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Resi Promoters’ Chance to Thrive in a Tightening Playing Arena

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Consultation has now closed on the government’s revised National Planning Policy Framework (“NPPF”) – opportunity awaits those that know the new rules of the jungle.

Michael Gove MP set the start of March as the deadline for comments on the proposed changes to the NPPF and longer-term aspects of the reform agenda. The NPPF is the lattice from which planning policy hangs and it appears its reconstruction is going to be underway for some years.

The indicative mark-up of the NPPF covers a lot. It’s over 50 pages, spans most of the planning system, and poses 58 questions pertaining to the future of planning. Most notably:

  • Local Planning Authorities (“LPAs”) will not be required to alter greenbelt boundaries
  • No requirement for a 5-year housing land supply
  • Biodiversity net gain measures will be strengthened
  • LPAs will not be required to cooperate with each other to deliver housing
  • Watering down of the local plan ‘soundness test’
  • Housing targets an advisory starting point only

There are concerns that the proposed national planning policy changes will deepen the housing crisis and bring torment to residential developers. Indeed, 47 local authorities have paused their local plan processes whilst changes to the NPPF are unknown. This has led the Home Builders Federation (HBF) to suggest the annual supply of new homes in England may halve from 233,000 to 111,000 over the next few years, representing the lowest level in eight decades.

Likewise, by not requiring greenbelt boundaries to be altered, land promoters will be constrained to more urban spaces. Logic suggests there will be a further tilt away from the required mix of single-family houses towards multi-family housing and an even greater reliance on the top 20 cities to absorb the nation’s housing requirements.

Private sector capital in all its forms are vital for house building and the modernisation of old stock. The NPPF issues are exacerbated by the recent personal tax changes applied to private buy-to-let properties, which is further squeezing supply and contributing to a renters’ nightmare across much of the UK.

However, whilst the merits of the NPPF changes seem few and far between for increasing UK housing supply, the proposals cement the value of land that sit within the new policy parameters and incentivise land promoters to play by the rules in delivering essential housing supply in a tightening playing arena.

Population growth and demographic change have consistently driven demand and house price inflation since the global financial crisis. Looking ahead, the UK is forecast to experience the highest percentage of population growth in Western European countries until at least 2050.

Gove’s NPPF changes are anticipated to contribute to a sustained lack of supply across all residential tenures. When coupled with such supportive underlying demographic flows, a distinct market opportunity for investors to achieve superior risk-adjusted returns has emerged.

In particular, institutional capital will be responsible for addressing the UK’s housing supply crisis. However, institutional landlords have generally been risk averse and unwilling to accept planning risk. As achieving planning becomes more complex and more expensive, institutional capital providers need land promoters with deep pockets (or access to funding) to provide oven-ready sites on which to develop.

Fiera Real Estate UK, through its network of operating businesses, has a long and strong track record of backing property development companies that can identify viable brownfield sites and work closely with LPAs to deliver crucial housing supply. Under Gove’s new proposed changes, the need for specialist knowledge increases in order to achieve planning permissions that will likely be able to realise appropriate risk-adjusted exits to housebuilders.

The implication of new NPPF wording represents the most significant change to the Framework since its first publication in 2012. There is substantial watering down of its key elements relating to both decision-making and plan-making and many Resi promoters may be caught off-guard. In particular, leaving greenbelt boundaries unchanged will result in clear tension between plan-making and addressing the national supply crisis.

The tightening of land being allocated for housing will undoubtedly exacerbate the UK’s housing affordability, however, it will be advantageous to residential land promoters’ companies alive the changes.