Homes means people and people means votes. That is why new homes are centre stage in every election manifesto published to date.
Flicking through the manifesto documents made me think that our (political) parties are participating in some form of Olympic sport: competing for the gold medal for being the homeowners’ friend.
It seems ironic that although the Conservative government never met its target of building 300,000 new homes a year whilst in office, in their manifesto they have pledged to build 1.6m new homes over the life of the next parliament which is equivalent to 320,000 new homes a year.
Next out of the blocks with their stated target of 1.5m (300,000 new homes a year) was Labour. A few days later, not wanting to be out ambitioned by their two major rivals, came the Lib Dems with their pledge to build 380,000 new homes a year, of which 150,000 would be designated social housing.
Clearly, housing is one of the top five election issues given the fact that, according to Housing.org, 8.5m people in England are currently facing some form of unmet housing need.
In addition, every party has underpinned their ‘declarations of intent’ with incentives for first- time buyers, to address the fact that the national average age for first-time buyers is now 34 and in London it is 38, as well as bold statements about planning reform. The latter range from fast-tracking planning for brownfield sites (CON) to prioritising social rental housing (LAB), to expanding Neighbourhood Planning (LIB DEMS).
Whilst it will be a drop in the ocean for achieving manifesto housing targets, additional (PDR-related) flexibilities introduced in March 2024 could provide a relatively quick boost to the delivery of new housing and attract private sector investors - as it makes the prospect of converting redundant, obsolete and/or underused commercial space into revenue generating new homes even more enticing.
Class MA permitted development rights allow commercial business premises (Use Class E e.g. retail, offices and more) to be converted into residential properties subject to the ‘Prior Approval’ process. The matters for prior approval consider the suitability and impact of the proposed development although approval should only be withheld where there is a compelling reason for this. Before the March change, Class E buildings had to be vacant for three months Prior to the submission of an application and, the maximum space for conversion was limited to 1,500 sq. m.
The removal of these restrictions should result in additional homes coming to market, more quickly and on a larger scale.
However, the legislation did meet with mixed views; some critics were concerned about the quality of homes being delivered, whilst others talked about ‘unlocking’ new opportunities.
Many argued that converting surplus and obsolete (business space) into much-needed new homes would also help revitalise our town centres.
But this (PDR) silver lining does have a cloud. Local Planning Authorities often seek Article 4 Directions to remove the ability to use PDRs in certain areas (especially the use of MA in Central London). However, Local Planning Authorities have been under scrutiny to ensure these are targeted and justified with recent modifications shrinking these in several London boroughs.
Understandably, MA cannot be used in relation to Listed Buildings, World Heritage Sites, sites of Special Scientific Interest (SSIs), national landscapes (previously known as AONBs) and National Parks.
In brief, MA can help deliver homes quickly, offer property investors and developers the opportunity to improve or alter their properties, enhance the value of their assets and improve the longer-term ROIs in locations where this was not previously possible.
Converting disused/unlettable offices into assets (homes), in a market where demand exceeds supply, would make a lot of sense to any investor. Still, it is worth noting that there are fewer lenders in the residential office conversion market and fewer owner-occupiers.
But the truth is, to be effective and make a real difference, we need unadulterated decision-making, free of the influences of local politics and bias towards overly restrictive policies. Streamlined decision-making is often at risk as MA (and PDRs generally) do sometimes support development not usually welcomed by Local Planning Authorities because of the perceived loss of employment floorspace.
Flats created from office accommodation tend to attract investors looking to maximise returns at minimal risk. This is why there is a significant transactional market based around Housing Associations, or other such groups, taking a lease over a whole building at only a slight discount from the standard AST rate and then, leasing these flats on a nightly rate to local authorities. This offers the Freehold investor guaranteed income with minimal management risks. These leases are often for up to 10 years and usually no less than three.
In addition, the net yield achieved can be significantly greater than traditional leasing methods because of reduced management costs and no risk of rolling voids. Exact returns depend on the area but can often be up to 3-4% more.
Converting obsolete/empty offices to residential accommodation also allows investors/owners to reduce the risks and liabilities associated with owning assets in a market which is facing enduring structural changes - such as those associated with the evolving post-Covid work practices, first working from home, now hybrid-working, and the subsequent demands for and on our workplaces, including how we use the space and what we demand of it in terms of enhanced Heating Ventilation and Air Conditioning (HVAC) systems.
The impact e-commerce has had on high street retailing is widely documented as has its impact on the value of retail asset stock. In addition, the subsequent consequences of the drop in footfall in commercial districts and its effect on the demand on traditional high street service providers (such as sandwich makers, pubs and retail outlets) are visible to all.
Therefore, whilst MA affords responsible property investors and developers huge opportunities, with this come obligations: in particular related to their ESG commitments and delivering a product suitable for the target market.
In addition, it is worth remembering that we are all under pressure to improve the sustainability of buildings: this can often be inherent in the reuse of buildings, a hidden benefit of MA. Given the UK’s commitment to meeting net zero carbon goals by 2050, retrofitting buildings in the process of converting vacant and obsolete business spaces (especially those above retail premises) into thermo-efficient new homes may also help to achieve this
The conversion of obsolete/empty offices into homes will present challenges but, with the right people involved, there will be opportunities to deliver homes in a housing crisis and ensure quality and environmental benefits are maximised, whilst supporting a profitable and socially responsible ROI.
Hopefully, Class MA will continue to exist after the election as it can help to deliver the homes, we, as a nation, desperately need.
Find out more about more about our valuations consultancy services or contact Robert Haigh. Find out more about our planning consultancy services or contact Scott O’Dell.
