Small builders, big problems: Why the planning system is failing SME developers

Some 30 years ago, around 40% of the country’s homes were delivered by small property developers. In recent years, this has dropped to a calamitous 12%. Economic headwinds, competition for land, the rising cost of materials and labour have all contributed to the decline of the SME developer, yet above all, it is the “one size fits all” planning system that presents the biggest hurdle.

Small sites play a vital role in meeting housing delivery targets. According to the government’s standard method for calculating housing need, London needs 66,000 homes a year but just 37,200 homes have been delivered currently, presenting a considerable shortfall. Small site delivery must therefore improve if this requirement is to be met. Defined as those below 0.25 hectares (typically up to 40-50 units), they are equally important as larger sites – and while you might think that smaller sites mean smaller problems and less hurdles to overcome, sadly this is not the case.

Time is money (that SMEs don’t have)

As a small property developer, we have first-hand experience of the lengthy timeframes associated with the planning application process. Across our sites (which typically range from 5-50 units), on average over the past five years we have experienced a staggering 36-week period from the validation of an application to a decision (well over the 13-week statutory determination period). Our experience is not an isolated case. A study conducted by Lichfields examined 60 planning applications on small sites across London and revealed that the median time from validation to committee was 33 weeks, with a further 23 weeks to agree the s106 agreement and issue the permission.

“Small sites have the same multitude of constraints as large sites, with less flexibility in design”

A subset of eight sites (consisting of fewer than 20 homes) faced even greater delays and typically took 80 weeks between validation and permission being issued (following a s106 agreement), encountering the same planning challenges as major developments. This is simply disastrous for the average SME, who unlike the large housebuilder has a much smaller balance sheet and significantly higher costs of funding. As well as this, teams are smaller (and less able to grow quickly), resulting in less flexibility to juggle projects when unforeseen delays occur.

Looking into the detail

When the data is scrutinised, it becomes clear that there is not much difference in determining small and major schemes, owing to a “one size fits all” planning system. Small sites have the same multitude of constraints as large sites, with less flexibility in design (due to restrictions in developable area, lower cost margins and economies of scale to deal with these issues).

A minor and major application will have to submit the same number of technical supporting reports to meet validation requirements. An application for five houses may have to undertake up to 20 different technical assessments to meet planning requirements in London such as: overheating, noise impact assessment, air quality assessment, ecology, biodiversity net gain, sunlight, heritage, flooding, fire safety, sustainability, design, highways, archaeology etc, which comes at a huge cost for SMEs and hinders housing output.

After all of this, even if a planning application is given a resolution to grant by planning officers after having gone through the arduous planning process, the final decision sits with local councillors at planning committees (who are often not well versed on the planning system) and are driven by politics and NIMBY sentiment. When considering our own sites, despite engaging in positive pre-application discussions with the local authority, schemes have been refused due to local opposition rather than planning merits.

The need for small sites

Why does this matter? Small sites are just as important as larger sites to deliver homes and can be built out more quickly. Often, small property developers can deliver more innovation and greater attention to detail in their homes, creating a more bespoke product as opposed to volume housebuilders.

Indeed, consumers are reported as being twice as satisfied with the quality of homes built by local housebuilders as compared with those built by volume housebuilders (House of Lords, 2022). The Home Builders Federation has calculated that returning to the number of SME home builders operational in2007 could help boost housing supply by 25,000 homes a year, which would bring us closer to the number of homes Londoners need. Even a return to 2010 levels could help increase output by 11,000 homes per year.

“Reform is needed: policymakers and planning authorities must collaborate to streamline the process”

Conclusion

So as we stare in the face of a deepening housing crisis, it is clear that significant reform is needed to the “one size fits all” approach that is deeply embedded within the current planning system. SMEs are desperate to develop – it’s what we do – but the current planning environment makes it extremely difficult.

Reform is needed: policymakers and planning authorities must collaborate to streamline the process, for example, taking a more holistic view on policies and number of technical assessments needed for small site applications – especially where these can be dealt with as a planning condition after the permission is granted. By doing so, we can create a more efficient planning system, helping SMEs and benefitting the communities they serve.

Until this happens, it is crucial to explore innovative solutions in order to unlock London’s housing delivery. Over recent years we have pivoted our business model towards delivering sensitive and sustainable airspace development across London. Although inevitably, we still face planning delays, we have found determination periods to be closer to statutory timeframes and quicker when compared to our ground-up developments of a similar scale. This is especially the case when making use of the government’s permitted development rights for upwards extensions (since August 2020), as government and some councils begin to recognise the value of airspace development as a high-density, sustainable solution to add to London’s housing stock.

This article first appeared in React News.