What are the impacts of nitrogen and water neutrality on UK housing sector?

By Naomi Bull, associate, and Kate Radford, senior associate, at Eversheds Sutherland

In a bid to tackle the problems nutrient neutrality requirements are causing developments, the first government-backed nutrient mitigation credits are due to be made available for developers from March 2023 in the Tees catchment area – but will the scheme be successful in ending the delays to housing delivery?

What is the requirement for nutrient neutrality?

Advice on nutrient neutrality was drawn up by Natural England to address environmental concerns as to the impact these pollutants were having on freshwater habitats through the deoxygenation of water and the harm this was causing to wildlife and plants.

These impacts have been further exacerbated by wastewater and sewage run-off from construction sites. As such, new housing developments and those facilitating overnight stays, such as hotels and student accommodation, in the vicinity of vulnerable watercourses must demonstrate that they do not increase phosphate and nitrate levels beyond existing levels before they are consented. As a result of this, Natural England reviewed its advice in March 2022.  In summary, the advice states that under the Conservation of Habitats and Species Regulations 2017 (as amended), local authorities should consider the nutrient impacts of any new plans and projects.

As the expert statutory body in this field, local planning authorities will be expected to give significant weight to the advice of Natural England during the planning process, something that was recently confirmed in the Court of Appeal as part of a judicial review against the decision of a local planning authority to grant permission for a housing development.

In light of this, and as a result of “complex and bureaucratic EU-derived domestic legislation and case law” (as acknowledged in the Government’s press release dated 20 July 2022), the requirement to demonstrate neutrality effectively acts an embargo on local planning authorities being able to grant planning consents, discharges of conditions or reserved matters approvals until mitigation solutions are shown to have been put in place and proven to work. Currently, Natural England has advised 74 local authorities on this requirement.

What issues has it caused to developments?

The requirement has proved contentious with housebuilders due to their perception that, because of a lack of viable solutions and mitigations, it has acted as a block to developments coming forward. There are also concerns that the calculation methodology circulated by Natural England overestimates the increase in population each new home will bring, resulting in the amount of mitigation required being overstated and making it even harder to achieve.

In many affected areas this has resulted in a backlog of planning applications decisions and in May 2022 the Home Builders Federation estimated around 120,000 new homes were being delayed. This has brought the rules into conflict with the Government’s aim of bringing forward new housing and has led to calls for policy intervention to help address the issue.

What is being done to solve the problem?

In the press release dated July 2022 referred to above, the government announced a new ‘Nutrient Mitigation Scheme’ to enable developers to purchase government-backed credits (similar to those which may be purchased where biodiversity net gain cannot be provided onsite), with the revenues raised invested in new and expanded wetlands and woodlands and shorter-term measures to buffer watercourses and fallow land in the area local to the development.

This will provide a route for developers to demonstrate nutrient neutrality without the need to finance this up front, enabling local planning authorities to grant planning permission for new developments in affected areas. Conditions may be attached to planning consents in the affected areas to ensure that any credits are purchased prior to occupation.

In the longer term, the Levelling Up and Regeneration Bill will impose a legal duty on water companies in England to upgrade wastewater treatment works by 2030 in “nutrient neutrality” areas to the highest achievable levels. The Bill also sets out that when making an appropriate assessment for the purposes of the Habitats Regulations, the local authority should assume that the wastewater treatment works will meet the relevant pollution standards by the upgrade date. Once these measures have been brought in, this should reduce reliance on credits.

Will this be an effective solution?

These measures should help to release the backlog of homes and enable much needed affordable housing to progress in affected local authority areas. In November 2022, the government updated its previous press release to announce that it was preparing to launch the first mitigation schemes in Tees Valley in the North East, prioritising affordable and social housing as well as small developments where demand for credits outstripped supply. However, it remains to be seen if housing associations and other social housing providers will be able to absorb these additional development costs.

In addition, mitigation schemes are expected to come forwards at different speeds and so some local planning authorities may continue to experience delays for the foreseeable future. As at the time of writing, only two schemes had been announced, both within the Tees catchment and it is unclear when government-backed schemes in the other affected areas will be brought forward. Developers remain able to implement their own mitigation schemes should they wish, but it can be assumed that much of the housing backlog is comprised of developers who have, so far, been unable to do so.

It should also be noted that on the face of it, the credit scheme does little to address the underlying causes of phosphate and nitrate pollution. However, the ability to sell offsite credits to developments does offer an incentive for farmers and landowners within affected areas to convert their land to provide mitigation habitats. This can provide a revenue stream to landowners and incentivise the removal of land from high nitrogen uses, thereby addressing the root causes of pollution. A number of such schemes are already up and running.

Finally, the requirement on water companies to significantly reduce pollution by 2030 will help to address part of the problem at source and reduce the need for mitigation to be provided in respect of new developments. The Government estimates that overall there should be approximately a 75% and 55% reduction in phosphorus loads and nitrogen loads respectively from wastewater treatment works, although this will vary between individual catchments.  While this should hopefully make a sizeable impact on the pollution problem, the upgrade works will not be made mandatory for some time and so developers will still be reliant on mitigations in the near future.

What can be done now?

Whilst we await these interventions there is a risk that consented developments which have not secured the necessary mitigations might expire. It is, in this context, important to consider the availability of interim solutions through the variation of conditions or the implementation of the authorised development. This presents some significant challenges but solutions are available which should be carefully tailored to address the specifics of a scheme.