Recent changes to the National Planning Policy Framework were a positive step in the right direction – but I’m afraid didn’t go far enough.
Over almost a decade at Paragon Development Finance, I’ve worked predominantly with SME housebuilders; firms which are responsible for bringing forward some of the most distinctive and sustainable homes in towns, cities and villages across the country.
Experience has taught that despite having to continually contend with challenges that larger developers are often far better equipped to absorb, they are also some of the most resilient and entrepreneurial businesses in the housing sector. But that shouldn’t mean they have to continue facing a disproportionate share of the burden.
SOME MOVES IN THE RIGHT DIRECTION
Some measures have been welcomed. Support for development around transport hubs, a new, medium-sized development category and requiring local planners to allocate more land for smaller sites, to name a few.
All of these changes could help reduce delays and unnecessary complexity, which in theory should create opportunities for local and regional developers.
But many of the issues that have the greatest impact on project viability remain unresolved.
PROPORTIONATE DEVELOPMENT COSTS
The latest reforms stop short of recognising the disproportionate pressures faced by the smaller developers who build on these sites.
What I mean by this is that many of the costs associated with development do not increase in line with the number of homes being delivered.
Securing planning permission for a 25-home scheme may cost less in absolute terms than a larger development, but it often requires much of the same consultant input, technical surveys, legal work and regulatory oversight.
As a result, larger developers are able to spread these costs across far more homes, benefiting from economies of scale that local and regional housebuilders simply cannot match.
For SME developers, these upfront costs consume a much greater share of a project’s budget, placing additional pressure on viability and limiting their ability to bring forward new schemes. If Government is serious about increasing housing delivery from smaller sites, it must recognise and address these structural disadvantages.
NO BUILDING SAFETY LEVY SUPPORT
Similarly, Government has also chosen not to introduce targeted relief from costs such as the Building Safety Levy (BSL), despite concerns about the disproportionate impact these charges can have on smaller developments.
In fact, just this week the Home Builders Federation revealed that upcoming BSL charges are likely to add £2,320, on average, to the cost of building a home – with 91% of SME developers saying they expect the levy will make their developments economically unviable.
S106 CHANGES ARE PROMISING
The Government’s consultation this week on standardised Section 106 agreements has given us some clarity on this growing issue. Lengthy negotiations add considerable cost and uncertainty, particularly for SMEs, after planning permission has been secured.
The proposed standard templates for medium-sized sites could shorten that process and give developers, councils and lenders greater clarity.
At the same time, plans for an affordable housing cascade mechanism also acknowledges the challenge that SME developers often struggle to find a Registered Provider willing to acquire affordable units, leaving completed homes or wider developments in open-ended limbo.
Under the proposal, developers would first market the units to an affordable housing provider for at least six months. Where no agreement can be reached, the process could allow the housing mix to be reconsidered or, subject to local authority approval, permit a financial contribution in lieu.
This could provide a clearer route forward for otherwise viable schemes, although the mechanism would remain discretionary. As always, the success of these changes will hinge on whether local authorities adopt the new approach consistently, without significant variations across regions. Without that consistency, many of the delays and uncertainties the reforms are intended to address are likely to remain.
MISSED OPPORTUNITY
Arguably the biggest missed opportunity is Government opting not to formally recognise SME housebuilders as a distinct market sector.
Legislature and policy continue to focus on the size of the site rather than the size of the developer, failing to fairly take into consideration the vast differences in scale, resources and risk profile.
This is something I feel passionate about.
SMEs are often the businesses bringing forward some of the most thoughtfully designed, distinctive and sustainable housing schemes – their knowledge of the local environment and infrastructure is unparalleled and often means the homes they build better meet the needs of the local community and integrate more seamlessly.
Buyers are more likely to want these types of homes over identikit developments.
