Can SME developers still prosper after Tory NIMBY sell-out?

The housing crisis has only deepened with the ditching of the mandatory housebuilding target. The National Housing Federation estimates that 340,000 new housing units are needed each year to provide adequate housing for families. The UK is falling significantly short of that number annually. Now, the government has made it even more notional after abandoning its “mandatory” housebuilding target of 300,000 units a year for an “advisory” target.

While the mandatory target had no teeth, it did at least provide strong signalling around the government’s intentions. The anticipated lack of pressure from central government will allow local authorities to take a more relaxed approach to granting consents and, in the worst-case scenario, will allow the more NIMBY councils to steadfastly oppose new housebuilding.

Given that 96,000 planning decisions were made in the first quarter of the year and only 84,000 schemes received consent, this is terrible news for the sector. Throw into the mix the ending of the five-year housing land supply (5YHLS) rules, arguably the most significant change announced, and the outlook is even more bleak.

As it stands, planning officers and council officials must ensure that a council has a 5YHLS as identified by their local plan, SHLAAs and other local policies. It is very difficult for a council that comes up short of this to successfully oppose a developer’s proposals, subject to a series of typical constraints.

Taking away this enforcement makes it harder for developers in the planning process to obtain consents and removes a key incentive for planning officers to work with housebuilders to get these consents approved.

The current planning system is already renowned for being exceptionally inefficient. Planning officers have poor morale and are unmotivated with few or no incentives to be productive and proactive. Their time is either spent reviewing domestic applications or large strategic sites in their local areas. These sites tend to be promoted by large national or regional housebuilders, which often are accused of “land banking”.

The pressures on planning officers’ time leaves them little capacity to review the applications of SME developers. Speaking from my own experience, I’ve seen a nine-unit edge-of-settlement application approved at appeal, not because the planning officer had refused, but on the grounds of non-determination.

It is this type of developer that is most affected by the proposed changes, even though on paper, SME developers are the ones that can build out their schemes in one go, delivering more housing faster as they don’t tend to wait to get on site. By further disincentivising councils to grant consent to smaller schemes, it will have a negative impact on the net new supply of housing: firstly, as a consequence of fewer consents being built out; secondly, as there are fewer consented plots available for housebuilders.

The upshot in the medium term will be a constrained supply of housing in both the private rented and owner occupier space, increasing the cost of housing and further driving inequality. Bear in mind that the average age of a first-time buyer has jumped five years since the pandemic. With these changes, we could see the dream of home ownership extinguished for a generation of people.

That said, these changes by no means suggest that no houses will ever be built again; planning consents will continue to be granted. There will just be far fewer of them and they will be harder to obtain. Developers with patience, skill and deep pockets will continue to operate. Unfortunately, these will just be a privileged few.