Paul Smith is the Managing Director of The Strategic Land Group, an independent land promoter. The views expressed in this article are those of the author and do not necessarily represent the views of PricedOut.
One of the ways that we can address our housing supply crisis is by increasing the density of our towns and cities. As the Financial Times’ John Burn-Murdoch recently pointed out, only 20% of homes in the UK are apartments, far below the OECD average and lower even than the 28% of homes in what we are told is the sprawling car-topia of the USA. London’s urban core has about 3,500 people per square kilometre, about half the number of Barcelona and Copenhagen.
Increasing density doesn’t just mean building more high-rise apartment blocks. Although that would certainly help, we’re reasonably good at it already, but our high rise blocks quickly disappear in favour of low density suburbia. The missing component is mid-rise development – the four- to seven-storey apartment blocks – that make European cities like Paris and Vienna so beautiful – that should surround our inner urban areas.
This “gentle density” can increase the number of new homes in a way which maintains a human-scale character. We can all point to examples of low-rise, often old, housing and shops near tube or tram stops, railway stations or town centres – places that could readily support new mid-rise development.
So far, so uncontroversial. The challenge is how this can be achieved. Doing so isn’t about building on large, derelict industrial sites (of which there are very few, if any, in our most expensive towns and cities). It is about replacing existing development – usually existing homes. Yet half of our suburbs have delivered an average of just one new home a year over the last decade. The interaction between the commercial realities of development and the planning system make this type of development extraordinarily difficult since the costs to a developer – in terms of both time and money – of securing a suitable site are high, whilst the certainty as to the outcome of any planning application is low.
Land within urban areas already has a value for its existing use, which can be very close to its value as a development site – especially if it is an existing home. Owners typically expect a premium on that existing value to reflect the costs and inconvenience of moving, and to entice them to leave a home they may have a strong emotional attachment to. The price needs to be high enough for the owner to sell, but not so high that the project becomes unviable.
Even if it is possible to agree a price with a landowner, suitable sites will rarely be in a single ownership. More commonly, sites need to be assembled from two or more adjoining properties. Agreeing terms with multiple landowners – often homeowners with no experience of the land market – to buy their property is difficult and time consuming. Each owner wants to make sure they are fairly compensated and that they get at least as much as their neighbours, if not more. Just like it’s harder to agree on a restaurant for dinner as your group of friends gets bigger, it is much harder to agree terms to buy a site as the number of landowners involved increases.
All that work is being done without having much certainty as to what you might secure planning permission for. Beyond vague assertions that new developments should “reflect the local character” and perhaps a prohibition on development on back gardens, local authorities typically have few policies to guide developments like this. A pre-application meeting might give an indication as to the possibility of success, but the advice provided is not binding – officers are free to reach a different conclusion once an application is submitted and they have responses from other consultees and members of the public.
The only way to find out for sure if your scheme will be supported is to submit a planning application – which is very expensive. Even if it seems obvious that a four- or seven-storey apartment block would fit in well, the inevitable objections from existing local residents can soon change the political calculus. Without clear rules, our discretionary planning system makes it all too easy for applications like this to be refused.
In all businesses, greater profit margins are needed to reflect greater risks and home building is no different. The anticipated profit developers include in their financial appraisals is effectively the margin for error. Developers need either to have the financial flexibility to make changes to their design if the planners demand it, or to make enough profit on the successful schemes to offset the substantial losses incurred on projects when planning applications are refused. That reduces what developers can pay for assembling the land and reduces the number of sites that are commercially viable as a result.
While those principles are true of almost all development proposals, planning application costs don’t increase proportionately with scheme size. The planning costs per home can be much higher for smaller schemes than for larger ones. Sites that suit a gentle density approach are typically small and therefore most suitable for SME developers – who are less able to absorb the losses from failed projects. And when it is so difficult to assemble the site in the first place, why bother even trying? It is much easier to look for larger ownerships – whether greenfield or brownfield – to simplify those negotiations. Our planning system encourages a “go big or go home” mindset. It is no wonder that the industry is dominated by a few small players, they’re the only ones who can afford to play the game!
The way to cut through this problem is to increase certainty for the developer. Make it easier for them to assess what they are likely to secure planning permission for and everything else – financial appraisal, raising funds, negotiating with landowners – becomes much simpler too.
Design codes offer a solution. They are a way for local authorities to set rules for what development will be allowed in a given area. They don’t fix architectural styles but set the parameters for the “building envelope” that will be acceptable. For example, they could say that development should be between three and five stories, or that buildings should be set back at least two metres from the pavement. Compliance with guidance is subjective – it can sometimes be difficult to determine what the “existing character” of an area is, let alone whether a proposal is “in keeping” with it. In contrast, design codes are measurable and compliance is therefore a matter of fact.
By setting clear rules, design codes make it much easier for developers to be certain what type of development will be approved. That increased certainty reduces risk – and lower risk development is always a more attractive proposition. It also shows developers which areas they should focus their land buying efforts on. Without needing as large a margin for error, developers will even be able to afford to pay more to acquire sites, increasing the pool of landowners who might agree to sell.
Once the Levelling Up and Regeneration Bill becomes law, design codes will become mandatory across the whole of a local authority area. That is a positive step, but it doesn’t automatically follow that authorities will use codes proactively to increase the amount of development. To encourage planning authorities to do so, they need to be allowed to take account of the increased supply of new homes they can deliver in this way.
For example, if a local authority used a design code to say that five-storey development would be allowed within a defined zone near a suburban train station, they should be able to assume that a proportion of that development will actually come forward during the plan period, and to include the resulting extra homes in their forecast housing supply. That will help councils plan to meet their housing need, and potentially to reduce the number of development sites they allocate elsewhere in the borough. It allows planning authorities to better consider the trade-offs between growing up – through increasing density – and growing out – through greenfield development. Of course, using design codes in this way puts a greater burden on planning departments, who will need to be properly funded to do so. This would be a worthwhile investment – local authorities would still get to plan growth and direct it to the areas they considered most suitable, but developers would get the certainty they need to deliver gentle density.
In time, with design codes embedded into our planning system nationally, even more certainty could be provided by making proposals which comply with design codes permitted development – so that they wouldn’t require planning permission at all.
Delivering mid-rise development isn’t the only way we’ll tackle our housing supply crisis. To do that we need new homes of all types, tenures and sizes, including new low-rise suburbs. But it is a critical piece of the solution, and something that we currently struggle to do. That doesn’t mean it is impossible though – as so often, the answer lies in thinking about the behaviours our planning system encourages, and how we can change them. The solutions are often simpler than you might think.
