Legal Briefing

Planning, localism and the new economy

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Real estate | 28 April 2011

The Localism Bill, which is now going through Parliament, has been highlighted by the government as a driver of housing supply improvement and sorely needed growth in the regions independent of financial wizardry. There has been much comment recently about whether localism will take us to the right place and really generate growth.

Land is a key factor in the production of new developments, and reform should be aimed at removing supply uncertainty. The planning process needs to be speeded up and become less prescriptive, so that development is not held up. Everyone understands that planning is the problem because it constrains supply, and because it is operated by people who have no stake in successful development coming forward, but what should be the cure?

On 17 February Vince Cable, Secretary of Business, Innovation and Skills, said in an article:

‘The market in land is dysfunctional, distorted by a slow, prescriptive planning regime and speculative hoarding. Development… is paralysed, often in parts of the UK that need it most. That is why we are bent on planning reform, examining innovative ideas such as land auctions.’

The key is, in part, the National Planning Policy Framework (NPPF), where there is to be a presumption in favour of sustainable development. But will it be enough and what can we expect it to do?

The localism agenda is a reaction to prescription by government – being told what the right answer is before local consultation starts, rather than commencing a genuine search for it together. John Howell, the Parliamentary private secretary to the Leader of the House of Commons, writes in ‘Conservative Home’:

‘[Centralism] failed to deliver the new housing we need because its only tools were central and regional targets, which ignored local residents… they were also a cruel deception to developers trying to plan ahead… Labour never trusted [local people] to play a responsible part… By contrast, we think local residents must be made part of the solution rather than part of the problem, and that this is best done by giving them a real say in the future of their communities, with the appropriate incentives to match.’

Housing minister Grant Shapps is equally determined to reduce central government interference:

‘The government is overseeing a fundamental shift of power away from Whitehall to local councils, communities and citizens by devolving power to the most local level possible. We want to achieve a position where strong, empowered local authorities are able to act in the best interests of their residents with the necessary support, not interference.’

For ministers, localism is an end in itself. It is potentially very radical but will the mechanisms developed work and create a good land supply, or are they potentially already damaged and set up for failure? Ministers maintain that central and regionally planned targets have not secured growth, and that with sufficient stake in development for local people, they will fall in. But if decisions are left to local communities, then it must follow that they will not take decisions that are in the national interest but in their local interests. Moreover, what if the differences between national and local are irreconcilable, as, for example, they appear to be in relation to aviation, and aviation development? There have to be some decisions, in the end, reserved for national politicians.

LOCALISM AND GROWTH

Ministers such as Greg Clark, Minister for Decentralisation, recently said at the Adam Smith Institute that the localism reforms are designed to achieve growth. Neighbourhood plans that are purely defensive and do not promote growth will not be encouraged to proceed; assets of community value should not be used tactically to stop development and only be used in a timely way; moreover, the incentives of the new homes bonus and, in some cases, the waiving or abolition of business rates will generate real incentives for local authorities to act differently. But the incentives set by central government may not be that attractive – and there will always be some local authorities that reject applications despite the rewards that would accrue from approval. It would seem that, just on a monetary basis, for local communities to be rewarded and feel good about it, larger sums will be required than the government is contemplating.

LAND AUCTIONS

One way to generate more money locally might be land auctions – explained in 2007 by Edward Davey and Tim Leunig, advising Kate Barker’s land use planning review and recently championed by Vince Cable. The local authority invites landowners to submit sealed bid letters stating the binding price at which they are willing to sell their land without planning permission, giving the council a limited period call option. The council and community decide which sites will be granted permission and then auction the call options to sell for the highest price, capturing for the community almost all the planning land value rise. Depending on how the community organises itself, this is capable of compensating those most affected by the uneven local impacts of development. Certainly the development industry won’t always like it and it will affect the conduct of the strategic land business. Can local authorities move fast enough to make it effective?

MINISTERS RETAIN POWER OVER PLANNING GUIDELINES

The recent Cala Homes cases highlight confusion about the abolition of regional strategies and the need for co-ordination between authorities, and the bill is being altered to strengthen this aspect. Moreover, even when the Localism Bill becomes law, it will be ministers who will continue to set planning rules through the national guidelines that they set. They are pledging to reduce national planning policy to a splendidly simple NPPF, but it is likely that even this will be tinkered with once new ministers come in to replace those that set it up. The pace set by ministers is much faster than that locally. Until the NPPF is established, it is difficult to imagine other than that, for a period at least, planning will mostly consist of business as usual.

HOW FAR WILL LOCALISM GO?

It is hard to predict what the results of the new localism initiatives will be. The danger is that by simply giving more powers to communities, and without adequate incentives to let development take place, they stop development and economic growth in its tracks. If the NPPF is genuinely only a framework and not a detailed guide to planning policy, then local planning authorities may find themselves with far greater freedom to vary schemes than before. But the signs are that many existing planning restrictions will just be rolled into the NPPF and the pass may already have been sold. Areas of outstanding natural beauty and green belts, for instance, will remain. Greg Clark made the position clear when he said of the NPPF on 20 December last year:

‘The new framework will integrate our current… policy statements and guidance into a single concise document… focus on the government’s key priorities for planning and help deliver a more effective, decentralised system.’

The statement says that:

‘The NPPF will streamline the national planning policies set out in planning policy guidance notes, planning policy statements, minerals policy statements and minerals policy guidance notes, plus a number of related circulars… cover[ing] various planning aspects of climate change, housing, renewable energy, flood risk, green belt and waste, and procedural advice such as how to compile development plans.’

So all these are included, but:

‘… the government will continue to maintain green belt protection, areas of outstanding natural beauty, national parks, sites of special scientific interest and other environmental designations which protect the character of our country’s landscape, stop unsustainable urban sprawl and preserve wildlife.’

Guidance notes and best practice guides will be cut back, and national policy statements for infrastructure will not be included.

This is questioned by the Institute of Directors, which has called for selective release of land in green belts that could make real sense where pinch points can be relieved or an easily tapped resource released that can make a difference. One of the reasons – apart from low interest rates – for why in the interwar period it was possible to build so much housing around London was that there was already in position a network of surface and underground railways providing ready public transport access to enable construction of Metroland. Opportunities to develop close to transport infrastructure still remain in places, but they are now blocked by green belt restrictions. In the past, the green belt has not necessarily restrained strategic land developers although they have usually been unsuccessful. Can we anticipate that some local authorities might be encouraged to review the boundaries of the green belt or other designations, if, for example, they had the incentive of land auctions?

CONSTANT REINFORCEMENT OF CONTROLS

There is real advantage in having a genuine rationalisation of planning controls from time to time. They are constantly and consciously being reinforced by the activities of the environment and community groups, so that planning policy never stands still, and is forever elaborated and developed. Unless spring cleaned fairly regularly, the system slowly becomes more sclerotic and often, despite national policy guidance, more specialised and particularist. The trick is to ensure that a shorter policy framework is also a better one because it sets out principles rather than trying to plan for every situation. The pressure groups and single-issue bodies such as English Heritage, Campaign to Protect Rural England and the London Green Belt Council, which currently hold the planning system in stasis, will remain in being. Opposing them, of course, are the development industry representatives such as the British Property Federation, Royal Institute of Chartered Surveyors and Country Landowners Association.

INTERNATIONAL COMPETITIVENESS

A real advantage of clear simple exposition of planning policy is that it can be clearly understood by everyone. In the areas where development can take place, land auctions may assist in bringing forward more housing. Clarity may also improve the supply of industrial land. International competitiveness demands that planning should become less intricate and costly, but specialist and particularistic planning policy can only be matched by custom-tailored development at intrinsically greater cost. UK office space is the most expensive in the world. Even in Birmingham, as London School of Economics’ Paul Cheshire and Christian Hilber point out, office floor space costs are more than 40% higher than in Manhattan (although construction costs half as much). There is no justification for this rental price level, and it damages the UK’s comparative advantage as a location. Over the past two decades, policy has emphasised the quality and design agenda, resulting in some excellent, but sometimes over-specified and very expensive development – and not enough of it. In a more competitive world it will be necessary to produce high-quality commercial buildings in a less costly way.

Just recently there has been some pressure for a revival of Enterprise Zones (EZ), which largely succeeded in bringing important development to places such as London’s Docklands, Merry Hill in the West Midlands and Gateshead Metrocentre. EZs were quintessentially centralised, and a much better and truly localist approach will be business rate setting and retention at local level, which, if it can be achieved with sufficient co-ordination, will provide real empowerment and incentives. EZs may also have relied critically on high-profile leadership at national level. It remains to be seen whether the new localism will be capable of creating such leadership in a less centralised way; the renewed interest in mayors and the powers in the bill for mayors to create mayoral development corporations is encouraging.

MODIFIED INFRASTRUCTURE PLANNING COMMISSION SYSTEM

Infrastructure is very important, and closely connected with prosperity and well-being. It is a real creator of wealth, as highlighted by Sir Rod Eddington in respect of transport, who said in his 2006 report:

‘There is clear evidence that a comprehensive and high-performing transport system is an important enabler of sustained economic prosperity.’

For the past 50 years the UK has been poor at timely infrastructure planning and authorisation relative to other developed democracies. To finance a major infrastructure project requires a clear indication that, subject to meeting plain and relevant standards and safeguards, the project will proceed – an approach that suffered a real setback with the incoming coalition’s Heathrow runway three cancellation. The future lies in maturing the pre-application consultation approach in the Planning Act 2008, and with Parliamentary scrutiny of national policy statements. It will take time to settle in, but at this level it is an inherently centralist system. At a lower scale of development, which will be important to generating local economic growth, localism leaves matters in the hands of the planning authorities: the NPPF and thorough pre-application consultation will be most important.

CRITICAL IMPORTANCE OF THE NPPF

If it genuinely gives greater freedom to local authorities to make more planning determinations for themselves, unencumbered by detailed planning guidance, the NPPF may lead to great change. However, the likelihood seems to be that unless it is written very carefully the document may still contain significant restrictions imposed at a national level. It needs to be drafted in a way that gives maximum scope for newly motivated local authorities to rethink their positions, so that change genuinely does come from local origins. Locally led planning policies will mean change coming forward in a patchy way. The financial incentives of the new homes bonus and selective business rate reductions and waiver – potentially of land auctions and even of EZs – should generate significant change in some areas, but there will undoubtedly be other areas where the scope for growth is more limited and localism may simply mean business as usual.