Phil Hooper, CEO at Close Brothers Property Finance

Nobody cries for developers, but new planning fees are cause for concern

Unfortunately, a new challenge is on the horizon for UK housebuilders in the form of increased planning fears — something we will all need to pay attention to.

There’s no doubt that last year was one of the most challenging years for UK housebuilders, with higher interest rates severely restricting consumer confidence and demand for new homes. Now, the sector has yet another challenge to overcome in the form of increased planning fees.

Following amendments to the Town and Country Planning Regulations 2023 by the Department for Levelling Up, Housing & Communities, planning fees in each local authority in England rose by 25% and by 35% for major developments at the end of last year. What’s more, further amendments will see an annual increase in application fees every April, linked to inflation (capped at 10%) introduced from April 2025. At the same time, the Planning Guarantee for non-major planning applications is set to be shortened from 26 weeks to 16 weeks.

Understanding the true impact

While it is no doubt positive that the delays in planning have been acknowledged at a national political level, the significant uplift in fees, at a time when the sector is already under enormous strain, will have a hugely detrimental effect. The recent data from the National House Building Council shows that new home registrations dropped annually in 2023 by 44% to 105,449, compared to 189,009 in 2022. Every single region in the UK saw a fall in registrations, with the biggest drops in the North West (-61%), West Midlands (-59%), and the Eastern region (-52%).

Unfortunately, the impact that housebuilding has on the overall economy is all-too frequently overlooked. Not only does it create jobs — both directly and through its supply chains — but there are huge benefits to communities at a social level, with the provision of affordable housing and improvements to local services, such as education.

To add insult to injury for housebuilders, there is no guarantee that the extra cost for developers will actually go towards resolving capacity problems and providing the much-needed resource to the planning departments, enabling local authorities to tackle the backlog in applications. Instead, the extra revenue may go towards other front line council services.

A long-running issue

Navigating an overburdened and cumbersome planning system has long been one of the biggest problems for housebuilders. This is reflected in the ‘SME State of Play’ report, produced by Close Brothers Property Finance, alongside the Home Builders Federation (HBF) and builders’ merchant Travis Perkins plc.

In the four years since we launched the report, each consecutive year an average of 91% of SME housebuilders have said that ‘delays in securing planning permission/discharging conditions’ are a major barrier to growth for their business. This is followed in second place by ‘lack of resources in local authority planning departments’ which is cited by an average of 86% of SME housebuilders.

It is worth noting that although delays in the planning system are a problem for housebuilders of all sizes, small and medium businesses are disproportionately affected. Whereas large housebuilders will typically have multiple projects in development at any given time, SMEs often have all of their capital tied up in just one or two projects. As a result, delays mean that developments grind to a halt and the viability of the site may be compromised.

The State of Play report also shows that the cost of obtaining implementable planning permission over the past three years has risen, with almost half of respondents (46%) saying they had experienced a rise of more than 30%, with a further 45% claiming costs had risen by between 11% and 30%. SMEs are having to pay out more money, but are not seeing any improvements in the time taken to approve applications.

Addressing the housing shortage

Earlier this year, the government announced changes to the national planning policy in support of brownfield developments and a catchy policy headline ‘build on brownfield now’. While this is helpful in principle, I wonder if this is enough of a joined-up way of thinking to support the overall housing shortfall. With an election expected to take place towards the end of the year, we need to understand how the parties plan to address this in their manifestos.

Few would deny that there is an urgent need for greater resources within local authority planning departments. However, by neglecting to ensure that the additional funds are ring-fenced, the likelihood of material improvements being made to the planning system any time soon is remote. I hope, for the sake of SME housebuilders, and for the economy, that I am wrong on that point.

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