The UK housing shortage and its effect on the property sector

How is the housing shortage in the UK affecting the property sector? Hugh Lumby, partner and head of the global real estate practice at Ashurst, highlights some of the current problems facing the property market and explores the government policies that are seeking to tackle those problems.
What are the current issues surrounding UK housing stock shortage, and what are the underlying causes of these issues?

The housing shortage has been making headlines for a long time and featured in every political party’s manifesto before the 2015 general election. As the UK population continues to increase, the housing shortage becomes more acute and first time buyers are struggling to get on the housing ladder—particularly in London and the South East.

There are various government initiatives designed to address the soaring cost of buying a house. These include the right to buy ISA and the starter homes scheme—which aims to provide 200,000 homes at a 20% discount for first time buyers in England under the age of 40. However, a number of commentators have suggested that these measures may not make homes more affordable, as sellers may simply increase their asking price because of these buyer incentives.

Furthermore, the government seems to focus on home ownership, but it is important not to lose sight of the role that the private rented sector can play in solving the housing crisis.

The government’s decision to extend the right to buy scheme is an example of the government’s desire to promote home ownership. The extension of the scheme will allow more social housing tenants to buy their homes at a discount. This may have won votes at the general election, but it is difficult to see how this will solve the housing crisis unless they replace all the council houses that are sold. History tells us there is no guarantee that this will happen.

How is the shortage affecting the property sector?

Developers need available land, planning permission and finance to build houses. The government’s plans in the proposed Housing Bill to encourage development on brownfield land will release more land, but these sites need to be identified with care and any contamination issues need to be properly addressed. Developers are still grappling with complex planning laws and lengthy delays in the planning process.

Estate agents are, in certain areas, faced with a shortage of properties on their books, particularly properties that are suitable for first time buyers. Without first time buyers entering the market, those further up the chain cannot move on—and so the market stalls.

Property lawyers are there to ensure the parties involved in a development are properly advised. Uncertainties and complexities in the planning laws and regulations means that lawyers have to interpret what the law means, which can lead to protracted negotiations.

To what extent are planning laws affecting the situation?

The government has already introduced a number of planning measures designed to boost housing development. For example, they introduced Vacant Building Credit (VBC) to incentivise developers to bring vacant buildings back into use by reducing the contribution to affordable housing if certain requirements are met.

However, determining when VBC applies is more complex than one would at first think. It has also proved controversial as it applies across the board. You may find that a scheme benefits from VBC where, in actual fact, the original affordable housing contribution would not make the scheme unviable.

Any measures that speed up the planning process are welcome and one such measure was introduced by the Development Management Procedure (England) Order 2015, SI 2015/595, which provides for deemed discharge of planning conditions where the planning authority has failed to determine the application in time. Additionally, the Town and Country Planning (General Permitted Development) (England) Order 2015, SI 2015/596, includes new permitted development rights to increase residential development.

These are:

  • up to 500 square metres of storage or distribution buildings to change use to residential housing within a three year period, subject to prior approval, and
  • up to 150 square metres of amusement arcades, centres and casinos to change use to residential housing, subject to prior approval.

However, the permitted development right, which allows conversion of offices to residential housing, has not been extended and will still expire on 31 May 2016.

How are local planning authorities handling the current crisis?

The planning authorities are in the unenviable position of trying to manage the need for more housing against local opposition to development. Although the National Planning Policy Framework (NPPF) contains a presumption in favour of development, local opposition can effectively scupper proposed schemes. While there have been significant reforms to the judicial review process, more needs to be done to prevent unmeritorious claims which stymie development.

What are your predictions for the future? Is the situation likely to improve?

Ultimately, development needs available land and suitable local infrastructure. The government’s proposal in the Housing Bill for a statutory register for brownfield land to help meet the goal of having Local Development Orders in place on 90% of brownfield land by 2020 seeks to address this need. However, it is unlikely to solve the problem. The thorny issue of the green belt and balancing the protecting of our countryside with finding suitable sites for housing has not gone away.

There is still work to be done to speed up the planning process and to simplify complex planning rules. Certain aspects of the Community Infrastructure Levy Regulations 2010, SI 2010/948, are still difficult to interpret and are unnecessarily complicated.

It is clear that the private sector cannot solve this problem on its own. Developers bring forward schemes that will be profitable—after all, that is their business. Thus, the government needs to ensure this is coupled with sufficient provision of social housing for the less well off.

The Queen’s Speech on 27 May 2015 mentioned the upcoming Cities and Local government Devolution Bill, which will devolve powers to English cities by appointing directly elected mayors to take control of housing, planning and transport policies. The government believes this will give cities the ability to grow their own local economies and could help to alleviate the housing divide between north and south.

Another positive is the recent government consultation on allowing business improvement districts to engage more easily in business-led neighbourhood plans. This will allow businesses and landowners to consider all local interest when setting planning and development frameworks.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Filed Under: Property

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