Planning Reform: Does the National Planning Policy Framework serve SMEs?

28th February 2023

An abridged version of this blog post was originally published by the RTPI

Among the core objectives of the Government’s current planning reforms is the aim to ‘place local communities at the heart of the planning system.’ They said as much in their press release of 5 December 2022.   

But exactly which communities is the government placing at the heart of the planning system? Are they the ones that already live there, or (the ones that planning should be advocating for) the ones that will live there in the future? And will this policy shift help the Government meet its other stated aim – from their 2019 election manifesto – to build 300,000 houses a year by the mid-2020s?

Much has already been written about the likely impact of the increased protections afforded to areas designated as green belt as part of the proposed National Planning Policy Framework (NPPF) changes, and the likely impact of this on housing delivery, this blog is focussed specifically on Community Development and developers that are Small or Medium Enterprises (SMEs). 

 

What’s the problem?

There has been a consistent failure from local authorities across the UK in hitting the 300,000 new homes a year target set by the government. 

A target that hasn’t been met since the 1970s.

Read more in our Housing Delivery Test data-deep dive here.

Research by Laing O’Rourke and Cambridge University suggests that approximately 60% of houses built in the UK are being built by just 10 companies. It also shows that the number of SME developers is in decline – dropping by 65%. 

The government recognised a link between the fall in housing delivery and the decreasing amount of SME developers. As a result, in the 2019 revision of the NPPF, they worked to encourage delivery by SME developers, and in turn, diversify supply. 

The theory here seems to be that a large number of small allocation sites may be able to deliver houses at a quicker rate than a small number of large allocation sites. The NPPF suggests that 10% of the total allocation of dwellings in a Local Plan be within smaller sites (<1ha). The changes to the Framework that are currently being consulted on retain these provisions.  

So, has this worked? In short, no.  

We pulled planning application data from LandInsight – taking a straw poll of local planning authorities (LPAs) that had adopted local plans since the requirement for small sites was added to the NPPF. 

We then compared this data with a control group of LPAs that hadn’t updated their local plan since before 2019. The aim was to test whether the requirement to allocate 10% of dwellings within sites of under 1ha would increase dwelling delivery on these smaller sites. We didn’t find any supporting evidence. 

developers-on-site

Not only does it seem like the requirement proved ineffective, but it also appears to be unpopular with the property community. 

At the recent RTPI Policy Round Table events related to the NPPF review, several individuals called for the small sites provision to be removed from the Framework. They saw it as an unsuccessful attempt to create a turnkey solution to a problem that isn’t consistently experienced around the country. 

So if allocating housing on small sites is shown to be an ineffective way of supporting SME developers, what can be done instead?

First, though, let’s look at some of the challenges that need to be overcome. 

 

What are the challenges?

The 2018 Letwin Report documents many of the challenges which have prevented housing from being delivered at the rate it is needed.

More recently, research undertaken by the HBF highlighted some of the key challenges felt by developers related to supply chain and workforce restrictions. SMEs tend to feel the brunt of these issues as they often don’t have the breadth of work or range of sites to ensure a more regular supply of materials and labour.  

The HBF reported that "48,000 vacancies in the construction industry were recorded between April and October 2021. In the same period, 53% of SME builders said that they were struggling to recruit carpenters and 47% said the same about bricklayers.” 

This problem isn’t going to resolve itself organically either, the same research suggested that the industry is struggling to attract younger people to the trades, currently, 35% of the workforce is over 50, and only 20% are below 30.

low-shot-of-cranes

Now, these aren’t challenges that can be easily overcome by a change to planning policy. Instead, there needs to be a rethink of the current situation regarding the movement of goods and people with our nearest trading partners. But that’s beyond the scope of this blog.

The planning system comes under frequent attack for its overly complex (and under-resourced) approach to delivering new homes. 

Unfortunately, reform needs political capital, and extra resources need money. Neither of which are in ample supply in Westminster currently. 

The final challenge preventing SME developers from delivering housing (as identified by the HBF and our own customers) is getting access to funding. 

 

What are the solutions? 

The revised NPPF makes very little reference to providing explicit support for SMEs or Community Developers. Instead of looking to futureproof the supply of new communities, it focuses primarily on supporting communities which already exist.

Further watering down of the housing delivery requirements will make it harder, not easier, to get planning approval – particularly in areas constrained by large swathes of Green Belt land. Businesses across the construction sector will feel the blow of these changes, but none more than SMEs. 

Litchfields recently estimated that the planning reforms have cost the economy around £1.4 billion in GVA, and LUC estimated that £800 million in CIL payments and £2 billion in affordable housing payments will now be missed out on as houses don’t get built. 

On top of these reform-related delays, the NPPF changes will restrict housing delivery both on the edge of settlements, where it is easier to build, and in the middle of settlements (where it may be most sustainable to build at density (near existing services and transit) but where such developments can now be resisted as being ‘out of character’.

 

Can we do better? 

Planning is a subjective and nuanced profession, which is partially why it has resisted automation for so long. But does it have to be quite so subjective? The current legislation (Section 38 of the PCPA 2004, para 2 NPPF 2021) provides that if ‘material considerations indicate otherwise’ then the provisions of a Local Plan can be set aside.

This creates a lot of scope for subjectivity in the system, which is great if the system allows time and resources for proper contemplation of an application - but that’s not where we are. If we can’t find additional resources we have to be smarter about doing more with what resource we have. 

Work is being done overseas to write policy that is machine-readable – enabling a more streamlined and unified interpretation. This digital support (rather than replacing the human planner) can be applied to the post-approval stages too. 

Litchfields’ much-cited report on delivery, Start to Finish, shares that the time taken for a site to go from approval to delivery typically takes two years – which for sites under 500 dwellings is a similar timeframe to getting planning permission initially. 

twlight-cityscape

Speeding up the condition discharge process is therefore something that would disproportionately assist SME developers and those delivering smaller sites while speeding up delivery across the board. 

It needs to be easier for SMEs to access development finance so that at least one hurdle to delivery can be overcome. The rising build costs and increase in interest base rates, mean that development appraisals are being treated to an extra level of scrutiny.

There needs to be a smarter and faster way for developers to consistently present their sites to prospective lenders. LandFund, LandTech’s development finance arm, has been working for over a year to make it easier for developers to secure funding and create industry-standard development appraisals. 

Finally, the most straightforward way for the government to boost housing delivery from SMEs (at least in the meantime, until the other changes come through) is to provide proper funding for the system we already have in place.

Allow LPAs to compete with the private sector for the best talent by paying them comparable wages, and in so doing reduce the public sector’s reliance on agency staff and consultants and make it cheaper and easier for us all to get permission for the developments that we need to build! 

Harry is our Head of Research & Insights and with 12 years of experience in the planning sector (and in multiple places across the globe), he's perfectly placed to help untangle and demystify the often complex world of planning.