Property News

Labour Needs to Utilise Permitted Development Rights To Boost Housing Supply

Labour Needs to Utilise Permitted Development Rights To Boost Housing Supply

Property investors could take advantage of Permitted Development Rights (PDR) to reap rewards from creating homes from non-residential stock without having to navigate laborious planning permission processes, an advisory firm claims.

The Labour government has pledged to deliver 1.5m new homes by 2029 which, as it stands, demands an annual delivery total of well over 300,000. But no government in recent decades has ever come close to achieving this sort of new-build delivery rate.

New insight from Excellion Capital, the boutique debt advisory and investments firm, reveals that property investors could take advantage of Permitted Development Rights to reap great rewards from creating homes from non-residential stock without having to navigate laborious planning permission processes. Excellion Capital said "that while it looks increasingly unlikely that the Government is going to be able to honour its new homes pledge with new-builds alone, they might have to look at alternative avenues of increasing supply."

In fact, Excellion Capital’s analysis of new-build delivery data* shows that at a time when new-build output needs to ramp up, it’s actually trending in the opposite direction.

The latest net housing supply data shows that, last year (2023-24), 198,612 new-build homes were delivered across England. Not only is this a long way off the level that Labour needs to achieve over the coming years, but it also marks an annual decline of -6.5% compared to 2022-23. It also means building figures remain far behind pre-Covid levels when, in 2019-20, 219,120 new homes were delivered.

Therefore, it looks increasingly unlikely that Labour is going to be able to honour its new homes pledge with new-builds alone, which means they might have to look at alternative avenues of increasing supply. One such avenue could be Material Change of Use.

Material Change of Use is the process of changing the ‘use class’ assigned to a property under the Use Classes Order 1987. For example, changing an office building (Class E) to a residential building (Class C3).

Excellion Capital has analysed change of use data from the UK Government and found that across England last year, 21,591 non-residential properties underwent a change of use to be converted into residential dwellings, marking an annual decline of 3.1%.

But for property investors who are looking to take advantage of the opportunities presented by Material Change of Use, the process of obtaining the required planning permission can be laborious, lengthy, and often expensive.

However, there are opportunities for investors to change the use of non-residential property without having to obtain planning permission, and this is through Permitted Devlopment Rights.

It lets individuals and developers make certain changes to buildings or land without the need to apply for, and obtain, planning permission.

Excellion Capital said "this means that non-residential properties which hold PDRs under planning law can be converted into homes far more easily than those which have to undergo a Material Change of Use."

Excellion Capital’s analysis of change of use PDR data reveals that before the pandemic (2019-20) 12,375 residential properties in England were created through change of use PDRs. Covid saw the total fall to 9,990 in 2020-21, before bouncing back to 10,340 the following year.

However, last year, just 8,825 residential properties came via PDRs, marking an annual decline of 8.3% and the lowest number since at least 2019.

In some regions, however, it appears that property owners and investors have started taking much greater advantage of PDRs.

In Yorkshire & Humber, the number of residential properties created through PDRs soared by 132.2% in the past year. In the East of England the numbers rose by 32.2%; the North East saw a rise of 13.4%; and the East Midlands saw an increase of 5.5%.

Robert Sadler, vice president of real estate at Excellion Capital, said “PDRs provide a great way for property owners and investors to convert struggling assets into new homes without the need to secure planning permission. This makes for an extremely fast project turnaround time, which can be highly attractive to lenders who often see PDRs as a low-risk venture with fast returns. As the Government pushes to meet its heady new home delivery targets over the next five years, PDRs could play a central role, especially in those places where land and space is limited.

There is also currently tremendous availability of relatively low priced debt for residential projects, which means, in the right hands, there are some incredible opportunities just waiting to be unearthed with PDRs.

It is strange, therefore, that the number of instances where PDRs are being used to create new homes has fallen over the past year. A recent survey of ours reveals that high interest rates were the most pressing concern among property investors in the UK, so perhaps the falling number of PDR instances is because high interest rates required lower leverage and ultimately meaning more equity was required.

But now that interest rates are trending downwards, a previously high interest environment shouldn’t be enough to put investors off taking advantage of great opportunities when they arise.”

 

What are Permitted Development Rights?

According to the UK government, PDRs, as granted by Parliament and set out in law, allow “individuals and developers to make certain changes to buildings or land without the need to apply for, and obtain, planning permission”.

This means that non-residential properties which hold PDRs under planning law can be converted into homes far more easily than those which have to undergo a Material Change of Use.

This presents a real opportunity for property owners and investors to create new homes with relative ease, reaping the financial benefits of doing so while also supporting the government’s efforts to deliver 1.5m new homes by 2029.

 

What does a buoyant market mean for property developers?

With the pace of the market set to quicken in 2025, property developers looking to take advantage of improving market conditions need to remain agile enough to move at the same pace in order to maximise the return seen on their investment.

Not only is there a benefit to investing now before property values increase further, but in doing so, developers can reap the benefits of upward growth further down the line when they do bring their investment to market. At the same time, a heightened level of buyer demand will enable developers to push forward with their pipeline for the year ahead.

In recent years, new-build stock has been slow to shift, largely due to the price premiums associated with new homes and the affordability constraints placed on buyers due to higher mortgage rates.

Now, as the market gains momentum, developed units are likely to sell at a greater pace, allowing developers to release the equity stored in existing schemes to fund new ventures.

Of course, this improvement to the market landscape will also bring an increased level of competition when new opportunities do arise, which again highlights the need to be able to move at speed when it comes to financing and securing new development opportunities.

The outlook for the year ahead is that the market will continue to improve from the ground made in 2024 and we’ve already seen a strong start to the year from those looking to utilise specialist lenders in order to capitalise on the growing opportunities that are emerging due to current market momentum.

Many of those now utilising specialist lending are clients who have been dormant for the last couple of years and this inactivity has largely been down to the slower pace of the new-build market.

We’ve seen a slowdown with respect to demand for new-build homes and this has meant that developers have seen a great deal of equity tied up in existing developments, which has prevented them from pushing forward on their next project.

However, this tide is certainly starting to turn and, with the expectation of a more buoyancy market over the next 12 months, we’re now seeing these clients turn their focus to their next project and look to specialist lending to help get the ball rolling.

Our ability to allow developers to utilise specialist lending during multiple stages of the journey has been vital in the current market and we’re also seeing clients value the speed of delivery with respect to this finance, as it allows them to remain agile and capitalise on opportunities in a market where demand is increasing by the day.