Will planning shake-up build 1.5 million homes?

A good start

Our expert group was all broadly supportive of the government’s reforms – albeit with some caveats.

Andy Hill, founder and chief executive of The Hill Group, says he welcomes the government’s focus on delivering new housing. “I think it was needed to stimulate a housing industry which has stagnated over the past five or six years,” he says. “I’m interested in how the move to more social rented properties could be funded… because this is what the challenge is going to be. How do we get enough money into the system to fix what is a broken housing market?”

“The fact that housing is on the political agenda now has to be a good thing,” agrees Amy Shaw, partner at law firm Trowers & Hamlins. “It means much more recognition of the role that housing plays in the wider economy in terms of health and social well-being. Changes in planning are welcome. But as everybody’s touched on, funding is a massive issue.”

One of Labour’s headline housing reforms is the reintroduction of mandatory housebuilding targets for local authorities. This is welcomed by many developing housing associations as a sign of future certainty.

Richard Jones, partner, Arcadis and Vicky Savage, executive group director of development and sales, L&Q

“There is fundamentally a shift to pro-housing and pro-growth,” confirms Tom Oliver, director of development programme and partnerships at housing association Peabody. “The return to setting targets is useful, and the focus on social rent housing for our sector, which is the core of what we do, is welcome,” he says. “But, having said that, the key is how you look at the whole housing ecosystem: planning is just one part of [that].”

Ms Shaw, however, disputes the practical value of setting targets. “I’m slightly dubious about the mandatory housing targets, because if they don’t do it, what’s going to happen?” she asks.

The planning reforms add another belt to the planning wardrobe: the ‘grey belt’, which is green belt land considered poor quality or underused. The government’s proposed changes to the NPPF set out the rules for building on the grey belt: a development must benefit the public and contain at least 50% affordable housing, and brownfield land must be prioritised for development before the grey belt is explored.

Neil Jefferson, chief executive of the Home Builders Federation, describes the grey belt as an “interesting” move from the government. “It sends quite a strong message, which is to say [that] unless something changes, we don’t have enough brownfield land and regeneration land to meet future housing needs.”

But not everyone is convinced this change will make a difference to the availability of land for development. “I don’t think we’re overly excited about the grey belt,” says Alan Harris, partner and head of advisory at property consultancy Montagu Evans. “It’s been a good headline, but we would worry that there’s not a sufficient amount of demand going to come through to fill it… We would certainly encourage [the government] to be even bolder than what’s been put down.’’

Vicky Savage, executive group director of development and sales, L&Q, Richard Jones, partner, Arcadis and Tom Titherington, chief investment and development officer, Sovereign Network Group

Small is beautiful

The government says it will legislate to “speed up and streamline the planning process to build more homes of all tenures” in order to provide “a more predictable service to developers and investors”. This could be music to the ears of small and medium-sized house builders (SMEs) – a sector that some feel has been ill-served by the planning system, despite having the resources to make a dent in the government’s housebuilding targets.

“There are too many planning conditions. They can take years to clear, and that really does hamper small businesses,” says Richard Jones, a partner at consultancy Arcadis. “For SMEs, making the planning system a lot easier would be significant.” There is capacity in that part of the sector, he suggests.

SME activity in the housebuilding sector has dropped significantly in recent decades, as reported by the Home Builders Federation. In 1988, smaller businesses built 40% of all new housing; today they are responsible for just 12% of new starts. More than half of SME house builders (55%) cite the planning system as the biggest barrier to building more new homes, according to a 2023 survey by the Federation of Master Builders.

“It’s a shocking statistic to think that SMEs only build 12% of the housing in this country,” says Mr Hill, who warns that the damage that planning has caused to SMEs should not be underestimated. To reverse it, Mr Jones argues, the government must offer certainty and clarity in planning legislation over the long term. “One thing [government can] do is say this is a one-and-done for this parliament, and then that will provide the certainty so that people can start to plan ahead.”

Mr Jefferson points out that a lack of capacity within the planning system itself is another major issue holding back SMEs. In the Autumn Budget, the chancellor said that the government will provide £46m of additional funding to support the recruitment and training of 300 graduates and apprentices into local planning authorities.

Neil Jefferson, chief executive, Home Builders Federation and Richard Jones, partner, Arcadis

Sectioned off

Another part of the planning system in need of urgent reform is Section 106: the planning rule that requires developers to include at least some affordable housing within major private developments. The number of affordable homes delivered via this route has fallen recently. Landlords have expressed concerns about their lack of control over design and specification during the build process, as well as issues with housing quality.

“We will not buy Section 106 where we have had no control over the build quality,” says Tom Titherington, chief investment and development officer at housing association Sovereign Network Group. “Why would we? I think that’s part of the issue.”

Mr Jefferson believes there is a significant amount of new affordable housing waiting to be unlocked through better use of Section 106 provisions. ‘‘There’s no doubt that under this model, we’ve reached a position where there are tens of thousands of homes around the country being held up either because of a lack of capacity or appetite, or whether it’s to do with… the quality agenda. It needs to be thought through,” he says.

A new funding model could be part of the answer, says Vicky Savage, executive group director of development and sales at L&Q. She suggests financing Section 106 purchases with a returnable subsidy, funded by institutional capital or directly by Homes England. “We do need to be more innovative,” Ms Savage says.

But, she also warns, social rent must not be forgotten in the types of affordable housing delivered in this way. “One in 23 children in the capital city are in temporary accommodation every night,” she says. “Section 106 needs a solution, but that solution is not to take them out of social rent. I think that would be a very dangerous precedent to set.”

There are other issues holding up construction that even a radical planning overhaul simply cannot address. “It doesn’t matter how many more planning permissions you get; if you haven’t got the right resources to support that, you’re never going to deliver more housing,” says Mr Jones.

Amy Shaw, partner, Trowers & Hamlins and Professor Stanimira Milcheva, director, Affordable Housing Hub, University College London

The Construction Industry Training Board has estimated that an extra 152,000 workers will be required in England alone to meet the government’s 1.5 million homes target. “Even if we have planning consents, even if we have all the cash, my understanding is we just don’t have enough skilled workforce to deliver the numbers of homes,” says Ms Shaw.

And it is not just more skilled workers that are needed. If the government really does want to deliver a step change in social housing development, then just tweaking the planning rules is not going to cut it. The most impactful way to deliver more affordable housing, perhaps unsurprisingly, is funding.

“The planning changes are welcome and necessary. They make a statement about being, theoretically, pro-development,” says Mr Titherington. “[But] much of the ability to develop is not about the planning system, it’s about the funding system. The whole development ecosystem is addicted to public finance. It doesn’t work without public subsidy.”

Subsidy is crucial, says Stanimira Milcheva, a professor in real estate finance at University College London and director of the university’s Affordable Housing Hub. That is particularly true when economic conditions are not conducive to large-scale private development – as is the case today. If the government wants to keep building at scale, it will have to be willing to step in when the market will not act.

“This is an opportunity to think about counter-cyclical housing supply, and mechanisms for housing associations to develop when no one else wants to develop,” Professor Milcheva says. “We need more funding for precisely the periods when no one wants to develop, so that we can provide supply when it’s most needed.”

To boost social housing delivery in particular, Professor Milcheva argues, an increase in government grant is inevitable. “It’s just not financially viable for private investors to deliver social rent unless there is a subsidy,” she says. “It’s crystal clear: without more subsidy, we will not be able to deliver more social housing.”