After nine months in power, the latest in a raft of Labour government initiatives to reform the planning system - the Planning & Infrastructure Bill (P&IB) - was recently published. But will it’s measures be capable of boosting SME housing output to meet an ambitious housing target?
Given government’s priority of building 1.5m new homes by Summer 2029, this should be the primary benchmark by which these initiatives are judged. The top two barriers reported by SMEs are: ‘Delays in securing planning permission and discharging conditions’ and ‘a lack of resources in local planning authorities’ which have persisted for years (HBF 2024).
The new government quickly produced welcome reforms to the National Planning Policy Framework (NPPF), surprising many with the speed of progress after assuming office. Multiple consultations and many working papers later, its intention to address blockages to development is not in doubt. But the positivity associated with the NPPF reforms announced in July faded with the Autumn budget. Primarily comprised of fiscal measures to stabilise government finances it has a direct financial impact on businesses and their future outlook.
The business case for development
Often forgotten when addressing national housing need is that housebuilders are first and foremost businesses. Private sector housebuilders need a justifiable business case to proceed with development. This business case must be maintained for the life of the project. Meeting target returns is how debt is repaid and future borrowing secured for the next project.
Unlike the large housebuilder model, SME builders are largely funded through relatively short term project specific finance. It is why the cumulative effect of planning obligations as part of overall costs have a greater impact on SMEs. As reported by the Competition and Markets Authority (CMA 2024) SMEs are exposed to delays in the planning system, with the impact of increased exposure to market volatility reducing access to funding. Non-planning government measures or a failure by government to address issues in the wider economy like inflation may have a more immediate and material impact on the business case for SME developers than planning measures alone.
