Chapter 3: Planning reform
106.Where development is located, its density, its supporting infrastructure, and the obligation to build ‘affordable housing’ are among the matters regulated by the planning system.127 This chapter considers reforms to planning that would help increase the speed of delivery of new housing and make the process easier to negotiate, particularly for smaller builders. Planning policy is a devolved matter and the detail of the system and recommendations contained in this chapter apply only to England.
The current planning system
107.The planning system is governed by the National Planning Policy Framework published in March 2012.128 This sets out the Government’s planning policies and how the Government expects the framework to be applied.129 It was described by Dame Kate Barker as a “big step forward” and accompanied by “some very good guidance”.130
108.A number of revisions have recently been proposed by the Government to the National Planning Policy Framework and guidance. Some of these changes are contained in the Housing and Planning Act 2016 and will be implemented shortly while others have only been announced in outline.131
Criticism of the planning system
109.Those engaged with the planning system, including witnesses who supported the principles of the present approach, conceded that it currently does not always operate effectively. Criticisms of the planning process were that it provided insufficient incentives for local authorities and developers and the system was slow, complex and costly.
Incentives for local authorities and developers
110.Witnesses considered that the operation of the planning system did not provide local authorities with sufficient incentives to allow developments. This absence of sufficient incentives was not limited to the local planning authority, but also affected local residents and developers. Three linked problems were identified in evidence to the Committee.
111.First, local opposition creates political pressure on local councils to resist development.132 Dame Kate Barker pointed out that this is a conflict which has “gone on for quite a long time”.133 She thought that at the centre of this conflict are local politicians who,
“struggle with the question of, ‘Gosh, we really have to find places for all these homes. Where are we going to put them so that we will not be thrown out at the next local election?’”134
112.Second, there is currently no immediate financial benefit to the local authority from the planning process.135 The ‘windfall’ created by the grant of planning permission is retained by the landowner.136 Arrangements under section 106 of the Town and Country Planning Act and the Community Infrastructure Levy can partially address this disparity.137 However, these schemes do not operate transparently and it is not always clear, in particular to local residents, what a development has funded. Councillor Sue Derbyshire, Housing and Planning Lead, Greater Manchester Combined Authority, acknowledged that: “Without some way of capturing that uplift in value or some part of that uplift in value, we are not getting an awful lot … out of Section 106 agreements”.138
113.Changes to business rates which allow the local authority to retain rates raised in their area could provide a reward to local authorities who increase development and could alter the incentives available to local authorities. Martin Wolf considered that this “seems to provide an encouragement at least for commercial development.”139 The Government also proposes changes to the local government finance regime to ensure that local authorities are funded through “local financing–… Council Tax and business rates–rather than central government grant.”140
114.Finally, the incentives for builders to develop permissioned land were repeatedly questioned. As detailed in Chapter 1, private builders are not incentivised to develop land quickly. Later in this chapter we consider how the planning system could be used to expedite private house building.
A slow, complex and costly system
Delays in the planning system
115.Individuals and companies who found the planning process cumbersome highlighted what they believed to be unjustified delays throughout the planning process.141 Two key points of delay identified by witnesses who regularly engaged with the planning system were:
(a)The imposition of planning conditions and delays certifying compliance with these conditions.142 David Orr from the National Housing Federation stated that in his experience it could be a year after planning consent was granted “before you can actually lay a brick”.143
(b)Negotiating agreements under section 106 of the Town and Country Planning Act.144 Pocket Living, a developer of “affordable homes”, stated that it took 16 weeks to obtain a planning consent and a further 22 to 44 weeks to negotiate the section 106 agreement.145
Complexity
116.Small builders and individuals felt that the “complexity and uncertainty” of the planning system hindered their ability to develop sites.146 John Stewart of the Home Builders Federation noted that the same effort and resource was required whether the application was for a large or a small development. He considered that the “details you have to submit are quite a strain and a constraint.”147
117.Small builders told us that as the complexity of planning increased, their in-house resources were no longer sufficient to navigate the process and they needed to employ outside agents and consultants.148
Cost of planning
118.The complexity of the system and the opportunities for legal challenge were two factors that builders and developers considered led to an increase in their costs. Jennie Daly from Taylor Wimpey told us that “it can cost many hundreds of thousands of pounds to get a planning consent”.149 Smaller builders concurred that the cost of planning was high. Chris Carr recounted that a recent application had cost his small building company £275,000 in consultancy and legal fees.150
Increasing resources
Reduction in local authority expenditure on planning
119.Local government has experienced a decrease in funding since 2009.151 These cuts have fallen particularly heavily on planning departments: as Figure 11 shows, since 2009/10 local authority revenue spending on planning and development has fallen by nearly 50 per cent.
Figure 11: Local Authority, net revenue expenditure on planning and development services (England only) (2009/10–2014/15)
Source: DCLG, Revenue Expenditure and Financing: https://www.gov.uk/government/collections/local-authority-revenue-expenditure-and-financing [accessed April 2016]
120.Local authority planning departments are, we were told, “under resourced” and “desperately short of … staff”.152 This has limited their capacity to process applications, led to “bottlenecks in the system”153 and decreased the expertise available.154 One result is that when negotiating complex agreements with well-funded, private companies there is an inequality of arms between local authority planners and the developers.155
Planning fees: current system
121.The last nationally approved increase in fees was in 2012.156 The fees paid by the applicant seeking planning permission does not cover the cost to the local authority of processing the application.157
122.In February 2016, the Government launched a technical consultation on limited changes to the regime of planning fees.158 This proposed to increase fees by a “proportionate amount”. Any increase would not be available to all local authorities but “go hand-in-hand with the provision of an effective service” and be available “only to those authorities that are performing well.”159
123.A further, related change contained in the Housing and Planning Act 2016 is intended to introduce competition to the planning process by allowing ‘approved providers’ in pilot areas to compete with local authority planning departments to process planning applications.160 The final decision on whether or not to grant permission for development would remain with the local authority.
Changes to planning fees
124.Lord Kerslake argued that “we desperately need a more flexible planning fee system that allows local authorities to invest in their planning capacity.”161 Many witnesses supported the proposal that the fees for planning applications should be increased and that local authorities should be given discretion to decide the level of fees to charge.
125.Builders and developers told us they would be “happy to pay higher fees”.162 They wished that the money raised be used to fund planning improvements and not be absorbed into the general funds of the local authority.163
126.The Government consultation limits any increase in fees to local authorities who are performing well.164 The Minister for Housing considered that granting local authorities a general discretion to increase fees could be open to “abuse” and that there was “potential for a local authority to use that in a way to discourage development”.165 The Government opposed an amendment to the Housing and Planning Act 2016 intended to provide greater freedom and flexibility to local authorities to set their fees.166
127.Adequately resourced planning departments are crucial to the effective delivery of development. It is possible to mitigate the effects of reductions in local authority spending on planning by increasing the fees that can be charged for planning applications. Builders and developers are willing to pay more.
128.We recommend that the Government:
(a)allows local authorities to set and vary planning fees in accordance with the needs of their local area. To prevent abuse there should be an upper limit or cap on the level of fees. To allow sufficient discretion to local authorities, this cap should be significantly higher than the current fees that can be charged; and
(b)provides that the money raised from these fees is ring-fenced for expenditure on planning and development.
Accelerating build out rates
129.The planning system could also have a role in altering the behaviour of private builders. A criticism made of the large house builders that we examined in Chapter 1 is that they hold land suitable and with permission for building, yet build at a slow pace and thus maximise the profit from each development.167 This part of our report considers how the planning system could be used to narrow that gap by using measures designed to speed up the rate at which sites are developed.
130.Witnesses proposed two types of incentive to address this issue. The first would put strict time limits on the use of planning consents; the second would use the tax system to impose financial penalties on builders who do not develop permissioned land.
Planning consents: ‘use it or lose it’
131.Planning permission is granted subject to a condition that specifies the time limit within which development must begin. The default time limit, which may be varied by the local authority, is three years.168 Once development has begun, there is no time limit on its completion. To fulfil the condition, work on the site must simply ‘begin’. “Any material operation” related to the development is sufficient.169 Once development has begun, there is no time limit on its completion.
132.Various ways of strengthening the existing regime have been proposed such as:
- Developers should lose planning permission after three years unless they “use their best endeavors [sic] to develop a site”. 170
- The lifespan of a planning consent should be limited to two years and a stricter test applied to what would count towards work on a site beginning.171
- Local authorities should have the power to compulsorily purchase permissioned but undeveloped land at 50 per cent of its market value.172
133.Perhaps unsurprisingly, house builders did not favour any of the above schemes. Those who had experience of development considered that losing planning permission if building work was delayed was unfair. Dr Peter Williams of the Cambridge Centre for Housing and Planning Research said that “the reality is that big-site developments can often take a very long time.” He drew attention to the fact that the start of the build could be delayed by factors outside the control of the developer.173
Changes to taxation
134.The case for changes to the taxation system was summarised by Dr Clive Skidmore, Head of Housing Development at Birmingham City Council:
“A piece of land can be bought on the open market. If someone secures planning approval for it, it can then be sold at a profit. [ … ] In the meantime, the land is sitting there and we are not getting the homes to be built on it. One suggestion that has been made about how we could deal with that is to tax those sites, because at the moment people are paying no tax on them whatever. [ … ] You have to pay tax on any other kind of building, but you do not have to pay tax on those development sites.”174
135.A practical but effective proposal is to use the existing but imperfect system of council tax and business rates to incentivise developers. If a developer failed to complete a site within a set period of time, council tax and business rates would be levied as if the property had been built. This idea was supported by the President of the Local Government Association, Lord Porter of Spalding and Tony Lloyd of Shelter:
“Where a developer has planning permission to develop and after a certain period of time nothing happens … council tax and business rates could be levied as if that property had been built, because that would provide a spur and an incentive for them to build the homes that they, after all, have been given permission to build.”175
136.Lord Kerslake also favoured this model. He suggested that it should remain at the discretion of the local authority who could remit the charge if there were good causes for the delay in development. The importance of the tax, in his opinion, lay in its symbolism rather than its revenue raising potential.176
137.The advantage of using council tax or business rates is twofold: first it sits within the existing taxation system and would not require wider reform of property tax. Second, it complements the Government’s agenda to devolve further powers to local authorities and make local authorities reliant on their own revenue streams (through measures including the retention of business rates) and not central government grants.177
138.The Government suggested in evidence that they did not favour using council tax as a stick to incentivise developers. The Minister for Housing was concerned that a tax on permissioned land could have unintended consequences and cause delays in applying for planning permission.178 This seems implausible given the added value which receipt of planning permission confers.
Conclusions on planning incentives
139.We recommend that local authorities are granted the power to levy council tax on developments that are not completed within a set time period. This time period should be negotiated when planning consent is sought and be varied according to the size and complexity of a development. To ensure that the local authority also has an incentive to accelerate the process, the clock should start to run only when the local authority has signed off all conditions and obligations.
Reform to section 106 and the Community Infrastructure Levy
140.Developers are expected to contribute to the wider costs of building through the Community Infrastructure Levy and agreements under section 106 of the Town and Country Planning Act 1990.
Box 3: Section 106 and the Community Infrastructure Levy
|
The purpose of section 106 is for the developer and the local authority to agree a contract relevant to a specific development that will mitigate its impact. These commonly include the provision of ‘affordable housing’ and payment for additional infrastructure. The Community Infrastructure Levy is a more recent innovation. A local authority may set a levy on all new building in their area. The money raised is used to fund general infrastructure. Local authorities can choose whether or not to charge the levy, set the rate of the levy and vary it between different parts of their authority or types of land. The two schemes do overlap and when the Community Infrastructure Levy was introduced, restrictions were placed on the use of section 106 conditions to prevent double charging. |
Source: Town and Country Planning Act, section 106; Community Infrastructure Regulations 2010, (SI 2010/948); DCLG Planning Practice Guidance, op. cit.
141.Section 106 has become closely associated with the provision of ‘affordable housing’. 179 Professor Tony Crook of Sheffield University argued that these obligations had “produced very significant sums of money for ‘affordable housing’ and for local infrastructure”.180 In England in 2014/15, 14,370 additional affordable homes were provided under section 106 schemes.181
142.The transparency of the Community Infrastructure Levy and the local discretion as to its use were commended by witnesses who considered a strength of the Levy was that it was not tied to one particular development and so could be used for “infrastructure that straddles more than one scheme.”182
143.Section 106 obligations and the Community Infrastructure Levy were seen by other witnesses as ineffective and an obstacle to development. Small and niche builders in particular felt that the increasing obligations imposed by local authorities had “worked against SME housebuilders”.183 McCarthy & Stone Ltd, a retirement housebuilder, considered that the obligations and charges meant they could not bid competitively for land against developers seeking to purchase for non-residential use.184
144.A further difficulty identified was that the complicated nature of section 106 agreements makes it difficult to calculate the value of the contributions made. David Orr of the National Housing Federation estimated that about 25 per cent of the planning gain is captured by section 106, but he accepted that it is “very much a case of sticking your thumb in the air”.185
145.Professor Paul Cheshire of the London School of Economics, as part of a proposal for wider reform of the planning system, suggested that both section 106 and the Community Infrastructure Levy should be abolished and replaced by a single, national development charge of 20 per cent of the sale value of the land.186
146.The Government have acknowledged these concerns and a series of changes to section 106 have been proposed and a review of the Community Infrastructure Levy is due to be published later this year.187
147.We recommend that as part of its ongoing reviews of planning obligations and the Community Infrastructure Levy the Government aims to achieve a system that is:
(a)Simple, so time is not wasted negotiating consents and delaying building.
(b)Transparent, so the value of the contribution made by a developer can be easily quantified and local communities can understand what a new development has paid for and its value. This value should be sufficient to provide an incentive to the local authority to grant planning permission.
(c)Responsive to the concerns of small and niche builders, which may require exemptions for certain types or sizes of development.
Other solutions and initiatives
148.There was a debate between witnesses as to the importance of planning reform. The spectrum of views included witnesses who considered that this was “critical” to ensure a functioning market to those who argued that “planning was not a problem”.188 Witnesses who considered that planning was fundamental argued that only by radical change to this area would real improvements be made to the housing market. A number of ideas, which may be worthy of further consideration, were put to us. Two of these suggestions were building on the greenbelt and making land supply more responsive to demand.
Changes to the Greenbelt
149.Some witnesses considered that the Government should reconsider policy on the greenbelt.189 Martin Wolf pointed out, “Most of the country is fields and … most of them are not particularly beautiful. I think it is clear that part of the solution is to allow some building in the green belt. It is a necessary part. It is probably not the whole solution.”190
150.Trudi Elliott from the Royal Town Planning Institute however thought that green belts had served “a very important purpose” and that building on the greenbelt “is a complex issue that is not really helped by some of the simplistic debate we have about it”.191
Land supply and market signals
151.Given the difference in price between residential and agricultural land described in Chapter 1, Professor Paul Cheshire, London School of Economics, considered that the current planning system took insufficient notice of the market price of land. He said this had led to a “long run systematic undersupply of land” and that “it is imperative that land supply decisions … systematically respond to price information.”192 He proposed that if the difference in the price of land between its current use and proposed use for development exceeded a certain threshold, there should be a presumption in favour of development unless it could be demonstrated that the environmental or amenity benefits of the existing use were sufficiently valuable to society.193
152.This proposal would represent a major reform to the planning process and is possibly controversial. While there may be a case for radical reform, substantial changes would also cause disruption and transitional problems over a number of years. We do not take a view on this proposal, but recommend that the Government investigates it and other proposals to improve land supply further.
127 See Box 2 in Chapter 2 for the type of properties that count as ‘affordable housing’.
128 DCLG, National Planning Policy Framework, March 2012: https://www.gov.uk/government/publications/national-planning-policy-framework--2 [accessed April 2016]
129 DCLG, ‘Planning Practice Guidance’: http://planningguidance.communities.gov.uk/ [accessed April 2016]
131 Details of these changes can be found in Annex 4
132 The Committee received written evidence from individuals concerned about specific plans for development in their local area or generally about local planning policy (written evidence from Robert Edwards (EHM0049) and written evidence from Malcolm Ramsay (EHM0044)
135 The New Homes Bonus, however, does provide financial bonuses to local authorities who build new homes in their area. Under the scheme, local authorities receive a bonus for each new home built or empty home brought back into use. The amount of the bonus is equivalent to the council tax that the new home would provide to the local authority. The design of the scheme includes an enhancement for each affordable home built. The bonus—and any affordable home uplift—is paid for six years after the new home is built. The money paid under the bonus is not ring-fenced for housing. In December 2015, DCLG published a consultation on changes to the bonus. The changes proposed include reducing the number of years the bonus is paid from six to four and linking payments to the completion of local plans (DCLG, New Homes Bonus: Sharpening the Incentives, December 2015: https://www.gov.uk/government/consultations/new-homes-bonus-sharpening-the-incentive-technical-consultation [accessed April 2016]
137 See Box 3
138 Q 139 (Cllr Sue Derbyshire). Reforms to the planning system to capture this gain are considered at below.
140 Cities and Local Government and Devolution Act 2016 and HC Deb, 8 February 2016, col 1333 (Statement by the Secretary of State for Communities and Local Government on the final local government finance settlement for 2016 to 2017)
141 Other sources of delay suggested to us were litigation resulting from local challenges to planning decisions as a source of delay Q 137 Cllr Sue Derbyshire; also written evidence NIESR (EHM0061) and written evidence from Kathy Miller (EHM0025). Other witnesses considered that local authority planning departments adopted a formulaic approach designed for large developments which hindered the plans of small companies and custom builders. Written evidence from Pocket Living (EHM0109) and written evidence from Helen Johnson (EHM0062).
144 For the provision of affordable housing or other measures to mitigate the impact of a development.
147 Q 104 (John Stewart) and written evidence from the Federation of Master Builders (EHM0140). The Federation’s annual survey of members asks what they feel are the main constraints on building more homes. In 2015 planning in general was felt to be a main constraint by 57 per cent and s 106 and CIL were cited as a main constraint by 34 per cent and 22 per cent respectively. Other major constraints were the availability of land (68 per cent) and access to finance (62 per cent) (written evidence from the Federation of Master Builders (EHM0140).
148 Written evidence from the Federation of Master Builders (EHM0140) and written evidence from Derek Minns (EHM0005)
151 The Institute for Fiscal Studies has estimated that central government funding to local authorities fell by more than 20 per cent between 2009/10 and 2014/15 (Institute for Fiscal Studies, Central Cuts, Local Decision-Making, changes in local government spending and revenues in England, 2009–10 to 2014–15, March 2015: http://www.ifs.org.uk/uploads/publications/bns/BN166.pdf [accessed April 2016])
156 The Town and Country Planning (Fees for Applications, Deemed Applications, Requests and Site Visits) (England) Regulations 2012 (SI 2012/2920)
158 DCLG, Technical consultation on implementation of planning changes, February 2016: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/507019/160310_planning_consultation.pdf [accessed April 2016]. The consultation closed on 15 April 2016.
159 Ibid
160 Housing and Planning Act 2016, section 161
164 DCLG, Technical consultation on implementation of planning changes, op. cit.
166 HL Deb, 20 April 2016, cols 716–724. Speaking for the Government Baroness Williams of Trafford stated that she was “deeply concerned that this amendment, [has] no protections or safeguards to prevent local authorities setting excessive and unreasonable fees”
167 See Chapter 1
168 Town and Country Planning Act 1990, section 91. In the case of outline planning permission, reserved matters must be resolved within three years and development start within two years of resolution.
169 Town and Country Planning Act 1990, section 56(4). The test is an objective one: the intention of the developer—whether to start building or simply to do enough to stop the expiry of the planning consent—is immaterial Riordan Communications Ltd v South Buckinghamshire District Council (1999) 81 P & CR 85.
171 Sir Michael Lyons and others, The Lyons Housing Review, October 2014: http://www.yourbritain.org.uk/uploads/editor/files/The_Lyons_Housing_Review_2.pdf [accessed April 2016]
172 Written evidence from the Campaign to Protect Rural England (EHM0092) and Civitas, The Housing Question: Overcoming the shortage of homes, March 2016: http://www.civitas.org.uk/publications/the-housing-question/ [accessed April 2016]
177 Cities and Local Government and Devolution Act 2016 and HC Deb, 8 February 2016, col 1333 (Statement by the Secretary of State for Communities and Local Government on the final local government finance settlement for 2016 to 2017)
179 Housing associations considered that section 106 contracts were “an important part of ensuring … affordable housebuilding” Q 116 (David Montague); see also written evidence from the National Housing Federation (EHM0144)
180 Q 160 (Prof Tony Crook), who estimated that section 106 had produced £5 billion in 2007/08 and £4 billion in 2011/12, and Q 161 (Trudi Elliott)
181 DCLG, ‘Live Table 1000: additional affordable homes provided by type of scheme’, https://www.gov.uk/government/statistical-data-sets/live-tables-on-affordable-housing-supply [accessed June 2016]. 3020 of these homes were for social rent, 5180 for affordable rent and 6170 for affordable home ownership.
185 Q 117 (David Orr). The planning gain is the difference between the value of land without planning permission and the (higher) value of the land once permission is granted).
187 DCLG, Review of the Community Infrastructure Levy, Terms of Reference, November 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/476681/151027_CIL_TOR_FINAL.pdf [accessed April 2016]. This review is expected to assess the relationship between section 106 and the Community Infrastructure Levy, analyse the operation of the Levy and make recommendations for improvement. See Annex 4 for details of the proposed changes. It has been reported that the review will recommend an overhaul of the system to reduce complexity. The Estates Gazette, ‘CIL red tape set for cut’, June 2016: http://www.egi.co.uk/news/cil-red-tape-set-for-cut/?cmpid=EMP|EGEG|EGNFB-2016–00603# [accessed June 2016]
188 Q 143 (Lord Porter of Spalding); written evidence from the Royal Town Planning Institute (EHM0151)
189 In evidence the Minister was clear that the Government “are not planning any changes on green belt” policy. He noted that “If a local area wants to look at its green belt, it does so through its local planning process” (Q 241). The Campaign for the Protection of Rural England analysed proposals for the release of greenbelt land contained in local plans. The CPRE calculated that 275,000 houses planned for future development were on greenbelt land. The CPRE, The Greenbelt Under Siege, 25 April 2016, http://www.cpre.org.uk/resources/housing-and-planning/green-belts/item/4276-green-belt-under-siege-2016, [accessed June 2016]
193 Written evidence from Professor Paul Cheshire (EHM0156). Together with reforms to incentivise local authorities to allow development, Professor Cheshire thought this would reduce real house prices by around 40 per cent within 10 to 15 years; see also written evidence from The Institute for Economic Affairs (EHM0120)