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‘Nutrient neutrality’ scheme will push up costs but unlock stalled building, says Moody’s
Natural England’s nutrient mitigation scheme should unlock stalled housebuilding, but will push up the cost of land in some areas, according to analysis by Moody’s.
The credit rating agency added that while the scheme was likely to support housing associations’ credit profiles, it would increase development costs by exacerbating the sector’s struggle with land supply shortages.
‘Nutrient neutrality’ restrictions from Natural England, first implemented in 2019, aim to protect water bodies from nutrient pollution by ensuring all new development has an offsetting scheme approved by the government’s environmental watchdog.
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Restrictions affect 74 local planning authorities, and the report from Moody’s noted that many developments have been “in standstill due to the complexity of identifying and designing appropriate nutrient mitigation”.
The nutrient mitigation scheme has received £30m of investment from the government for the next three years, which will subsidise some of it.
The remaining costs will be covered by a new credit system, launched on 31 March in the Tees area, that will allow house builders to apply to buy ‘nutrient credits’ for offsetting projects, such as creating new woodland or wetland.
Developers have until 30 April to apply for the first round of nutrient credits, which cost £1,825 each to mitigate one kilogram of nitrogen.
In March, the Home Builders Federation (HBF) stated that commercial house builders were already spending £5,000 to £25,000 per home to privately design mitigation schemes.
Moody’s said the additional cost of buying credits was likely to reduce the availability of viable schemes and increase competition, inflating the prices of viable sites.
The HBF estimated that the new rules could cut housing supply by around 41,000 homes per year – about 24% of the total number of new homes built in the year to June 2022 in the UK.
Moody’s said the most affected housing associations were those with development schemes in areas with already-high levels of nutrient pollution, typically in rural or agricultural areas in the East, South and South West of England.
It named Flagship, Orbit, LiveWest, Abri and Saffron Housing, all of which have had difficulties securing planning permission for some of their development schemes.
Zoe Jankel, vice-president and senior analyst at Moody’s, said: “Although the nutrient mitigation scheme will help to coordinate more mitigation projects and will simplify the process for developers, thereby facilitating housing associations’ stalled developments in affected areas, it will contribute to a trend of rising mandatory expenditures for the sector, on both existing and new homes.
“In recent years, requirements for fire safety and decarbonisation in existing stock have contributed to weakening margins and interest coverage metrics across the sector, as well as reduced development capacity.
“Upcoming requirements such as biodiversity net gain and the Future Buildings Standard will increase the costs of developing new homes.”
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