PLG – Delays to planning reform pose threat to the housing market

In the first PLG market report released last month (Link here if you missed it), we asked a number of agents for their take on what is really happening in the housing market. With Halifax reporting that the average national house price soared by 7.3 per cent in September, the latest of several national indices to confirm this trend, we wanted to find out whether this was being seen by ‘local’ agents.

Justin Dodge, director of Westcountry Land & Homes, a specialist land and property developer in the South West, offered such a detailed account of what he is seeing on his patch that we thought he deserved its own guest blog. Over to you Justin….

Is the ‘new normal’ actually permanent?

This is not like any recession or economic downturn we have seen before. With Covid-19, there is no definitive timescale, making it harder to work out how to navigate the short-term future. Or is this ‘new normal’ actually permanent? Swinging in and out of lock-downs, national or local forever more if they can’t deliver a vaccine?

In the short-term, we remain optimistic. If the planning system becomes easier, land values are likely to fall. The first changes to permitted development rights and use classes have already been introduced, allowing certain building works and changes to use to be carried out without a planning application. However, this has been hotly-contested and was immediately challenged by judicial review, with all such development on hold pending the outcome. If the challenge is successful, the proposed changes won’t come into force or will require substantial revision.

In the meantime, this is creating yet more delay and uncertainty just when we need a stable planning system. This is important for the economy as a whole.

My fear is (and it is highly likely) that more radical reforms, such as the interim measures the government announced encouraging SME developers back into the planning system by allowing smaller schemes of up to 40 – 50 units to come forward quickly and without off-site S106/CIL contributions and with no on-site affordable housing) will also be challenged.

We are concerned these prospective changes make the planning system more unstable and less predictable at a time when we need certainty and dependable policies the most. This is a national challenge, as these are national policy changes that are being proposed.

Reasons for optimism

From the perspective of our business, in the short term we remain optimistic for several reasons: 

  1. If the planning system becomes easier, land values are likely to fall. There will remain a shortfall of housing land in our area for the foreseeable future. The lack of such sites inflates land values and therefore maximises our return.
  2. The stamp duty holiday is assisting sales, although the downside is that this is likely to have an impact on the housing market/sales when it comes to an end.
  3. The desire to move out of the main cities to the suburbs or rural areas is helpful for developers like us. The UK housing market has always focused on what’s been happening in London and the South East, and filtered out from there. Coronavirus looks like it is here to stay for the foreseeable, resulting in the death of the office environment as we knew it. Those who can afford to may choose never to travel on public transport ever again. For the first time in our lifetimes, we could see a depression in the London housing market, while other areas experience significant growth. This may paint a picture nationwide of a reduction in average prices because London values are so inflated compared to other parts of the country that a significant fall there would have a big impact on national figures. But it may be good news for the South West, and in particular our core area of Devon and Cornwall. The virus has had and will continue to have a positive influence on property values and desirability in the South West, while other areas take a hit. Such is the small amount of housing land coming forward in our area, this will inevitably maintain a strong housing market here.

Looking beyond the capital

Of course, the national PLC housebuilders who control the UK’s housing market won’t want to see SME developers coming back into the market, as the latter will show-up the standards of the former’s housing stock. Moreover, they wish to dominate market share of housing delivery, as they always have, so I suspect they will oppose many planning reforms as they won’t be in their interests.

Furthermore, their boards are generally based in London so their experience of the property market on their doorstep will colour their decisions nationwide. They are unlikely to see the opportunities that we see in areas like the South West but will take a more ‘national’ view, traditionally based on the South East.

We have already seen many land buyers and strategic housing land employees laid off by the  national PLCs and when furlough unwinds, I fear more will go. However, this represents an opportunity for smaller developers like us. If the proposed planning reforms are passed, there are reasons to hope that the UK’s housing market will become a bit less London and South-East centric then it has been in the past, chiming with a trend the pandemic has already started.