By Ritchie Clapson CEng MIStructE, co-founder of propertyCEO
As we enter the final months of the government’s tenure, the pressure is on to make each department appear as shiny as possible ahead of the election. Those responsible for housing are counting on a further expansion of existing permitted development rights (PDRs).
The world of PDRs is a little complex
There are two main types of PDR with the first relating to the extension of one’s own home. For example, subject to certain size restrictions, you have a PDR to put an extension on the back of your house without asking the council for permission or even telling your neighbours. The second type relates to the change of use of existing commercial buildings, in particular into residential use, and it’s this type that the government hopes tweaking 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 little too turkeys-voting-for-Christmas. 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.
PDRs have been around for decades, but they came into their own in 2015 when the government allowed developers to convert office buildings into residential use. Since then, the number of permitted development rights has increased significantly. You can now also convert gyms, doctor’s surgeries, light industrial units, banks, cafes, and restaurants into residential, as well as add new storeys to existing blocks of flats.
All buildings have what’s known as a use class, and you would normally need to apply for planning permission to change a building’s use class (e.g. to turn an office building into a block of flats). Because applying for planning permission can be slow and tortuous, the government decided to create a streamlined process whereby the change of use was automatically approved, subject to some basic checks. Called ‘prior approval’, developers can make a PDR application for a change of use, and the council would have up to eight weeks to assess it against a short list of fundamental criteria. If they didn’t respond in that time, permission was automatically granted, making things a lot quicker and far less risky for developers.
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 that dictate 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. While there will be instances of neighbourly objections, I think most people will see this as a sensible proposal. The cost of moving home for many is prohibitive and, of course, is currently subject to 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.
Hold the champagne
So, while all of these proposed changes sound positive, on their own, they won’t be a magic wand that fixes the housing crisis. Building 1.2million new homes from unused brownfield land would give us the equivalent of four years’ new housing, and we wouldn’t need to touch the 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 pound profit. 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 each 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.
Who will transform unused commercial property?
If the scale housebuilders are out of the frame, who is best placed to convert these buildings? 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 the likes of Persimmon, but it’s highly attractive to an individual landlord, investor, or entrepreneur – experienced or otherwise. The government has made life increasingly difficult for property investors (particularly regarding buy-to-let) over the last decade, but 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%.
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 can 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 once again account for a larger share of the market. And the government also needs 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.
