Unblocking the housing pipeline in the UK

For many years, the planning regime has been the scapegoat for the repeated failures to meet housing targets. This, in turn, has seen successive governments setting out to rewrite the planning rules, making the regime quicker, simpler, and cheaper. The current government is no different.

Much has been written about the changes introduced since the election, presently under consideration, or promised in the near future, including the revised National Planning Policy Framework, the Planning and Infrastructure Bill, and reconsideration of the correct approach to land value capture. Many within the industry have taken comfort from the potential of this tapestry of reforms to deliver more housing, be that as a result of a more demanding approach to housing targets, or significant shifts around the approach to development in the green belt.

However, for now, and for some time to come, potential is largely all there is. The development process, including the planning stage, is an inherently lengthy one. Even once all the reforms are in place, it will take time for them to impact on the speed and nature of planning decisions, and even longer for that to translate into homes ready to be occupied. Notwithstanding any other challenges, it seems unlikely that the planning changes we are seeing now will come fast enough to ensure accelerated delivery of the kind the government hopes to see.

And this is compounded by the fact that there are most certainly other challenges.

If you speak to any developer of tall residential buildings, discussion is likely to turn to the Building Safety Act 2022, and the challenges the gateway system is causing to the delivery of residential development. While fire safety is undeniably of critical importance, frustrations abound about the significant delays in securing Gateway 2 approvals, which frequently exceed the stated 12-week timescale, with stories of it taking five times as long as that to secure a decision in some cases. This, combined with the lack of clarity about how the regime should be applied to more complex cases, means the process is providing a great deal of uncertainty both in terms of timescales and whether, indeed, the relevant approvals will be granted at all. As we know all too well, the last thing the development industry needs is more uncertainty.

And all this even before most projects have had to grapple with the requirement of Gateway 3. It's understandable, therefore, why there have been calls from many for the regime to be reviewed, and the government has just announced wide-ranging changes to the Building Safety Regulator, including the introduction of a fast-track process and new investment. It is hoped that these changes will speed up the process of getting the necessary approvals under the 2022 Act.

Over the past few years, the UK rate of inflation has had a major impact on construction costs. It is hoped the rate of inflation will now stabilise. However the damage has already been done for many developments.

Due to the component elements of construction costs, the residential development sector has been particularly hard hit by high inflation. The lengthy lead time for developments, coupled with the often lengthy build programme, makes it difficult for suppliers, contractors, developers and investors to take a view on the risk of escalating costs and changes in inflation. Where once people could be relatively certain of periods of stable inflation, many will argue that those days have passed and the risk needs to reflected in the financial assessments and prices for all parties involved.

In addition to the inflationary pressures on development costs, there is also the availability and certainty of the supply chain. Recent geopolitical events have reduced the certainty of availability of products and materials. With funding pressures on programmes, delivery certainty of the supply chain is critical. The impact of delays for one aspect of a development can have catastrophic effects on the overall scheme.

The UK does not have the same access to an extensive labour market that it previously enjoyed. Despite the perception of some, the development industry is made up of a multitude of highly trained trades and professions. Contractors and developers alike need to retain the skilled labour that they have on projects, and any pauses or delays in construction programmes can result in losing this skilled labour to more certain developments. Once again, we see what would have been a temporary pause potentially turning into something far more serious for the overall delivery. This challenge also plays out on a macro scale — long- term dips in construction around the country can result in those workers with the flexibility to do so relocating to countries where there is far more employment stability, and also dampens enthusiasm for these kinds of roles among those starting out on their career paths.

There are various apprenticeship and skills enhancement programmes being made available for the new generation of construction workers, but in order to provide sufficient numbers, and therefore more certainty, these will need to see rapid and substantial acceleration.

High interest rates have heaped further pressure on viability appraisals following a sustained period of low borrowing costs. Capital markets have been put under pressure from various events making access to funding difficult. The increased funding costs apply additional pressure to any programme delays or uncertainty, with prolonged and unexpected hold periods being potentially catastrophic for any scheme and developer. The leverage model is obviously still hugely beneficial for developer returns if the right funding is available at the right price.

Both sides of the financial equation are under pressure. The increase in the cost of living that everybody is feeling has an impact on confidence and the appetite to take on the responsibility of the cost of a new home. In order to secure the most preferential mortgage rates, borrowers must have a substantial deposit, which is difficult for many people to achieve. Higher interest rates have deterred many potential purchasers given the impact they have on monthly expenditure.

Reducing the purchase price would alleviate one of the barriers. This could be achieved by central government and other key stakeholders reducing the cost of complying with planning obligations and contributions. The cost of delivering affordable housing is having a substantial impact on the price of housing. This could be alleviated by affordable housing being provided by the government. The additional benefit of this is certainty of timing of delivery with the government not having to wait for developers' schemes to come forward to deliver the affordable housing element. The government is trying to address the issue of delivery with the announcement of a new 10-year plan to build 300,000 new social and affordable homes, showing a clear intention to take action and deliver on its election promises, although whether this goes far enough remains to be seen.

Developers also provide items of infrastructure outside of planning obligations that have a positive benefit for the wider community. Developers' proposals for these could be evaluated and if they are confirmed as benefiting the wider community they could be funded by public sources.