Joanna Averley the Government’s new Chief Planner in waiting (who will be replacing Steve Quartermain in September this year) has said “We have many challenges to address over the coming months and years – how we meet the needs of our communities in delivering good quality homes in neighbourhoods, underpinning the economy and jobs, delivering sustainable patterns of growth, addressing the climate crisis and adapting to the realities of the pandemic and its consequences…Planners have a vital role to play”.
What has become clear from the recent lockdown is that the success of the construction and development industry is critical to our future economic growth (construction sites were among the last to close in the lockdown and first to re-open on the easing). What is also becoming apparent from the recent Covid19 crisis is that a number of companies responsible for the success of the development sector will experience financial difficulties in the months and years ahead.
Central and local government has instituted some impressive changes to the planning system at lightning pace during the COVID-19 crisis including:
- Online planning appeals and enquiries;
- Online planning committees to determine planning applications (albeit there are complaints regarding threat to the democratic decision making process);
- Changes to permitted development rights were introduced in April (which will continue until the 31st of December 2020) were made to allow local authorities and health service bodies to carry out development, both works and change of use, of facilities required in undertaking their roles to respond to the spread of coronavirus, without a requirement to submit a planning application;
Further Changes Proposed
As a consequence of the lockdown and the closing of development sites concerns were raised regarding the obligations upon developers to continue to meet their financial obligations to make payments arising under section 106 planning agreements (“planning obligations“) and Community Infrastructure Levy (“CIL“) payments which would have been triggered upon commencement of development, even though development could not take place and future development is subject to ongoing restrictions.
Changes before parliament propose amendments to the CIL regulations to give local authorities a discretion which would allow a deferral of CIL payments and to disapply the late payment for small and medium sized developers (with an annual turnover of less than £45 million). This reprieve is not extended to large developers.
The Covid 19 guidance encourages (rather than requires) local planning authorities to use the existing systems and effectively to look the other way on CIL enforcement and late payment interest (i.e. by exercising their discretion not to enforce or charge). Similar encouragement has been voiced by the Government for relaxing working hours restrictions on development sites.
Given the way in which CIL legislation is drafted (more akin to tax legislation) there is little room for flexible application of the CIL requirements and there appears little appetite from central government to undertake a wholesale review.
The Government has also announced further changes to extend the life of planning permissions. The period for implementing planning permissions which would have expired between the beginning of lockdown on 23 March 2020 and 31 December 2020 will be automatically extended such that they can be implemented until 1 April 2021. These changes are anticipated in the proposed Coronavirus Recovery Bill.
Hoped For Changes
Other changes being considered and being requested by those vested in the industry are:
- Potential changes to allow for speedier development of Keyworker housing; and
- Calls for further extension to permitted development rights (which would permit changes between use of classes without requiring express planning approval) to be extended from particular uses (such as retail and leisure hotel uses to other potentially more viable uses);.
A key determinant of the speed of any rebound for construction and development projects will be the question of whether those development projects (whether undergoing construction or in the pipeline following grant of planning permission) remain “viable” in these uncertain times. Viability accounts not only for things such as existing land values, construction and labour costs but it also looks at forecasted sale values and perceived risks associated with the development (which most people would agree, at least for now, as having increased). Changes of the magnitude presently experienced is likely to have an immediate short term impact, if not medium to long term as well on viability. As things presently stand, there is little opportunity for a quick review of Viability to assist immediately with developments which are facing immediate peril.
In the event that a planning permission has been implemented there is little that the developer can do to require a planning authority to review the fundamental question of whether development sites remain viable, which is effectively a question of whether the scheme can still be built out/completed in the current economic climate and produce the returns required. Financial viability assessments are commonly used to inform affordable housing and other planning obligation requirements (commonly provided for through the use of a section 106 agreement). Part of the solution may therefore require the viability of schemes to be open to review and to provide an entitlement for landowners/developers to request such reviews.
As matters stands presently, unless the planning authority agrees, the requirements contained in a section 106 agreements (which will impose a financial cost to the development) can only be reviewed after 5 years has elapsed from the date of the agreement. An alternative is for the developer to re-submit a fresh application and appeal on viability grounds, with the resultant costs, risks and delay associated with such process. At present the government is simply encouraging planning authorities to use their discretion and as such the future of development projects with viability concerns is a postcode lottery.
Manchester City Council has acknowledged the viability concerns and has already reported to its Councillors that “the impacts of the new economic landscape on the viability of development” is such that planning obligations may need to be collected when developments are completed “rather than captured up front”.
In the current climate many sector are suffering economically and that includes local authorities, who will therefore be extremely reluctant to pass up on potential contributions which were previously secured and which may be budgeted/accounted for in future/ongoing projects. There is also the view that we need to wait and see whether there is a V shaped bounce back which may make such wholesale changes redundant. The unrelenting competition for funds between local authorities (tasked with improving the position for their local residents) and landowners and developers (who can and will only develop out schemes which are viable) will mean that centrally led direct legislation is likely be required to enable developments to proceed which may otherwise be hampered under the current economic conditions in the short term. Many industry experts have forecasted severe reductions in projected household completions this year. This should sound some concern to the government to spur it into taking more substantive action.
Absent, appropriate developers returns, financially challenged developments may be delayed if not entirely shelved. A major review of the fundamentals underpinning the planning system may be considered too difficult in the current climate but the consequences of a failure to do so and a failure to provide an appropriate mechanism for developers to require local authorities to undertake viability reviews may leave a major stumbling blocks in place. If the the government believes that there is sufficient threat to delivery of development projects in terms of its viability it may do something more fundamental. Rumours in the planning press would suggest there may be some significant changes to the planning system in the pipeline.