Development Rights
Permitted Development Rights and the housing crisis
By Ritchie Clapson CEng MIStructE, co-founder of propertyCEO
If I’m honest, the number of things I can remember about the 2003 Football Season could be written on the back of a very small, albeit improbably expensive, postage stamp. But one of its legacies, courtesy of a certain Mr Alex Ferguson, was a memorable expression that has since made it into the common vernacular. Because, as Arsenal and Man United fought it out for supremacy in the final matches of that season, Sir Alex, who was famed for playing mind games with arch-rival Arsene Wenger, commented that it was ‘squeaky bum time’ for Arsenal as they faced an uphill struggle to win their remaining games. One assumes that the expression reflects the allusion to someone squirming uncomfortably in their seat, although I suppose it could equally relate to another type of nervous reaction from the same general area.
As we enter the final months of the government’s tenure, a quick review of the political landscape would suggest that it may well be squeaky bum time in Westminster currently. The pressure is on to make each department’s shop window look as attractive as possible ahead of an election, and frankly, in many cases, the cupboard looks a little bare. Heads are being scratched, and nerves are frayed.
Those in charge of housing have decided that the mannequin adorning their own pre-election shop window will be sporting a retro look this election, including, as it does, the further expansion of existing permitted development rights. It’s an old design, but the government has looked to shoosh things up a bit by raising a hem or two here and there, albeit it’s fought shy of adding tassels. But what are permitted development rights (PDRs), and precisely what hem-raising is being proposed?
The world of PDRs is a little complex
Essentially, there are two primary PDR categories. Firstly, there’s PDR for extending one’s own residence, which allows homeowners to add extensions without seeking council permission. Secondly, there’s PDR related to changing the use of commercial buildings, particularly converting them into residential units. The government hopes tweaking these will result in more homes being built.
According to countryside charity CPRE, some 1.2 million new homes could be built using the country’s current stock of unused commercial buildings. The government has stated that we need to build 300,000 new homes every year, but in recent years, that target hasn’t come close to being met. Wholesale planning changes that would have many voters worrying about a new affordable housing estate being built at the bottom of their gardens is a risky strategy with an election just months away. However, using permitted development rights to recycle existing commercial buildings is far more palatable to the electorate and allows the government to be seen to be addressing the housing crisis.
So, what exactly is being proposed?
The government has put forward several changes to the current PDR arrangements to try to woo voters. On the home front, it’s looking to let homeowners build wider and taller extensions, including wraparounds, loft conversions and kitchen extensions, all without planning permission. They also plan to scrap rules which dictate that a home and any extension cannot make up more than 50% of the land surrounding it, as well as allowing homeowners to convert as much loft space as they like, again without needing permission. There’s been a fair amount of doom-mongering since the announcement, with certain sections of the media predicting pitched battles between neighbours. Yes, there will be instances of neighbourly objections, but housing is an omelette where egg-breaking is necessary in order to move the needle. Personally, I think most will see this as a sensible proposal. The cost of moving home for many is prohibitive and, of course, is currently subject to the dreaded stamp duty. Having the option to substantially extend one’s current home is, therefore, an attractive proposition for many people.
On the commercial conversion side of PDRs, the government is also looking to make some changes. Many commercial properties currently need to be vacant for three months before PDRs can apply, and the government is proposing to remove this restriction. This is excellent news for developers because it means they can start developing more quickly and with greater certainty. It also means they can secure the finance they need to acquire the property they’re about to convert. The government is also proposing to lift the 1,500m2 maximum size restriction of commercial properties that can be converted under one of the most significant PDRs. Given that a 1,500m2 property would equate to around thirty 1-bed apartments, we’re talking about a project far bigger than most first-time developers would look to take on. But there are some much larger sites that may now become attractive to bigger developers should the maximum size restriction be removed.
No magic wand to fix the housing crisis
Yes, it’s easy to see that building 1.2m new homes from unused brownfield land will give us the equivalent of four years’ new housing. And we won’t need to touch our beloved green belt in order to do it. But the question is, who will be doing all this development? And that’s where we hit a snag, because brownfield projects are not a good fit for the major housebuilders.
If we look at the Persimmons, Barratts, and Taylor Wimpeys of this world, they have a simple, cookie-cutter model which involves rolling out standard house designs on empty building plots. Give them a plot of land anywhere in the country, and they can build some houses from their existing range of designs, and they’ll make a tidy £ multi-million profit for their troubles. But give them an unused commercial building, and the model doesn’t work. They could, of course, demolish it and start again, but that’s considerably more expensive than building on virgin land. If they were to convert what’s already there, they’d have to employ architects to create a one-off design for every building. They’d also have to retrain their workforce since converting an existing building requires a different skill set than building a standard design on a vacant plot. Finally, most of these sites wouldn’t make them enough profit – they’re simply not big enough.
So, who is best placed to convert these buildings if the scale housebuilders are out of the frame? The answer lies with the much smaller operators, known as small-scale developers. These range from individuals like you or me to relatively small SME enterprises. Putting some flats above an unused shop can net you a six-figure profit in relatively short timescales. It’s not very exciting to Persimmon, but it’s highly attractive to an individual landlord, investor, or entrepreneur, experienced or otherwise. The government has persecuted property investors pretty relentlessly over the last decade; however, it now needs to encourage new small-scale developers to enter the market. SME developers used to account for 30% of new housebuilding, but today that figure has dropped to just 12%.
There’s also another critical challenge
The local planning authorities who must give prior approval to PDR applications before works can begin, are massively under-resourced, often lacking in experience (due to many senior planners departing) and are not predisposed to like PDRs, which they often see as undermining their authority. As a result, councils still make it difficult for prior approval to be granted, despite the government’s intention of making PDRs a streamlined and unbureaucratic process. It’s imperative that the government gets planning authorities on side and starts reinvesting in this vital area.
The proposed PDR changes will undoubtedly create more opportunities to unlock more housing by recycling and improving our existing building stock – which has to be a good thing. But it will only happen if the government also encourages new small-scale developers to come to the party and return to a place where they account for a larger share of the market. And they also need to get local planning authorities on side so that they view PDRs as an opportunity to solve the housing crisis in their area, rather than something that undermines their authority. The retro look certainly has its appeal, but we may need those tassels after all.
ABOUT THE AUTHOR
Ritchie Clapson CEng MIStructE is a veteran property developer of 40+ years, an author, industry commentator, and co-founder of the leading property development training company propertyCEO. Ritchie is passionate about tackling the lack of housing in the UK and helping ordinary people to be part of the solution. To discover how you can get into small-scale property development, visit www.propertyceo.co.uk
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