Planning risk and development, our report on planning certainty for RTPI
In late October, Kath Scanlon talked to the Highbury Group about our research undertaken for the Royal Town Planning Institute (RTPI) by LSE London and the Bartlett School of Planning (UCL) to the past presidents of the Institute. The report, Planning risk and development: how greater planning certainty would affect residential development, is part of the RTPI’s ‘Better Planning’ programme. The context to this work was the pledge the Government made in 2015 to introduce zoning-style mechanisms into the planning system as a means of providing greater certainty for developers at the Local Plan stage. Permission in Principle (PiP), introduced, in the Housing and Planning Act 2016, enables local authorities to identify brownfield sites where they are prepared to determine the type of development which would be eligible for permission prior to any request for such permission being made and irrespective of the ownership of the site. This is potentially a limited move towards a zoning approach giving greater certainty to developers that specific proposals that fit the specified guidelines will quickly receive permission.
Our research placed PiP within a broader understanding of the sources of risk to developers and their financiers and how these might be mitigated by earlier Local Plan based decisions. The core question was whether this type of approach could reduce the costs of planning risk enough to help housing supply expand more rapidly in the face of growing demands.
The logic behind a more‘zoning style’ system goes something like this: planning consent presents a ‘significant risk’ for developers both in terms of what will be agreed and when developers have to incur costs both prior to applying for planning permission and addressing planning requirements while waiting for permission to develop. Making it clear what would be given permission at the Local Plan stage should reduce all these costs,increasing the chances that identified land will be brought forward for development. To explore these assumptions, the researchers conducted interviews and workshops with developers, planners, local authorities and financiers as well as reviewing the relevant literature in the UK and around the world.
Many of the respondents noted that the highest risk was before planning permission was granted and it was then that finance costs were highest. However, developers also noted that after permission was granted there were often very real costs – e.g., of tied up capital and a slowdown in their pipeline – when unexpected delays occurred e.g., in clearing pre-start planning requirements. These projected costs are necessarily taken into account when evaluating the potential rate of return.
Importantly required returns are based on experience rather than some complex risk modelling so any new initiative will have to prove its worth before any significant change in developer behaviour is likely to occur. Equally, if lenders perceive that risk is reduced they may be more willing to provide earlier finance for small and medium-sized builders who are most dependent on borrowed finance – but again they need to see the evidence of lower costs and greater certainty. Further the discussions with stakeholders suggested that the sites where local authorities might be prepared to give permission at Local Plan stage are likely to be smaller, simpler sites where anyway delays are less likely to occur.
With regard to the specifics of Permission in Principle (PiP), the authors noted key aspects that would increase certainty but highlighted some caveats. For example: PiP generally only covers what is usually called outline permission –the developer and planning authority will still have to negotiate more detailed conditions such as design. To provide PiP on a particular site, the local authority will have to conduct in depth analysis of the plot, its physical characteristics, constraints and possibilities – i.e., the sort of work now done by the developer. This will put a further burden on planning departments already strained resources. If local authorities only identify a relatively small number of such sites,and PiP is seen as valuable the price of PiP land might well increase, thus offsetting some of the possible benefits. Finally, there are currently mechanisms in place to improve planning certainty, including outlining planning permission, detailing planning briefs, consulting pre-application, local development orders, and the use of development corporations. While these mechanisms have their limit, it is not at all obvious that PiP can offer enough additional benefits to either developers or local authorities to generate a step change in terms of development risk.
At the core of all these uncertainties is that none of these approaches fully remove the political risks that come from our system of site by site planning permission. In the end it is the Planning Committee that agrees the detailed terms and conditions for development. The developer may meet all the legal and policy requirements and still have their application rejected. PiP and equivalent approaches can reduce the likelihood of this occurring, but cannot remove it. The report therefore suggests that to gain significant benefits from a zoning-type system would mean having these political discussions determined at the plan making stage – making the delivery of the Local Plan even more complex.