Ahead of July's general election, Richard Nowell, Senior Relationship Director at Secure Trust Bank has his say about planning processes, why local authorities need bolstering, and how banks can help developers.
Is it better the devil you know? That must be the question facing many real estate developers ahead of July's general election when they need to decide who they will tick on their ballot paper. Whether it will be Conservative, Labour, or otherwise, the next government has a tall order to bring confidence back to developers, given the many challenges those in the real estate development market are having to overcome in order to get their projects over the line.
There are many issues to overcome, from applications being batted back and forth, long waiting times for planning documents to be reviewed by local authorities, or uncertainty resulting from contractor insolvencies, building regulations, and inflation. Faced with so many agenda items to address and when so few get resolved, it begs the question, where to begin? If an elected government could resolve one issue to get the wheels turning it must be to make it as simple as possible when it comes to planning.
Indeed, besides the above issue, there are others to solve, including affordable housing and energy efficiency, and the government has a big part to play in all of this, as does the rest of the industry. If you were to ask for my key recommendations to the next elected government and property developers, they would be:
1. Simplify the planning process
Without doubt, one of the biggest challenges facing developers is the lack of clarity around knowing how their planning application might be reviewed, when it will be reviewed, and what the outcome might be despite frameworks in place. It's no secret that planning applications and decisions take far too long now, and this has been the same story for many years. A long, drawn-out process is not doing any favours to developers given the time and cost it takes to put a planning application together and it dissuades developers from doing business in the UK.
To put this under the spotlight, I was interested to read one of the key findings in the Home Builders' Federation's latest survey, the 'SME State of Play Report', published in January 2024. This was that 93% of SME housebuilders surveyed said delays in securing planning permission are a major barrier for growth. Another point highlighted by the report was that nearly half (46%) of SME developers said the cost of obtaining planning permission has risen by over 30% in the past three years. This was even before December 2023's planning fee rises were implemented.
The problem isn't just specific to England either. In Scotland, processing times for major developments are now taking more than a year on average, and planning applications statistics were branded "woeful" earlier this year by sector body Homes for Scotland (HFS). There was a significant drop of 41% in the volume of applications for major housing developments in the first two quarters of 2023/24 fiscal year, compared to the same period in the year prior (April 2022 to September 2022).
Besides long planning applications, there is also much confusion around who holds the final say on developments going ahead. One high profile example being a 1,000-unit scheme in Reading proposed for the current Vastern Court. Aviva, which is behind the scheme of four tower blocks that will deliver residential, office and commercial space, has already had to appeal against the refusal of the planning application from Reading Borough Council. Subsequently, the planning application has been granted by housing minister Lee Rowley on behalf of Michael Gove. However, there is still much uncertainty around the scheme, as Reading Borough Council now might appeal against this decision itself, and take it before the High Court to rule.
All of this points towards a much too complex planning process in the UK. There are new proposals on the table from the government, such as the ten-week application determination deadline to accelerate major commercial applications, which could yet be rolled out to housing. This would need to be acted on fast to help housebuilders of all shapes and sizes to solve the housing and development crisis.
2. Boosting local authorities' planning departments
A second recommendation therefore is to increase the headcount at local authorities' planning departments. Quite simply, local authorities are overwhelmed and the backlog in their planning departments and this is causing developers' projects to stall, even after planning consent is approved. For example, local authorities are not approving pre-occupation planning conditions quickly enough, and when projects are 'live' with contractors waiting to be given the go-ahead, this can be a significant time and cost drain on developers.
We have already seen the likes of St Albans City and District Council given £100,000 grants from the government to help clear the backlog in recent months. Meanwhile, in its Housing Reform pledge from October 2023, Labour is proposing to recruit hundreds of extra planners in a 'sprint' to agree new plans, as announced by the Shadow Chancellor. How this will be delivered practically is still yet to be seen, but certainly, it is a necessity for developers and local authorities who will be keen to avoid properties taking longer to go through the planning process than necessary.
Going back to the HBF's report, nine out of ten (91%) housebuilders say planning departments in local authorities are under-resourced, which is hindering growth of SME home builders. This is a very high percentage and it's clear that less talk and more action is needed to support local authority planning departments.
3. Evaluating the risks appropriately and working with flexible lenders
Without doubt, it is one of the trickiest times for a developer, and so there must be close collaboration with lenders to ensure projects that do get given the go-ahead have the best possible chance of success, and to be profitable. Lenders like Secure Trust Bank Real Estate Finance have a strong track record of working with developers when unforeseen circumstances happen, such as weather impeding construction progress, contractors going bust, building regulation changes or inflation changing the financial situation for developers.
Quite often, preparing for a bumpy ride just means extending the term of the loan to avoid the risk, but understandably, not all developers can afford to extend the term. Hence, it's important that developers inform lenders of difficulties they can see early, staying in close contact, as often a solution can be found, and it saves developers any additional stress. This is where lenders like Secure Trust Bank Real Estate Finance can provide the necessary guidance and risk assessment.
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