The Government's consultation on proposals to relax planning rules to allow changes of use from commercial to residential without the need for permission has proved more controversial than anticipated.

The Government has committed to reforms intended to incentivise growth, be less bureaucratic and more responsive to the changing demands of society and businesses. The recent consultation on proposals to relax planning rules to allow changes of use from commercial to residential without permission illustrates that there are difficulties in reconciling all the objectives.

By requiring planning permission for "material changes of use", the Town & Country Planning Act 1990 seeks to prevent the loss of valuable uses or the creation of incompatible uses without consideration by the local planning authority.

The Town & Country Planning (Use Classes) Order 1987 (as amended) (UCO) identifies classes of use for buildings and other land. Changes within the UCO do not require consent. The Town & Country Planning (General Permitted Development) Order 1995 (PD Order) then grants a general permission for specified changes of use between some use classes. The UCO therefore already operates as a deregulatory device to enable change of use between land uses with similar impacts without the need to apply for planning permission.

For many reasons there is a shortfall in housing delivery. The Institute of Public Policy Research suggests that, if the Government's projections for household growth are accurate and housing supply continues at 160,000 additions per year, then England will have 750,000 fewer homes than required. The shortfall is predicted to be highest in London (-325,000). In fact, house building is now at the lowest level since 1923 and only 102,570 properties were built in 2010 (13% less than in the previous 12 months (CLG February 2011)). It is a measure of the seriousness of the crisis that the Government proposes to allow business properties to be used as dwellings.

In April 2011 the Government proposed that changes of use from B Class (commercial) uses to C3 (dwelling houses) should be permitted without the need for planning permission. It estimates that the changes "could double the number of dwellings available from B Classes Change of Use developments to around 14,000 per year".

The consultation response has been mixed. While some property owners support the approach many institutions and sectors have been highly critical. The Government believes that generally the market will make sensible decisions about where land classified as B Class is and is not suitable for residential development on the basis that homes in unsuitable locations will be harder to sell.

However, it proposes that dwellings created under the new regime would be allowed to revert to their original B use class within five years to reflect the fact that some may prove unsuccessful in market terms. That mixed message reflects the reality that even small uplifts in value from commercial to residential use may still be enough to encourage housing that is inappropriate.

Critics have raised a number of concerns. Firstly, where new residents are introduced to business/commercial areas, there is a risk that they will use planning policies and nuisance laws to curtail both existing and new business operations. They would begin to accrue rights of light which would over time, impede development (and force proposals to less sustainable locations).

Secondly, uncontrolled changes could lead to a reduction in the availability of the best employment land during a period where, because of the prevailing economic conditions, there is a lower demand for business space. The pipeline of B1 premises is at its lowest for 10 years in some parts of London. Residential end values are so high that other uses will be "squeezed out" particularly where there are amenity conflicts as the amount of residential use increase.

Thirdly, the proposals could allow wider changes of use rather than simply conversion, for example where a building is converted into flats, the residential use is established and the building is then subsequently demolished for a more conventional housing scheme.

Fourthly, planning authorities would lose the ability to address infrastructure requirements created from residential uses through Section 106 Agreements.

Finally, by overriding and ignoring existing development plan policies which seek to protect employment locations and require conversions to provide for affordable housing, the changes will in fact undermine the Government's commitment to "Localism" by undermining the locally mandated development plan.

The Government suggests that local authorities would still be able to impose "Article 4" directions, disapplying the relaxation, in defined areas. However, the proposals do not include any limit on the compensation those authorities would be liable for as a result (or the time period for making compensation claims). That is likely to make authorities reluctant to withdraw the new rights, even where it would be in the best interests of local businesses and people to do so. Where development plan policies already seek the protection of employment uses, that is onerous and undermines a plan-led approach.

There are several changes that could make the proposed changes safer. A 12 month grace period from the amendments coming into force, during which the new PD rights will not apply to certain areas (such as designated employment land and some city centres).

The new PD rights could then still apply in such areas that a specified date, unless the local authority notifies the Secretary of State beforehand that it has consulted locally and does not consider it would be in the interests of a proper planning of its area to accept the measures either in relation to the whole or a part of its area. Article 4 Directions made in respect of commercial to residential PD rights should be exempt from compensation liability.

SNR Denton's representations to the Government on behalf of London Business Improvement Districts also suggested that a more proportionate and cost effective way of achieving the Government's objectives would be to encourage a wider uptake of Local (and Neighbourhood) Development Orders that provide for area-specific relaxation of planning rules and pilot reducing the fee for planning applications for a change of use (i.e. proposals not including any approval of operational development).

It was also suggested that national policy should be amended to emphasis the benefits of allowing conversions, but still ensure that proper infrastructure and affordable housing requirements are met.

While the pace of reform has increased exponentially over the last 12 months, the quality of supporting analysis has not kept pace. In common with the other changes the Government is making to the planning system through the Localism Bill, it is clear that further thought is needed to offer genuine benefit.

Originally published in PropertyForecast, July 2011