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When former communities secretary Eric Pickles announced in 2013 the relaxation of rules governing the conversion of offices and shops into homes, he presented it as an opportunity to 鈥渞egenerate town centres鈥� and provide 鈥渂adly needed homes鈥�. But it wasn鈥檛 seen as a major shift: the government鈥檚 own analysis suggested that the creation of this new permitted development right, which effectively allowed developers to bypass the planning system, would see just 140 applications per year.

Six years later, getting on for 100,000 homes have been created through this brand-new development route 鈥� all approved without getting close to a planning committee. For critics, the inevitable result has been schemes like Terminus House in Harlow (pictured) 鈥� a monolithic 1960s office block now containing 222 affordable flats for rent over its 11 storeys, where the council has placed people in housing need. One local councillor has described the scheme, which has no outdoor space for children to play and has been linked by police to a 45% spike in local crime, as 鈥渉uman warehousing鈥�, with some residents telling the BBC it was 鈥渁 nightmare鈥� to live in. Tenants include formerly homeless families as well as ex-offenders, with more than 10 families living in studio flats. 

鈥淥ne of those moments when [the government] actually did something that genuinely helped those trying to get onto the housing ladder and the economy at the same time鈥�

Mark Horner, Progressive Property

Growing concerns over schemes like Terminus House last week persuaded the Labour Party to announce it would abolish the government鈥檚 extensions to permitted development (PD) rights were it to get into government. And this is far from an extreme socialist plot 鈥� august industry bodies such as RICS and the British Property Federation (BPF) have raised significant concerns. But defenders of the system 鈥� not least the government, which is to expand PD rights still further 鈥� argue it has been a vital response to the housing crisis, providing much-needed low cost homes, and accuse critics of snobbery and nimbyism. 

For some contractors and consultants, too, schemes brought forward under PD rights are likely to have made up a significant chunk of their workload in recent years. So should PD exemptions be cancelled, and what would the impact on the industry be if they were?

Genius

The government鈥檚 2013 changes to PD rules introduced a number of significant new exemptions 鈥� in particular, giving developers the right to convert offices, shops and agricultural buildings to housing without specific permission. Under the permitted development system, developers are able to evade planning fees, affordable housing contributions and local space and amenity standards, and instead must simply submit a stripped-down 鈥減rior approval鈥� notice for consideration by officers, with limited grounds to refuse. While the government鈥檚 impact assessment forecast limited uptake, developers quickly realised the opportunity was too good to miss, given the disparity between commercial and residential land values. 

鈥淓verything the government does on quality is completely undermined by their commitment to PD development, a large proportion of which is very, very poor indeed鈥�

Nick Raynsford, former housing minister

Mark Horner, co-founder of agent Progressive Property, described the move in his property blog as a 鈥渟troke of genius [鈥�] one of those moments when [the government] actually did something that genuinely helped those trying to get onto the housing ladder and the economy at the same time鈥�.

Given the interest, the number of conversions spiked dramatically. The government鈥檚 net new housing additions figures show conversions, which had been running at between 11,000 and 13,000 per year since 2010, suddenly increased to over 20,000 in 2014/15, reaching a high of 37,190 in 2016/17, with around half coming from permitted development. Last year, an RICS study on the impact of PD rights extensions found that between 86,000 and 95,000 homes had probably been produced under PD rights by 2017.

Supporters of PD rights extension say this shows how effective it has been at tackling the housing crisis, with conversions now contributing around 15% of all new-build homes. Akeel Alidina, is managing director of Caridon Property, which owns a 1,000-strong portfolio of flats from PD conversions, including the much-criticised Terminus House, and has hundreds more in the pipeline. He says the policy has been essential in allowing his firm to develop homes that can be rented out at affordable rates to those in housing need, pointing out that all homes have to meet building regulations, and go through the 鈥減rior approval鈥� process. 鈥淚n the absence of PDR,鈥� he says, 鈥渨here鈥檚 the provision of new affordable homes going to come from? You鈥檝e lost those homes that would have come forward.鈥� 

And while he admits that there have been some limited anti-social behaviour problems at the development, he says these have been dealt with in partnership with the police, and that Terminus House has given families self-contained units where the alternative might have been sharing bathrooms and kitchens in a privately run home of multiple occupation. 

鈥淭here鈥檚 a greater good. This policy allows us to bring schemes to market quickly. We鈥檙e making a difference to those in housing need,鈥� says Alidina, who claims criticism of the scheme has been 鈥渞eally disheartening鈥� and upset residents, the 鈥渧ast majority of whom are very happy鈥�. 鈥淎 lot of the rhetoric around PDR has been driven by snobbery and nimbyism. Abandoning it will affect the poorest people.鈥�

鈥淚t鈥檚 a really good thing that people are looking at repurposing buildings, but it can鈥檛 be a free-for-all where you can create what you want. It鈥檚 not acceptable鈥�

F茅licie Krikler, Assael

The case against

Critics, however, point out that the rush to provide new homes shouldn鈥檛 mean that the quality of places suffer 鈥� and claim that through PD, that is exactly what is happening. A report last year into the functioning of the planning system by former housing minister Nick Raynsford, commissioned by the Town and Country Planning Association, was particularly critical. It found that PD, in bypassing planning requirements on issues such as space standards, affordable housing, play space and school provision, was 鈥渃reating the real and alarming prospect of a new generation of slums鈥�, and, in some instances, 鈥渄evelopment which has serious adverse implications for people鈥檚 health and wellbeing鈥�.

The figures from the RICS study of this issue are certainly striking. It found that not only were 77% of the homes built studio flats (compared with 35% of homes permitted through the planning system), some of these were as small as 15m² or 16m², compared with a minimum space standard of 37m虏 in London. In general, less than one-third of PD homes studied met space standards. It also saw homes with no access to private or communal amenity space, developments with 鈥渂arely any changes鈥� from prior office use, and residential schemes in the middle of industrial estates. Some were of 鈥渆xtremely poor quality鈥�, it found, with quality 鈥渟ignificantly worse than schemes which required planning permission鈥�.

Critics say this cuts completely against the government鈥檚 housing quality agenda, as exemplified in the recently formed 好色先生TV Better, 好色先生TV Beautiful commission. Raynsford says: 鈥淓verything the government does on quality is completely undermined by their commitment to PD development, a large proportion of which is very, very poor indeed.鈥�

In addition to the quality concern, several studies have bemoaned the lack of PD development鈥檚 contribution to affordable housing. The RICS study valued this cost to local authorities at 拢50m to date, while the Local Government Association has estimated it means up to 10,000 affordable homes have not been provided that should have been. In total, RICS says councils have missed out on up to 拢70m in contributions and planning fees because of the existence of PD, money that developers have been able to pocket. 

Given this, there have been large profits to be made. For example, according to Land Registry data, office building Emerald House in Croydon was sold in 2014 for 拢10m without prior approval for conversion to residential. Once the conversion right was established, the site was resold a year later for 拢19m 鈥� a 90% profit margin. 

And in an October 2018 presentation at the University of Reading, the authors of the RICS study claimed an agent told them of a PD development so lucrative the promoter could have provided 90% affordable housing and still made money. But because it came under PD, no affordable housing was provided. 

The conclusion of the RICS study was that office-to-residential PD 鈥渉as been a fiscal giveaway from the state to private real estate interests鈥�, which had left 鈥渁 legacy of a higher quantum of poor quality housing than is seen with schemes governed through full planning permission鈥�.

Downturn

For a government committed to building 300,000 homes a year, this presents a dilemma, as the homes from PD appear to have provided a useful and significant boost to numbers. However, Neil Hudson, founder of research firm Residential Analysts, says the exact impact of the PD extension on numbers is not quite as definite as the figures might suggest 鈥� because it鈥檚 not clear how many conversions would have happened anyway through the traditional route. 鈥淭he debate about how useful PD is for supply is complex,鈥� he says, while admitting there is a 鈥渢ension鈥� between the need to drive numbers and the government鈥檚 housing quality agenda: 鈥淚f PDR is cancelled,鈥� he says, 鈥渢here鈥檒l be some developers who are hit, and there鈥檒l inevitably be some sites which are no longer viable.鈥� 

In fact, there are also now signs the market for PD development is starting to wane, with the most recent government figures showing the number of conversions fell in 2017/18 for the first time in five years, by more than one-fifth.

Given this combination of the market naturally moving away from the product, and the difficulty of defending the exemption of so many schemes from normal standards, many parts of the industry seem either to actively welcome Labour鈥檚 stance, or at least be resigned to the idea that PD exemptions have to be reformed. F茅licie Krikler, director at housing architect Assael, says such schemes don鈥檛 form a major part of the workload of quality architects. 鈥淭his market is all about profit; it鈥檚 often pretty rubbishy rooms they鈥檙e creating. It鈥檚 a really good thing that people are looking at repurposing buildings, but it can鈥檛 be a free-for-all where you can create what you want,鈥� she says. 鈥淚t鈥檚 not acceptable.鈥�

Ian Fletcher, director of policy at the BPF, says there were good reasons to bring the PD exemption in, at a time when housebuilding was at its lowest level since the 1920s, and that the 鈥渧ast majority鈥� of developments have been good quality. However, he says the BPF is now ambivalent about it, and that the government would not see a strong push-back were it to rein it in. 鈥淭hings have changed. We鈥檙e now in a situation where high streets need to be curated. The key thing is for authorities to have more control over what happens,鈥� he says.

Given the findings of the RICS study, this organisation too is calling for reform of PD rights, rather than defending the industry鈥檚 strict commercial interest in its continuation. 鈥淭here is no check on quality,鈥� says RICS鈥� associate director Tony Mulhall. 鈥淭here鈥檚 a lack of a way of stopping developments that are really not suitable.鈥� He thinks PD residential conversion rights need to be combined with some minimum standards in order to fix this. 鈥淭he question is what safeguards you need. This policy has provided additional homes, but they鈥檝e been poor quality. The question is, how can you keep these conversions happening but provide better quality,鈥� he says.

It is possible that the industry won鈥檛 have to wait too long to find out. While announcing a commitment to further PD exemptions in spring, communities minister James Brokenshire also revealed that he was reviewing the residential conversion PD exemption in the light of quality concerns. Whether this review ends up endorsing or criticising the government鈥檚 approach seems likely to influence the government鈥檚 next step.