Permitted Development (PD) - it’s the topic fresh off the press - especially now that the Government has indefinitely relaxed the planning laws.

So what does this mean? For developers, it means that they do not have to seek approval from the local council when converting commercial buildings into residential homes. First time buyers, families and those looking to upgrade their homes will soon have more options available to them, and at lower prices due to the expected flood of new homes to the market.

For our clients at Imperial Blue Finance, this is welcome news - England is still experiencing a housing shortage which continues to send house prices surging. It is estimated that each year over 50,000 new homes are needed to support the growing population in London alone, but recent reports suggest that not even half of this target was met in 2014-15. As a result, people aren’t moving homes - they have limited options due to both a lack of availability and price restrictions - so first time buyers and families are locked in this standoff until we can get more houses built. 

If you walk through some parts of London and other cities, the magnitude of dilapidated, dated and poor quality buildings is astonishing - they aren’t even habitable for office workers, let alone homeowners! There are still so many opportunities for redevelopment - so this decision is extremely welcome - and Imperial Blue is keen to work with developers who are turning these disused plots into high quality developments. In fact, many of our existing developers have plans in the pipeline, not only for affordable housing, but also for green scheme developments. We envisage that this will bring a welcome relief to the housing market in the short to medium term.

However, while many are thrilled with this decision, others are worried about the potential negative affect this will have on both local communities and the economy. The fear is that by reducing the amount of commercial buildings in the major cities, businesses will be driven out due to lack of available mid-level offices.

Furthermore, even when property owners don’t convert their buildings, they drive up rents regardless of existing tenants, in order to take advantage of increasing land value. Businesses that could only just afford a small office in London will now be forced out of the capital and other urban areas. This will in turn affect the trades and services that the cities rely on, and many small business owners will have their very livelihoods threatened.

Another argument is that the lack of planning permission will allow a free-for-all for developers to haphazardly throw together schemes which are poorly thought out, delivered to a low quality and do not meet the affordability, environmental or disability standards that local authorities would normally impose.

These are two very reasonable fears; with so much freedom, many developers and building owners will be clamouring to take advantage to make an extra buck or two. However, the key thing to remember is that while there certainly is a lot of negative press surrounding this decision, reports suggest that there is far more regulation still in place than what is first assumed. Between April 2014 and June 2015, a report by Daniel Whitney LLP determined one in five applications were blocked by councils where certain regulations needed to be met.  Furthermore, converting offices into residential can often be more complex, time-consuming and costly than originally considered, putting many developers off entirely.

Imperial Blue does not believe that businesses will be driven out of London to the extent that people are suggesting. As with everything, redevelopment requires a balance - right now, the focus is on affordable housing and combatting rising house prices, and therefore we are seeing the scales tip against commercial development. Once housing becomes a less urgent requirement, savvy developers - many of whom have already begun the process of doing so - will revert their main focus to commercial buildings. 

In fact, a commercial development activity report carried out by Savills in October 2015 determined that, in fact, total commercial development activity across the UK has actually increased from +6.7% in August to +12.0% in September.
Therefore, commercial developers are still optimistic about future expectations.

What is the end result for developers and investors? Certainly we can expect to see several brokers, who might have placed their bets on the deadline remaining in place, wanting to get back on the PD funding bandwagon. Developers and investors can expect to get more cold-calls from opportunistic brokers - or they can choose to stay with existing lenders like Imperial Blue who, even through the uncertainty of the PD extension, were confident enough to continue supporting their clients who envisage a real and positive change for the residential market.

Attributed to Laura Jane McCauley of Imperial Blue Finance