Executing a development plan requires navigating policy changes, leveraging data science, and optimising costs in an inflationary construction environment, writes Tyler Goodwin
Here in the UK, there is a general perception that with elections come promises of planning policy reform. Promises by Labour and the Conservatives are certainly no different and so have generally fallen on deaf ears. Until now.
On 13 February, Michael Gove, secretary of state for levelling up, housing and communities announced a change to a little followed policy referred to as permitted development rights (PDR) that has the potential to deliver millions of square feet of new housing quickly and – perhaps in the most sustainable manner possible – through the conversion of vacant offices into residential.
Planning reform takes time and it is rarely popular to local ‘not in my back yard’ (NIMBY) residents that are affected. This helps to explain why, despite an urgent need for housing, there is a reported 4.3m backlog of homes needed across the UK. Even despite this backlog, residential development research firm Molior London reports that housing starts are down 74% on a decade ago.
This lack of supply has driven rents up an average of 13% over the past two years in Central London at a time when renters dominated by Gen Z and Millennials are expected to grow from 54% to 68% of office-based employment over the next six years.
The PDR policy is a unique form of deregulation. For the past 10 years, residential developers have seen rising ‘policy inflation’ that, when combined with higher borrowing and construction costs, have forced developers to stop building. Traditional planning routes can require 30-50% affordable housing with controls over unit mix and can still take years to secure approval. The PDR route, while complicated to understand, can for qualifying sites give developers the right to start construction of housing within two to three months and without any requirement for affordable housing, a prescribed unit mix or other traditional restrictions.
Historically, PDR has delivered substandard housing and been a thorn in the side of councils. But past behaviour does not dictate future solutions. Seaforth Land has for the past 12 months invested thousands of hours developing an innovative new institutional asset class to deliver quality, cost-effective, sustainable, profitable and impactful no-frills rental housing designed to suit the needs of institutional investors looking for a scalable pure-play Central London residential income strategy.
There are millions of square feet of office buildings across London – and indeed the UK – that could potentially be converted into residential if they were vacant. Like other cities, London’s B and C-grade building values have suffered with sky-high vacancy and free falling values. Thanks to Gove’s announcement, we can see a higher and better use for these buildings that help meet housing targets while reducing the vacancy in the office market.
Of course, development is never simple. The strategy relies on navigating the new policy, leveraging the great work of our data-science team, while squeezing out inefficiencies and economies out of procurement and delivery amid a well reported inflating construction cost environment. But after years of believing that planning reform is coming, this is the first time this developer has seen it delivered.
It is incumbent on us all as developers and investors to show that, when public policy is commercial and is so clearly designed to call on the private sector for help, we are there to respond and, by doing so, perhaps we contribute to further policy reform and public-private partnership.
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