Goodbye Planning Bill, Hello Levelling Up

Prince Charles has delivered the Queen’s Speech, laying out the government’s agenda for the coming year, with a series of important pledges for UK real estate.

Prince Charles stood in for the Queen, who was unable to deliver the speech due to “mobility problems”, the first time she has missed it since 1963. He confirmed Her Majesty’s Government will bring forward a Planning Bill to “drive local growth, empowering local leaders to regenerate their areas, and ensuring everyone can share in the United Kingdom’s success”.

Critically, he added the planning system will be “reformed to give residents more involvement in local development”, as part of a Levelling Up and Regeneration Bill.

The announcement on planning sounds the final death knell for the government’s proposed “once-in-a-generation” radical reform of the planning system via a separate bill to reform the rules in England. Instead changes are being implemented via the Levelling up and Regeneration Bill following a rebellion among a hard core of Tory backbenchers over concerns that some of the reforms would allow developments to be forced on communities.

Nevertheless, a number of highly significant changes are being proposed and it will be critical now to see the finer details of Levelling Up Secretary Michael Gove’s proposals for simplifying the planning system.

Nicola Gooch, planning partner, at lawyer Irwin Mitchell, reflecting on what it all ultimately will lead to, says the Levelling-Up and Regeneration Bill “refocuses” the government’s planning reform agenda to support the Levelling-Up agenda.

“What does this actually mean? From what we have heard today (and over the weekend), it means a doubling down on localism, with ‘street votes’ and local input into national design codes being the idea of the day. We have also been promised a move away from mandatory housing targets based on need – with highly constrained authorities, such as those surrounded by Green Belt or facing nitrate neutrality issues – being held to a lower housing delivery standard than their less constrained neighbours.”

Gooch’s colleague Claire Petricca-Riding, the head of planning and environment at Irwin Mitchell, says the the “localism first” agenda is going to be difficult to implement in a way which ensures that the government meets its target of delivering 300,000 homes a year, which has still not been officially abandoned.

She points out it is also set against the background of a levelling-up white paper which promised much greater devolution of powers to local government. “And last week’s election, when Bristol voted to scrap its city mayor and return to a committee system of government instead.”

Steven Cooper, planning and residential at Cluttons, says it is encouraging that planning reforms were at least mentioned in the speech as the system is in “dire need of reforms to make the process more simple and in favour of the right kind of development”.

Scott Tyler, senior partner at Allsop, says the property sector should welcome the commitment in the Queen’s Speech to enshrining the levelling up agenda in law.

“We must also remind the government that there is no path to levelling up that doesn’t run through real estate. The government must bring us on as an active and equal partner,” Tyler said.

Dr Walter Boettcher, head of research and economics at Colliers, suggested the most important message for commercial property might come from an opportunity provided by the UK leaving the EU.

“No details were provided, but ‘legislation to strengthen UK financial services for all’ maybe an oblique reference to the Solvency II consultation formally launched by the Treasury on April 28,” Boettcher points out. Described as reform of the prudential regulation of the UK insurance sector, the consultation is set to close on 21 July 2022 and Boettcher says has the potential to release tens of billions of pounds of investment in UK infrastructure and regional regeneration across the UK by effectively reducing capital buffers and risk metrics for insurance and pension funds.

“This arises directly from the UK departure from the EU and is likely to result in legislation later this year. Though it receives little attention in the press, it is fundamental to scaling up the levelling up agenda. If the pageantry associated with the Queen’s Speech is meant to suggest, if only symbolically, a ‘fresh start’ to government business, then pursuing such an agenda is a worthy point of fresh departure.”

So what does today’s pledged legislation via more than 30 Bills mean in practice for real estate? Full details will have to emerge before anything can be finalised, but the outlines are clear.

In the run-up to the Queen’s Speech the government confirmed a number of features that will appear in its Levelling Up and Regeneration Bill.

A particularly contentious element sees local authorities given powers to force compulsory rent auctions of properties that have not been occupied on UK high streets for over a year. The government has also already confirmed the Bill will see councils given greater powers to drive regeneration through compulsory purchase orders.

Last week the government said compulsory rent auctions will “enable local leaders to force landlords to rent out commercial properties, revitalising high streets, rejuvenating town centres, and restoring community pride in their home towns”. The proposals have so far proven deeply unpopular with many in the property industry, particularly given a perceived continued failure to reform business rates, which is the critical issue for many.

Melanie Leech, chief executive, British Property Federation, says that while the industry fully supports the government’s ambitions to revitalise town centres “political gimmicks” such as compulsory rent auctions are not the solution.

Leech said that no property owner wants their premises to be empty and it is the BPF’s experience that property owners are willing to do zero-rent deals to avoid boarded-up shopfronts. But she said the burden of business rates and other occupational costs mean it is still unviable for many small and independent businesses to trade from town centre premises.

“As the government has acknowledged, levelling up is only deliverable through private sector investment in town and city centres,” Leech says. “We need government to follow through on its promise for a ‘system change’ which incentivises rather than risks investment by property owners and supports those wishing to occupy their premises.”

For Leech that means fundamental reform of the business rates system and more creative and sustainable solutions. There she points to the BPF’s proposal for ‘Town Centre Investment Zones’ which would “accelerate regeneration through a combination of tax and community incentives, planning freedoms and public-private partnerships”.

Lawrence Turner, associate director in Bristol for the lawyer Boyer, says it is mostly viability issues with development and property that keep properties empty. “Would forcing the renting of properties lead to more budget shops and services being introduced that would have only a short-term improvement on the vitality of local shopping areas?”

Irwin Mitchell’s Gooch highlights the risk of unintended consequences. “The intention appears to be to require commercial buildings left vacant for a year to be entered into a ‘rental auction’, allowing local community groups or small businesses to bid for them at discounted rents. The more likely outcome of this proposal, however, is to push landlords to convert as many of these units as possible into residential use – as the Class MA Permitted Development Rights, which allow the conversion of commercial units into residential properties, only requires a property to have been vacant for three months before an conversion application can be made. It will be safer, and more attractive, for many commercial landlord to realise the one off capital uplift from converting the property to residential use than to risk having to rent it at an undervalue for a prolonged period of time.”

Krista Fieldhouse of Gerald Eve, writing for CoStar News, says: “Given that landlords with empty properties will already be doing everything possible to let those units in order to avoid the significant cost of business rates, the rumoured new policy for rental auctions is surely meaningless.”

The Shopkeepers Campaign says the measures, which were first set out in the Levelling Up White Paper, are “intriguing”.

Vivienne King, chair, says while the current proposals appear punitive, “we look forward to discussing with the government how they envisage incentivising investment into high streets and town centres”.

“Far more important than incentivising owners is how to incentivise retailers to take on shop leases at a time when business rates are so high,” King adds. “The government has accepted that business rates for retail must be cut and in its 2019 Manifesto, the Conservative Party promised to implement cuts.

Tom McWilliams, head of development at JLL in the North, says that the history of successful regeneration projects shows that collaboration between local authorities and landowners is essential. Equally critical is the need to view streets and neighbourhoods holistically as part of a long-term plan and not one asset at a time.

“In this light, the proposal to force landlords to auction off empty shops for rent feels like a short-term and piecemeal fix that risks creating adversarial relationships that jeopardise collaboration, and increases the perceived future risk for potential new investment partners.”

McWilliams says the enhanced CPO powers promised are likely to offer a more purposeful route to change “with local authorities having a greater say over how empty units are redeployed”.

Jamie McCombe, head of investment management at Cluttons, says many aspects of the initiative are flawed as it appears to include all high street units – which presents its own challenges in terms of differing location and size. “That takes away the very mechanics of the property market, Of demand versus supply and also the longer-term local strategies that curate a well-performing place as those who can afford higher rents may bid despite not being the right offer for a particular location. In these cases the high street may deteriorate further.”

McCombe also says that from an asset management perspective, it may also have valuation implications for landlords with loan to value covenants to meet. “Many have called for the lowering of business rates to help landlords rather than them being forced to give up their units for auction. More thinking is certainly required on this.”

Simon Atha, associate director (Midlands) at Boyer, says that the enhanced compulsory purchase powers proposed for town centre regeneration and the extension of the High Street Taskforce is a “positive step” but adds that it does not address wider issues with the digital economy, online shopping and restrictive approaches to retail protection within town centres.

Another contentious plan is the introduction of a new infrastructure levy, replacing the Section 106 and Community Infrastructure Levy funding system. Details of the mechanics are slim but it appears that government would replace the system that sees developers fund specific affordable housing project with an infrastructure levy that would be paid into a general fund for local authorities to use on their own projects.

Claire Fallows, partner at Charles Russell Speechlys, says the levy is the latest in a “very long line of attempts to squeeze a bigger share of the development value created when planning permission is granted for the public good”. Fallows says the clear aim is to introduce changes that will simplify the current process.

But she points out that the crux of the change as reported is that authorities will be left to provide community infrastructure themselves from the monies collected, including affordable housing, and with the power to borrow against future revenue. “The question here will be: is the new world likely to be superior to the old in what it gives communities? It’s safe to say that this is an incredibly complex area of legislation and it’s no surprise that the community infrastructure levy regulations required many amendments. The quest for the optimum solution continues.”

Gooch says the proposal’s success will depend entirely on how it is implemented, which means publishing the draft legislation. But she warns that it is a plan that is fraught with risk. “The proposal would put the responsibility for delivering infrastructure (including affordable housing) squarely on the shoulders of local councils, which are not geared up nor ready to become large scale infrastructure providers. If the government is not careful, this move could also undermine a number of their more recent planning reforms – such as the introduction of First Homes and Biodiversity Net Gain, both of which rely on Section 106 Agreements as their primary delivery mechanism.”

Giles Sutcliffe, head of affordable housing at Cluttons, says that the levy is “interesting and could be helpful” but adds that this needs to be done “fairly and consistently across the UK”.

Lawrence Turner, associate director (Bristol), Boyer, says the agreement of a “non-negotiable” set levy would reduce last-minute, multi-party negotiations on both infrastructure and affordable housing, creating greater certainty for local authorities. He adds that if the levy is based on final sales values, greater land value uplift could be captured for local authorities.

But he says the challenge for some local authorities will be their ability to deliver affordable housing. “Years of under-funding has resulted in the considerable reduction of their technical planning and architecture teams. Where appropriately located municipal land is in short supply, it will be necessary for councils to bid against private sector housebuilders. And the creation of new council housing estates will end the aspiration of ‘pepper-potting’ [mixing different levels of affluence in communities] consideration must be given to how the ‘ghettos’ of the 1970s can be avoided.”

The government has also confirmed that pavement licensing red-tape will be permanently scrapped, freeing up businesses to serve food al fresco and attract diners all year round. During the pandemic, restaurants, pubs and bars were granted temporary powers to serve guests on pavements, helping to mitigate lost floorspace for tables due to social distancing requirements. These powers will be made permanent to expand capacity for businesses.

The Queen’s Speech confirmed government will introduce an Energy Security Bill containing new powers aimed at improving renewable energy, and promoting a market in electric heat pumps.

Niall Keighron, sustainability practitioner at Cluttons, says that with energy bills at a record high, the opportunity must be “seized” to “transition to our own sources of domestic, renewable energy and start to deliver on the commitments of a low-carbon power system by 2035 and a net-zero economy of 2050”.

Keighron says that despite the announcement earlier this year that the government wants to roll out 300,000 more charging points by 2030, “we have not seen any incentives to support this growth nor make electric vehicles more affordable which would help people save on the rising cost of fuel as well as reducing emissions, and meeting net-zero targets”.

Claire Petricca-Riding, the head of planning and environment at Irwin Mitchell says the main focus appears to be on increasing energy security and cutting the “red tape” of environmental regulation introduced by the EU over the last 70 years. “This appears to equate to measures to make major energy generation schemes (be they renewable, nuclear or fossil fuel based) quicker and easier to promote; streamlining EIA and Habitats Assessments and introducing environmental offsetting proposals. The Energy Bill appears to focus on energy security and cheapness, rather than controlling emissions. This could have been done 12 years ago.”

The focus on Levelling Up is once more what is interesting UK real estate most.

Scott Tyler, senior partner at Allsop, argues that some of what needs to happen includes a plan of action to bring offices in regional towns, where low rents can make capital expenditure on improvements impractical, “up to environmental and post-pandemic working standards to retain talent and attract further investment”. He says targeted business rate exemptions for low-carbon heat networks and renewable energy generation would be helpful in achieving this.

The government will also set up the UK Infrastructure Bank using legislation, a move Tyler welcomed. “It should be a moment that kicks off green investment that reinforces the levelling up agenda. This needs not only to include better transport links, including those between east and west, but also into commercial property.”

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