The the latest S&P Global UK Construction PMI data should prompt a wider debate about how the UK goes about delivering new homes. Indeed, housebuilding activity fell to 35.9, its lowest reading of the year so far. Any reading below 50 indicates that activity is contracting.
It’s about time policymakers stop trying to rely solely on increasing new build targets to address the country’s housing shortage.
Targets are important, certainly, but we haven’t hit any since the 70s. Higher build costs, planning delays, labour shortages and market uncertainty are weighing on the sector.
The country already possesses a significant housing resource that often receives less attention than it deserves.
Across England, thousands of vacant or underused retail premises occupy prominent positions in town and city centres.
Many were designed for an extinct retail environment, with changing consumer behaviour, online shopping (don’t we know it – we are doing a huge number of deals on light industrial units for last-mile deliveries) and business failures leaving many secondary retail locations struggling to attract long-term occupiers.
There are many locations where demand for commercial space has declined permanently and where alternative uses would better serve local communities.
SOCIAL VALUE
Unlike large strategic housing developments, many retail-to-residential schemes can progress relatively quickly.
The buildings already exist. Basic infrastructure is generally already in place. Many sites are located close to jobs, to schools and other local services.
They could be perfect for older home-movers too; let’s not forget there’s a huge shortage of property suitable for retirees as well as first-time buyer properties and starter homes.
Redeveloping empty retail units into homes creates clear social value, too, delivering additional housing without sacrificing greenfield land while restoring vitality to town centres.
Specialist finance can help investors acquire buildings quickly, undertake refurbishment or conversion works (and then refinance onto, say, a mixed-use mortgage.)
MORE TO BE DONE
Government has taken some steps to encourage conversions through Permitted Development Rights. But policymakers could do more.
The growing use of Article 4 Directions by local authorities removes permitted development rights in many areas, requiring full planning applications instead.
Their widespread application introduces uncertainty, extends project timescales and increases development costs.
A careful review of how and where Article 4 Directions are being applied could help ensure they remain targeted at genuinely sensitive locations rather than becoming a broad obstacle to high street regeneration.
Greater consistency would give developers, lenders and investors more confidence when assessing opportunities.
Investors can face uncertainty even after they secure planning consent, particularly around utility connections, technical approvals and Building Regulations.
Delays securing electricity capacity, water connections and statutory approvals can postpone practical completion by months, tying up capital and increasing financing costs.
SCHEME VIABILITY
Policymakers could look at introducing minimum service standards for utility providers and other statutory consultees, with clear deadlines for responding to connection requests and issuing approvals.
Greater certainty would allow developers to price projects more accurately, reduce contingency costs and improve overall scheme viability.
Councils could be required to audit vacant units with little realistic prospect of returning to long-term retail, identifying conversion opportunities through Local Plans.
Rather than allowing units to remain vacant for years, councils would be actively facilitating property investors to support appropriate residential redevelopment as part of wider town centre regeneration strategies.
Mixed-use developments that retain active commercial frontages where appropriate while introducing residential accommodation above or behind can strengthen local economies by increasing footfall and supporting remaining businesses.
INCENTIVISE INVESTORS
Financial incentives to incentivise investors. Differences in the VAT treatment of refurbishment and conversion compared with new build continue to influence investment decisions.
Reviewing those rules, alongside targeted brownfield regeneration grants, could help bring forward schemes that currently sit just outside commercial viability.
Of course, not every vacant shop is suitable for residential conversion.
Broker demand for semi-commercial mortgages certainly suggests there’s still a role for thriving retail centres.
And these policies won’t solve the housing shortage. New build housing will remain essential, particularly in areas of sustained population growth.
But the current focus on new build construction demonstrates that relying on one source of supply is not delivering the results we need as a nation.
Making better use of existing buildings offers a practical and comparatively quick way to supplement new housing delivery.
With planning reform, greater regulatory certainty, targeted financial support and specialist lenders committed to bringing momentum to lending, retail-to-residential conversion can play a larger role in increasing housing supply while supporting the long-term regeneration of Britain’s town centres.
