As of November 2016, 13,879 new homes had been added to England’s housing stock through PD, which included the conversion of offices, agricultural and storage buildings into residential properties. 

A new survey from Development Finance Today has now found that half of the property professionals who took part expected to see PD schemes become more popular in 2017 when compared with last year.

Just 13% expected the schemes to be less popular, while 37% believed it would be around the same figure.

 
PD schemes have come under fire from some councils who wish to protect pubs, offices and workspaces from being turned into housing without permission.

Sadiq Khan has announced plans to restrict permitted development in London, while Wandsworth Council stripped 120 pubs of permitted development rights. 

However, the schemes have proved to be popular and Gavin Barwell, the minister of state for housing, planning and London, revealed the government was expected to extend permitted development rights.

Dave Pinnington, head of distribution at Finance 4 Business, agreed with the poll and felt councils would come under increasing pressure to permit developments on unused sites.

“The white paper issued has confirmed the government’s plans to fix the housing crisis that has plagued the country for years. 

“Relaxing the red tape will only encourage this further.” 

Michael Dean, principal at Avamore, also felt PD would continue to appeal to developers in 2017.

“The key attraction being that conversions are cheaper, faster and generally easier than new builds. 

“Furthermore, our friends at Estate Office just sold a small scheme in Iver (Bucks) on the same day the buyer inspected. 

“They could have sold the property 12 times over.”

Developers are more confident about permitted development

Jordan McBriar of Adapt Finance added: “My clients are finding schemes daily to create more development opportunities, but I met a funder last week – albeit in isolation – who has said they are over exposed in PD, so will be retracting from the market.

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“In our opinion, it can only get bigger for the foreseeable while there are prominent buildings still left untouched.”
 

Many former commercial buildings have been converted into residential units through PD

Stephen Burns, also of Adapt Finance, pointed out that many developers and some lenders didn’t originally have confidence that residential units would sell well when mixed with office buildings.

“Now [that] a good number of schemes have been successfully completed and sales have been readily achieved, the interest has certainly increased. 

“The downside is many sellers have realised the potential and prices for office blocks and similar [properties] have seen recent [price increases].”

‘There is bound to be a slowdown in schemes’

Although James Bloom, managing director of development finance at Masthaven, thought PD would continue to be as prevalent as ever, he did warn of factors which could slow schemes down.

“On the office-to-residential conversion side, a great deal of the surplus has been used up, so there is bound to be a slowdown in schemes. 

“Also, in certain areas, office rents have risen substantially due to the number of offices being converted into residential. 

“In certain cases, this makes the conversion non-viable. 
 

Rising office rents could restrict PD schemes 

“The changes due in October 2017 will permit light industrial buildings to change to residential without planning.”

Michael also had concerns, adding: “…There's [a] limited and shrinking supply of offices because of PD developments, with many PD schemes being delivered in increasingly marginal locations or compromised buildings. 

“Developers and lenders have to be careful and be mindful of fundamentals."

‘PD has been problematic in some circumstances’

Ashley Ilsen, head of lending at Regentsmead, felt the future success of PD depended on whether the government could make any material changes to the current planning system.

“Historically, we’ve seen plenty of debate about planning, but very little genuine change, which meant that when PD came in, the initial uptake was excellent. 

“However, PD has been problematic in some circumstances, so much so that while it has contributed to providing extra housing that wouldn’t have been viable, it has in some areas lead to a shortage of commercial units.”

Ashley expected PD’s popularity to continue, but added: “…It does need to be monitored closely and [it’s] not a long-term solution to the housing deficit. 

“The continued success of PD will also be down to the extent that lenders can truly understand the nuances of how it works and how best to fund schemes in these instances.”