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To get landlords building again, we need to tackle viability
The government has ambitious plans to deliver new homes, but to come anywhere near this target, it needs to tackle viability issues, say Lindsay Garratt, a partner in planning, and Matt Cowen, a senior associate in the corporate and commercial department, at law firm Winckworth Sherwood
Lindsay Garratt is a partner in planning law, and Matt Cowen is senior associate in the corporate and commercial department at Winckworth
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The government has ambitious plans to deliver new homes, but to come anywhere near this target, it needs to tackle viability issues, say Lindsay Garratt and Matt Cowen of law firm Winckworth Sherwood #UKhousingThe government has had reform of the planning system in its sights since day one, believing it to be the key to delivering its headline target of 1.5 million homes over the next five years.
Last month, Labour published its Planning and Infrastructure Bill, promising “bold action” and “seismic reforms”. The bill will be key, or at least so the government hopes, in speeding up delivery of much-needed new homes and infrastructure.
It seeks a range of changes, including the reintroduction of regional plan-making; clearer national rules for hearing schemes at committee or under delegation (and mandatory training for those making committee decisions); changes to compulsory purchase order laws as to when hope value might not apply; and yet another levy for the Nature Restoration Fund, but one it is hoped will reduce the site-specific environmental assessments and mitigation required.
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However, these reforms come at a time of ever-mounting viability pressures that are affecting the ability of residential developers and social housing providers to deliver new homes in the numbers the government wants. It is time the government looks to address viability in addition to planning reform.
The economic climate remains a major challenge, with recent tax increases, inflation remaining volatile and high mortgage costs. A shortage of skilled labour, in particular, is also pushing development prices up. It is said to cost approximately 40% more now to deliver a new home than it did five years ago.
“It is said to cost approximately 40% more now to deliver a new home than it did five years ago”
Housing providers now face significant additional regulatory burdens, including from new build safety legislation (and associated delays and costs caused by passing Gateway Two for new high-rise residential buildings).
Other challenges include Biodiversity Net Gain and carbon off-setting requirements, Section 106 and the Community Infrastructure Levy. And still there is the prospect of a further levy on residential development for building safety at the end of the year.
All this comes at a time when there is limited ability for such costs to be absorbed.
Social housing providers’ viability is also an important part of the equation. The financial challenges social housing providers face mean many have cut back on development and paused buying Section 106 affordable units, causing further delivery problems around affordable and private homes.
Providers are keenly anticipating the government’s impending Spending Review and social housing strategy, which need to provide more support for housing providers through grant funding and a long-term rent settlement (ideally with a rent-convergence mechanism) to enable any increase in development activity.
If the funding is made available, social housing providers have the experience, skills and relationships to be a major contributor to the 1.5 million target.
Providers should also be able to embrace private capital entering the affordable housing sector (whether through for-profit registered providers or partnerships with existing registered providers), giving the sector a committed additional funding stream in the coming years.
“The benefits of confronting these viability challenges and achieving the 1.5 million-home target, or as close to it as possible, are clear”
The benefits of confronting these viability challenges and achieving the 1.5 million-home target, or as close to it as possible, are clear. In its report, The Economic Footprint of Home Building, the Home Builders Federation estimates that hitting this target would produce billions of pounds worth of economic activity, including over 800,000 jobs.
There are some signs that viability challenges are being recognised. The Greater London Authority (GLA) announced changes to affordable housing policy in December, with reviews of intermediate rent affordability and viability to support housebuilding in the capital.
The growth in partnership models between house builders, registered providers and financial institutions, often backed by Homes England or the GLA, also shows an understanding of the need to spread costs and risks.
Nonetheless, we need to be realistic about the hurdles still ahead for housebuilding. If Labour is serious about its objectives, it must quickly address viability pressures, not just planning.
Lindsay Garratt, partner in planning law, and Matt Cowen, senior associate in the corporate and commercial department, Winckworth Sherwood
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