Getting Britain building

December 4, 2015

At the heart of the government’s programme to boost Britain's poor housing output record are measures to make it easier for developers to transform underused office and light industrial buildings into new homes.

Temporary permitted development rights have enabled offices to be converted to residential use without having to apply for planning permission since 2013, however the temporary right was due to lapse in May 2016 to be potentially replaced by red tape that would have hindered the development of thousands of much-needed homes.

Thankfully, Housing and Planning Minister Brandon Lewis has seen the light, and recently announced that the right will be made permanent as part of the government's drive to increase housing numbers.

The existing legislation allowed for the conversion of the existing office buildings, but the right is to be expanded to also allow for the demolition of office buildings for new build residential units.

The measures will allow developers to tap into the potential of underused buildings to stimulate growth in the number of homes for first-time buyers, while also protecting green belt land.

This is likely to boost the already thriving bridging loan market, as there will be more developers on the lookout for short-term finance options that will allow them to secure sites and plots to develop.

However, there is a potential blot on the landscape.  The cost of building a home in Britain still exceeds that in other countries. For instance, building a house in the UK costs 18% more on average than building one in Ireland, according to Turner & Townsend.

One of the main reasons that it is more expensive to build a house in the UK than in most other parts of the world is the high percentage of the total cost that is required for preliminaries such as planning fees.

The percentage of the total cost that is required for preliminaries in the UK is 12.5%, which compares to 10% in Ireland and 9% in the United States. Only in Germany is there a higher percentage (15%).

In November 2015 a survey by the Local Government Association (LGA) suggested that current planning fee levels are insufficient to cover council costs. The study found that local authorities had spent £450m covering the cost of planning applications during the past three years.

At present there is a limit placed on the amount that councils can charge on the 467,000 applications they typically receive across the UK each year. The LGA has predicted that the cost will reach nearly £1bn by 2020, so is lobbying the government to relax those restrictions in the spending review.

This could potentially lead to a huge increase in the fees property developers are charged for making planning applications and could also potentially stifle growth in house building.

While property developers generally support the LGA recommendations, they are only willing to pay higher fees if they receive a more effective service. The government is constantly talking about how much it wants to get Britain building again, and while the extended permitted development rights represent a start, hopefully councils being given free rein on planning fees won’t derail the overall level of housing starts.

This is a blog piece by Duncan Kreeger, managing director of West One Loans, that first appeared on Commercial Reporter