Summary: The consultation draft revised National Planning Policy Framework published on 5 March 2018 explicitly recognises the Build to Rent Sector (BTR). Whilst the new policy support for this sector won’t solve the housing crisis on its own, it should give this exciting and growing sector traction and stimulate investment and interest encouraging the increase in the supply of homes to the UK housing stock
NPPF: Long-awaited changes
The much trailed revisions to the National Planning Policy Statement (draft revised NPPF) published recently for consultation contains around 80 planning reforms. While most of the revisions were expected to follow Government announcements, consultations and publications over the last year or so (largely relating to housing delivery), in some cases the revisions go further or deviate from the anticipated position. The nuance leads to the draft NPPF potentially having important implications for developers.
This blog focuses on the new policy support for Build to Rent (BTR) housing and whether this will boost housing supply.
Build to Rent: The complexities and opportunities
The draft NPPF gives the BTR sector formal policy recognition for the first time. In planning law, BTR is not distinguished in the C3 Use Class from other forms of residential development despite its particular characteristics. Under the draft NPPF BTR is defined as a tenure for which local authorities are required to plan. To fall within the definition, and to qualify as BTR, housing must be purpose built and rented out. It can form part of a wider tenure development scheme but should be on the same site or contiguous with the main development. Critically, tenancy agreements for three years or more should be offered (to provide longer-term stability for renters (and, of course, a more stable income stream for investors)) and will typically be professionally managed in single ownership and control.
In recognition of the unique nature and challenges of the BTR sector (there is generally a longer time between initial investment and return as the capital receipt for sales gives way to rental income dependant on occupancy levels and prevailing rent levels); the revised NPPF recognises that viability and affordable housing should be treated differently to build to sell developments.
The general requirement for major developments under the draft NPPF expects at least 10% of the overall affordable housing contribution to be affordable homes for sale. BTR schemes are exempt from this requirement and instead have flexibility in their affordable housing offering. However, the draft revised National Planning Practice Guidance (NPPG) (published a few days ahead of the draft NPPF) recommends that 20% of any BTR scheme should be affordable private rent homes, to be provided and maintained in perpetuity and that affordable private rent should be a minimum of 20% less than the private market rent (including service charges) for the same or equivalent property. This concept of “discount market rental” housing allows for the affordable housing to be “tenure blind” and to be located throughout a development under the same common management structure as the pure market units.
How will recognition of BTR ease the housing crisis?
For many, particularly in metropolitan areas, the “first step” on the housing ladder is not the purchase of an apartment or house, but renting one’s first property. Recognition of BTR in the draft NPPF is an important first step for the sector to become an accepted part of the vocabulary when local authorities are planning for residential development. The sector has long been a success in North America, where it is seen not just in the forms of the student, senior living and young professional markets (the first catch on in the UK) but also in multi-family living. This allows for the UK to gradually release its grip on the expectation that home ownership is the only option. It is hoped that policy support at the NPPF level will lead to positive planning at the local level and a recognition of the benefits of BTR by local authorities, allowing for opportunities to be created and even greater interest from investors (the sector has, to date, been successful in winning investment). BTR provides options for the use of flexible and efficient construction methods and management structures and critically allows for longer-term, more secure renting as a genuine option to home-buying.
Interactions with the London Plan
There is currently a gap between the positions under the draft NPPF and NPPG, and the emerging draft London Plan and corresponding Affordable Housing and Viability Supplementary Planning Guidance 2017 (“SPG”). The Mayor of London has been at the vanguard of local authority attempts, through policy, to recognise the particular challenges for and opportunities from BTR.
The draft London Plan, which is currently out for consultation, urges the planning system to treat the BTR sector positively so that it may increase its contribution to delivering new homes. It goes much further than the draft NPPF in defining BTR. The draft London Plan differs from the Mayor’s own SPG, published a few months before the draft London Plan, and so it is the draft London Plan that should be considered to be the Mayor’s current position in the case of difference.
The London Plan recommends that BTR schemes would need to deliver at least 35% of affordable housing, at least 30% being at London Living Rent Level and the remainder being set at a range of below market discounts to be decided with the Mayor and/or the borough.
The separate definition of BTR under the SPG includes the need for a covenant that the units will be held for BTR occupation for at least 15 years. If the units were sold in breach of this covenant, this SPG recommends that the local planning authority would be able to operate a clawback system where a set amount of the proceeds of sale is returned to the local authority to redirect into affordable housing.
As BTR emerges as a more stable approach to the landlord and tenant relationship in the UK and as an alternative to home ownership, it is important that the national and local planning guidance continues to adapt its position to catch-up with the continued and growing emergence of BTR.
The draft NPPG and NPPF suggest that, whilst affordable housing will be important for BTR, developers will be able to take a correspondingly less traditional and more bespoke approach to adopting affordable housing in their schemes. Local authorities will also have the option to adapt the affordable housing position based on geographical, political and economic factors.
In addressing the housing crisis, it will be necessary for the Government to balance the need for affordable housing with viability assessments for BTR schemes, in order to deliver the maximum number of accessible homes and successful BTR developments across the UK. The draft NPPF makes good progress towards this balance, but it is to be seen how effectively the planning authorities will put it into practice at the local level.