be homes. We have even had rather daft genuine examples in Southwark: an arch in a railway viaduct being lawfully converted into a home. In Lambeth a number of new homes are built with no windows. This is not housing that we should be aspiring to deliver for our residents.88

83.We have also seen some high quality homes that have been delivered using permitted development. The Committee visited Essential Living’s Vantage Point development at Archway Tower in Islington. The properties were finished to a high standard and although smaller than the size prescribed in building regulations, the development included large amounts of communal living space to off-set the smaller personal space. Vantage Point was built using a seventeen storey office block that had been vacant for two years in a city with a lot of commercial office space. However we heard concerns that in some areas permitted development could restrict the availability of needed office space. Sandra Dinneen, Chief Executive of South Norfolk Council, explained that:

It has not been a massive issue in our area in terms of the volumes, but the sorts of office premises that have been taken for housing tend to be the lower quality end of the market, which some people would say is a good thing. However, when you have a lot of start-up businesses, that is exactly the sort of accommodation they need to get their businesses going. The office accommodation that is left is outside their ability to work, so it is starting to restrict that kind of entrepreneurial start-up end of the market.89

84.When we asked the Housing Minister about permitted development rights, Mr Barwell recognised that the policy had some negative consequences:

There are drawbacks to the permitted development policy. You do not have the same control necessarily over design. You do not get the affordable housing contributions. On the other hand, it is making a significant contribution to the supply of housing in this country and, if you agree with the Government that we are facing a real crisis here and that there is an urgent need to improve supply, the Government’s judgment is that that contribution is worth having and that is why we have continued with the policy.90

85.We agree with the Minister that the country is facing a housing crisis and recognise the need to increase the number of homes available. However we remain concerned by the lack of control that planning authorities will have over homes created using permitted development rights. We note for example a recent case in Barnet where it is proposed that an eleven storey office tower be turned into 254 flats, 96 per cent of which would be below the national minimum space standard. The proposal has generated media interest as some of the flats would be 40 per cent smaller than the average room in a budget hotel. Barnet Council is opposed to the scheme, but as it would be completed under permitted development rules, it has no control.91 Local authorities take very deliberate decisions on the allocation of residential and commercial space, but these are undermined by the permitted development rules.

86.The Government is currently considering its response to the Community Infrastructure Levy Review (discussed further in paragraph 90). We call on the Government to ensure that in its response to the Community Infrastructure Levy Review, it considers the appropriateness of homes built using permitted development rights not contributing to local services, infrastructure or affordable housing.

Site viability and developer contributions

87.The housing White Paper does not address the issue of disputes between developers and planning authorities over the financial viability of sites. Such disputes can cause significant delays to housing delivery, and can lead to less affordable housing being provided. Similarly, negotiations over the level of developer contributions are a source of contention, delay and uncertainty for all parties. It should also be noted that ensuring that the impact on a community of new homes is mitigated by new infrastructure is vital to both reducing any local opposition and to creating sustainable communities.

88.Having already bought the land, and managing their build out rate to ensure the selling price is satisfactory, developers can only increase profit by attempting to minimise their costs by seeking to reduce their developer contributions. This is a reflection of the often arbitrary nature of such agreements. Daniel Gath, Managing Director of Daniel Gath Homes, explained to us that without a standard approach to agreeing developer contributions, debates between councils and developers exist:

You have all these dozens of local authorities up and down the country, all doing the same things but differently … Why can we not have a national template that every local authority uses? There is no arguments; everybody has dealt with it a number of times, it has been agreed, we just insert the figures. We had a situation with two local authorities we have dealt with within a few months of each other for the same contribution for public open space. One local authority took four months and charged us £5,250 for the exact same thing that another local authority got through in a month, costing us £1,250.92

89.Agreeing a balance between the different priorities of developer and planning authority can take several years and delay the building of homes, which is not in the interest of either party. The difficulty for the local authority is that the developer can claim that the demands in them are too onerous and that the site has become unviable. David Heathcoat-Amory, Director of Devonshire Homes, told us:

I can tell you that if CIL is imposed as well as a section 106 agreement and a set of obligations, it can render a site unviable. If there is a high CIL payment, then it is very difficult for a developer like us to agree to a high proportion of affordable housing. I do not think local government or national Government can expect to have everything all the time, if they still expect us to build houses.93

90.The Government published the findings of an independent review of CIL at the same time as the housing White Paper, and the Minister confirmed to us that the response to the review would be made near to the Autumn Budget.94 It is extremely regrettable that the Government’s response to the Community Infrastructure Levy Review was not published alongside the White Paper and will not be available until the autumn.

91.One reason that the negotiations over a site’s viability can take a long time is the lack of transparency: a local authority has no way of assessing whether a developer’s claim that a site has become unviable is true, or a negotiating tactic. Our predecessors expressed concern at the emerging “battleground” of viability and the perception by councils that viability was being used by developers “as a stick with which to beat them, and a means of reducing their infrastructure and affordable housing contributions”.95 It would appear that the issues identified in 2014 remain. We therefore reiterate the findings of our predecessor Committee and recommend that developer assumptions and assessments of viability must be shared with local authorities to ensure that the provision of infrastructure, affordable housing and build density is not compromised.

92.Sandra Dinneen from South Norfolk Council explained the challenge of finding a solution that meets the objectives of both the local community and the developer’s shareholders. She highlighted the need for a level playing field and for local authorities to have more levers to encourage developers to engage positively to increase the pace of delivery.96 We also heard that developers are likely to have greater experience in commercial negotiations than local authority staff. Ms Dinneen explained:

The skills that we really need for the future are different skills; they are the more deal-making, commercial skills, because you are negotiating with developers in a very different way and that is a very different skill set from traditional planning officer skill sets.97

93.The recognition by the sector of the changing skill requirements of local authority planning departments is welcome, but the delivery of affordable housing should not depend upon the negotiating skills of a particular local authority. We therefore urge the Government to explore the feasibility of a standardised methodology for assessing viability, much as it has proposed for agreeing Objectively Assessed Need.

Planning fees and resources

94.The limited resources of local authority planning departments also contribute to delays. Richard Blyth, Head of Policy, Practice and Research at the Royal Town Planning Institute, illustrated the scale of recent reductions:

We did a deep study of all the local planning authorities in north-west England, published a year ago, and it said that between 2010 and 2015, 27% falls in the staff dealing with planning applications had taken place, and a 37% fall in the staff available to do planning policy work, which now includes the additional task of supporting neighbourhood plans.98

95.The reduced resources of planning departments are a factor in many of the other challenges identified in this report, such as the prioritising of larger sites over multiple small sites, the time taken to process planning applications and the time taken to negotiate with developers. We therefore welcome the proposal in the housing White Paper that from July 2017 local authorities will be able to increase nationally set planning fees by twenty per cent, if they commit to invest the additional income in their planning department, with the possibility of a further twenty per cent increase for authorities that are delivering the homes their communities need.99 In the context of multiple budgetary concerns for councils, it will be important to ensure that the additional income is ring-fenced to the planning function if the increased cost for developers is to be justified. We heard that developers would generally welcome the increased fees, but only if they led to a better service. For example David Jenkinson, Group Managing Director of Persimmon, said Persimmon had paid a local planning authority to employ an additional planner, but had received the same service despite the investment.100 Similarly, when we asked Pete Redfern, Chief Executive of Taylor Wimpey, if he would pay increased fees in exchange for a quicker planning process, he explained that:

For me, the answer is definitely yes, but we have very little confidence that local authorities are physically able to provide the planning process that would be enhanced. That is not necessarily from lack of will… If we genuinely felt that, yes, we could pay for this service, that will ring-fence the resource and that will mean that we get a faster-paced planning decision, then for us as a business, yes, we would see that as a positive. We just question whether it is able to be executed, because of resource levels within local authorities.101

96.It is also important that the potential additional increase in fees should reward performance across the entirety of the planning function. If it only rewards the processing of applications, there is a risk that councils will prioritise resources on development management functions at the expense of planning policy and the delivery of local plans. Likewise, it will be necessary to consider how the increased income can be used to address the delays arising from other departments such as legal teams, which often lead on preparing section 106 agreements. In two-tier council areas, consideration will also have to be given to upper tier authorities which are responsible for highways and statutory services such as education. As statutory consultees, upper tier councils have an important role to play in the processing of planning applications, and their performance must be captured and incentivised to ensure developments are delivered as quickly as possible.

97.Councils should be required to demonstrate that the additional income from the increased fees has been used to accelerate housing and other developments, and to publish this information on their website to give developers assurance that the additional costs can be justified. The proposed second twenty per cent increase should incentivise all aspects of planning, not just the processing of applications.

98.Planning departments are struggling to recruit and retain experienced staff. Sarah McMonagle, Director of External Affairs for the Federation of Master Builders, told us that:

Our members are feeding back that a lot of the senior people, the most experienced planners, have left those departments, and there is now a cohort of more junior planners in their place. They tend to be maybe less innovative, more risk–averse, more likely to make unnecessary information requirements to cover themselves and make sure that they are ticking all the boxes. That is slowing down the process across the board.102

99.The RTPI identify the issue as being less of a skills gap, and more of a capacity gap, and explain that “in the majority of cases, local planning services are surviving on the goodwill and professional integrity of the officers, but this may not be sustainable”.103 Under-resourcing of planning departments is undoubtedly slowing down the planning system. We welcome the work of the RTPI in encouraging more people to pursue a career in planning and the 1,300 planning graduates that are produced by the UK universities that it accredits. However the status of planning needs to improve to ensure that these graduates are recruited and supported. David Cowans, Chief Executive of the Places for People housing association, told us:

The status of planning is crucial in this country… If you are a planner in the Netherlands, you are hot stuff, frankly. If you are a planner here, you are looking at somebody’s conservatory. That is the kind of image it has. It ought not to have that image … the job evaluation should be done on the multi-million-pound responsibilities and not on how many people you have, and we have to do something about the status of planners.104

100.This sometime pejorative image of planners is reinforced by complaints that they are unnecessarily delaying development. This is why local political leadership is essential, as John Slaughter from the Home Builders Federation told us:

One thing that I would add into the pot from our experience, and again, talking to local politicians and others around the country over some years, is that it works enormously well where local planners have real backing and support from the local political leadership—the chief executive, the leader of the council or other senior councillors. In areas where the local political leadership really empowers and supports the planners—Plymouth is one—even if they are resource-constrained, I think they are going to rise to the challenge more.105

101.The role of planning is fundamental to the success of communities, and council leaders and chief executives must show leadership and support to recognise this and empower innovation by planners. Local authorities must show a commitment to the planning function and ensure there are incentives and support in place for employees that are seeking further training and formal planning qualifications, such as those facilitated by the RTPI.

78 Q18

79 Local Plans Expert Group, Local Plans, March 2016, paras 3.17–3.20

80 Communities and Local Government Committee, Fourth Report of Session 2014–2015, Operation of the National Planning Policy Framework, HC190, para 70

81 Department for Communities and Local Government, Fixing our broken housing market, Cm 9352, February 2017, para 1.12

82 Q394

83 Department for Communities and Local Government, Fixing our broken housing market, Cm 9352, February 2017, para 1.33

84 Q7

85 Local Plans Expert Group, Local Plans, March 2016, para 11.2

86 Department for Communities and Local Government, Fixing our broken housing market, Cm 9352, February 2017, para 2.9

87 Department for Communities and Local Government, Fixing our broken housing market, Cm 9352, February 2017, para A.41

88 Q151

89 Q151

90 Q386

92 Q113

93 Q115

94 Q361

95 Communities and Local Government Committee, Fourth Report of Session 2014–2015, Operation of the National Planning Policy Framework, HC190, para 67

96 Q159

97 Q160

98 Q14

99 Department for Communities and Local Government, Fixing our broken housing market, Cm 9352, February 2017, para 2.15

100 Q56

101 Q56

102 Q14

103 Royal Town Planning Institute (BLD025) page 3

104 Q23

105 Q23

28 April 2017