01 Mar 2021

Guest post by Joey Gardener

New rules will stop developers squeezing tiny homes into small buildings through permitted development, but will space standards resolve quality and location concerns?

Housing campaigners secured a significant victory in September 2020 when the government agreed to make space standards mandatory for all homes in England built under permitted development rights. The concession means that, from 6 April this year, all permitted development (PD) homes will have to comply with the government’s nationally described space standard, which sets a minimum of 37 square metres for a one-bed studio flat.

The decision followed increasing concern over the poor quality of the more than 70,000 homes built in England under PD rights since 2015. The government’s own research, conducted by University College London (UCL) and published in July last year, found that PD-produced homes scored lower for quality than other residential development on a number of measures, with just 22 per cent in England meeting the nationally described space standard.

This compared to 73 per cent – the vast majority – of homes permitted through the normal planning process. Homes as small as 16 square metres were found on a number of PD schemes.

The notably small size of many of the PD homes produced means the introduction of space standards will have a big commercial impact, potentially affecting the uptake of the rights. Indeed, the UCL research itself concluded that bringing in space standards would make it “likely that fewer dwelling units overall would be delivered.” So how is the development industry likely to react to the change, and what will it mean for local authorities?

Profits of ‘worst offenders’ to be hit

Since 2015, developers have been given a right to seek permission to convert certain commercial properties – primarily offices, light industrial units and small shops – to homes through a light-’touch “prior approval” process. This route contributed 72,990 homes through permitted development conversions between April 2015 and March 2020. Hugh Ellis, policy director at the campaign group the Town and Country Planning Association, says the introduction of space standards is likely to make a “massive difference” to the appetite of developers to use the rights. “The reason PD worked,” he says, “is that if you strip out all standards then you can much more easily make a profit. They will have to find another way to subvert the planning process now.”

Under PD, developers have been able to more than offset any reduction in rental income from shrinking individual flats, by increasing the total number of flats in a development, delivering big profit margins. Grant Leggett, London director at consultancy Boyer Planning, says some have exploited the system cynically. “The absence of any space requirement has been very appealing to some developers,” he says. “It’s enabled them to maximise value and profit.”

This is particularly true at the bottom of the market, with flats let to tenants on housing benefit, as the benefit rate doesn’t drop for small homes. Mike Kiely is chairman of the Planning Officers Society, which represents public sector planners, and a former director of planning at Croydon council, a PD hotspot. He says he saw flats proposed as small as 13 square metres when conversion rights were first introduced in 2015, with some PD developers in the borough able to double the previous valuation of office buildings.

Hence, space standards could put off exactly those developers who looked to inflate profits by squeezing in as many tiny flats as possible. It could also stop the race to the bottom in which those willing to cram in the most flats are able to bid most for land. Julia Park, head of housing research at architect Levitt Bernstein, said: “The business model of the worst offenders has been predicated on small homes, so I imagine that certain types of developers will drop out of the market.”

Likewise, Kiely says: “I suspect that type of operator will not pursue PD conversions now.”

Permitted development’s attractions

However, being able to cram in lots of tiny flats is not the only reason developers have gone down the PD route. The government’s review found the biggest draws were actually the sheer simplicity of the application process, the consequent lack of fees, and the ability to secure residential permissions in buildings not allocated for housing.

Ian Fletcher, director of policy at the British Property Federation, which includes a large number of build-to-rent developers among its members, says: “Where our members have used it, it’s been very much about securing an office block in the right location, say next to a train station, that’s been driving it.”

Likewise, Sarah Bevan, programme director for planning at business lobby group London First, says that on the whole “space standards have not been the deciding factor” driving PD schemes. In fact, she says, her members are “overwhelmingly supportive” of space standards.

The argument that the introduction of space standards may not make an enormous difference to uptake of PD rights is supported by data suggesting the use of conversion rights has already been waning in recent years, as most of the easiest or most profitable conversions have already been undertaken. The number of homes built from PD residential conversions per year fell to just 12,350 in 2019/20, the lowest figure since the rights were introduced, from a high of almost 19,000 in 2016/17.

Andrew Bramidge is head of environment and planning at Harlow Council, site of the infamous Terminus House permitted development conversion, in which homeless families and families in great housing need were placed in a 14-storey former 1960s office block. He says the introduction of several article 4 directions – which prevent PD rights being used in certain locations – and a series of agreements with London authorities preventing them from shipping residents into PD schemes in Harlow, has already greatly reduced its usage in the town. “Based on what we’re seeing, the appetite is waning in any event,” he says.

This view is supported by the British Property Federation and London First, and by the fact there are few signs of a big rush to get applications in under the existing rules before the change comes in. While Boyer’s Leggett says he is aware of some developers looking to get under the wire, Harlow’s Bramidge says there has been no upsurge, and Croydon Council says numbers have been “very modest” recently, with Watford Borough Council reporting a similar situation.

Leggett says some developers may try to bring forward co-living schemes to get round the new stipulations, but most will adapt. “It will reduce their appetite, for sure. But not to a great degree,” he says.

Effect on housing delivery

Probably the person best placed to judge the impact on numbers is the academic who led the research on PD homes for the government. Ben Clifford, associate professor in spatial planning and government at UCL’s Bartlett School of Planning, says he would estimate a drop in PD conversions – using the data he collected from 652 PD housing schemes across the country – of 20 per cent from the introduction of space standards, were the rest of the policy environment to remain the same. He bases this calculation on his understanding both of the proportion of PD homes built below space standards, and how far below standard they were.

This could be significant for some authorities. An analysis of government data by Clifford shows that in 2019/20 there were 24 authorities in which PD conversions made up more than 20 per cent of their housing supply, and three where PD accounted for more than 40 per cent of new homes. However, for Clifford, any reduction in housing delivery is “worth it” for the increase in quality. “Housing delivery cannot just be about headline numbers of units delivered, but about creating new homes fit for people to live a decent life in,” he says. “Space standards are a vital minimum regulatory safeguard.”

However, don’t expect the application of space standards to make councils suddenly wildly enthusiastic about PD homes. Local authority bosses are likely to continue to oppose much PD development even when it is built to decent space standards, as quality was only one of the reasons local authorities opposed PD. More significant to many is that the conversions have occurred in what they see as ill-suited locations, and make no contribution to affordable housing. Harlow’s Bramidge says most of the town’s PD conversions have happened on industrial estates, despite these being wholly inappropriate for housing. “It’s about development happening in places where there are no shops, health facilities, schools or public transport and that are just not appropriate for people to live in,” he says.

Councillor Darren Rodwell is executive member for housing and planning at London Councils, the cross-party organisation that represents London’s 32 borough councils and the City of London. He says: “Space standards are welcome but don’t address the provision of amenities and the lack of affordable housing.”

The other issue likely to make councils more worried than ever about PD, despite the space standards, is the consultation – just closed – over a proposed new right to convert Class E properties, including larger shops, restaurants, surgeries, nurseries and day centres to residential use.

Hence, even if the introduction of space standards reduces developer appetite for the existing conversion rights, the proposed expansion of PD to whole new property classes means that, overall, most expect an expansion in PD usage. London First’s Bevan says: “Even the government acknowledged there’d be a big take-up of Class E PD conversions. It’s a big breadth of uses and has no size limits – you could convert whole department stores.”

Adding to the fears, it is also unclear whether all existing article 4 directions will still have legal force if this new right comes in as planned in August 2021. If the new right effectively erases some directions, councils would have to wait a year to replace them, or face the prospect of compensating developers whose PD schemes are blocked by any earlier replacement direction. Some fear this could create new, if temporary, PD hotspots, albeit for homes that meet the space standard.

In the meantime, few expect any authorities to consider reducing existing article 4 protections, which in any event have never been justified on the grounds of poor PD housing quality, in light of the imminent introduction of space standards. Harlow’s Bramidge says his council is currently reviewing its article 4 directions, but that he can’t see any of the existing directions being reduced. If anything, the move is likely to be in the other direction, as councils seek additional protections from the incoming Class E changes. Boyer’s Leggett says: “Now we have seen the government’s intention around Class E, we’ll see a lot of article 4 activity. Floorspace standards will have virtually no influence on that.”

What does the standard specify?

The new space standards will apply to all new homes created under permitted development rules (PD), and will force developers to meet the government’s nationally described space standard, published in March 2015. The standard sets out minimum figures for internal areas for a variety of dwelling types dependent upon numbers of intended occupants, bedrooms and floors. The minimum size in the standard is for a single-person studio flat, including a shower, at 37 square metres, which should include one square metre of built-in storage. A two-person studio flat must be a minimum of 50 square metres.

According to the government’s research, just 22.1 per cent of homes produced so far through PD conversions have met the nationally described space standards. If extrapolated out, this equates to almost 57,000 PD homes so far produced being below standard. Ben Clifford, associate professor in spatial planning and government at UCL’s Bartlett School of Planning, said around two fifths of the below standard PD single person one bed studio flats were built at 30-36 square metres, two fifths at 20-29 square metres, and one fifth at below 20 square metres.

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