Planning for Build to Rent

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At the beginning of the summer, the Government published a revised National Planning Policy Framework (NPPF), which in almost all respects immediately supersedes the 2012 edition. This was followed more recently by an update to the Planning Practice Guidance (PPG), which sits under the NPPF and provides detailed guidance as to how the policies of the NPPF should operate.

These changes have significant implications for the build to rent sector (BtR) in England (they do not apply elsewhere in the UK), but they have been widely overlooked. This briefing therefore seeks to raise awareness of the changes and to consider their implications for the sector.

A planning definition for BtR

BtR is now recognized in national planning policy as a distinct asset class within the private rented sector as it has its own planning definition set out in the NPPF:

"Purpose build housing that is typically 100 percent rented out. It can form part of a wider multi-tenure development comprising either flats or houses, but should be on the same site and/or contiguous with the main development. Schemes will usually offer longer tenancy agreements of three years or more, and will typically be professionally managed stock in single ownership and management control."

A new policy approach to BtR

The new section of the PPG on BtR sets out clear guidance as to how the Government expects BtR to be dealt with by the planning system. For example, local planning authorities are required by the guidance to consider whether there is a need for BtR in their area and if so, to bring forward local plan policy that sets out their approach to promoting and accommodating BtR schemes. The policy should identify the locations and circumstances where BtR schemes will be encouraged.

This is helpful in paving the way for specific recognition of the need for BtR in local plans and even for BtR specific allocations. If the industry engages with this process then it could result in specific BtR allocations, eliminating competition for those sites from other sectors of the development industry.

Affordable housing and BtR

The change most likely to have an immediate impact relates to affordable housing requirements.

The PPG recommends a 20% benchmark for the level of affordable housing required to be provided in BtR schemes, a figure significantly below the levels typically sought by local planning authorities.

At the same time, the PPG sets out in detail what the NPPF means by the new BtR specific affordable housing tenure. The key points are;

  • Housing must be offered at a discount (inclusive of service charge) of not less than 20 percent against market rents (the discount, along with the proportion of affordable units within the scheme can be varied across the development and over time)
  • BtR affordable housing is under common management with the market units (ie no housing association is required)
  • It is possible to negotiate a trade-off between the level of affordable provision and the extent of the discount on a specific scheme
  • Tenancies should be of not less than three year duration (although with shorter terms offered to tenants at their choice), and
  • Councils should not have nomination rights and while eligibility criteria should be agreed between the developer and the local planning authority, "Final decisions over the occupancy criteria for affordable private rent homes should be made by the build to rent scheme operator, working with the authority," taking account of the detailed criteria set out in the PPG

What happens when units within a BtR scheme are sold?

The PPG makes clear that affordable private rented homes, secured by planning obligation, are to be provided as a specific community benefit in perpetuity. The planning obligation ought to provide for situations where operators need to sell all or part of the scheme, whether into owner occupation or converting the units to another tenure. The PPG advises that a claw back mechanism ought to be agreed to recoup the value of the affordable housing provision that is withdrawn if the homes are converted to another tenure and compensation mechanisms if the units are sold before the expiration of an agreed period.

A sample claw back formula is contained in the PPG.

How to use this new policy and guidance

The above is only a summary and the PPG ought to be readin full by anyone operating in the sector.

The PPG approach is significantly different from that being taken by some local planning authorities and the Mayor of London. The PPG is not a silver bullet as it is only guidance and local planning authorities can always seek to argue for a different approach if they are able to justify it in planning terms. However as a statement of Government policy, it is of significant weight and strengthens the hand of the promoters of BtR schemes as, ultimately, a planning inspector making a decision in the Secretary of State’s name on appeal is likely to require a significant amount of convincing to department from the approach that the Secretary of State has set out. Likewise, inspectors examining emerging local plan policies will want to be satisfied that those policies accord with the NPPF and the PPG unless the inspector can be satisfied that there are good reasons for adopting a different approach in the particular local circumstances.

For more information please contact the author.