Streets ahead

A key proposal of the King’s speech was the promise of a new Planning and Infrastructure Bill. This aims to: reintroduce mandatory housebuilding targets for local authorities and deliver 1.5m new homes over this parliament; bring in more planning officers; and update the National Planning Policy Framework (NPPF) to allow for the designation of ‘grey belt’ areas.

Housebuilding

Labour is making the right noises – “particularly after a Conservative government that dragged its feet on everything” – but the new government needs to roll out changes quickly and ensure it is considering the bigger picture by factoring in infrastructure to support the slew of planned new homes, says Andy Jansons, managing director of Jansons Property.

“Roads and rail need to be put in upfront,” he says. “We also need employment space to complement that. Local authorities need to think further than office blocks and ensure there is development in other types of employment space, [such as] manufacturing. Housing developments currently need to factor in things like schools and GP surgeries, but there needs to be equal priority given to where people work. Perhaps there ought to be a ratio of allocated housing space to employment space to ensure one doesn’t dominate the other.”

The shortfall of UK housing has directly affected the commercial property market with an over-reliance on hotels used for emergency housing, says Stephen Nicolas, real estate partner at Paul Hastings: “This approach is both expensive and unsustainable; therefore, we need to see a stable stock of emergency housing, as well as a quicker and clearer process for change of use, to provide certainty for investment markets.”

Mandatory housing targets are a positive sign and should encourage growth, but clients want to build houses that add value, says Tom Beak, senior associate in Kingsley Napley’s real estate and construction team. “If the reform includes properly incentivised devolution of planning powers, encouraging local authorities to collaborate with local SME (small and medium-sized enterprises) developers, the government can ensure that planning decisions are not simply about hitting targets but have a genuine placemaking approach, allowing housebuilding to be better tailored to location and local need.”

Planning

The issues around planning pose a significant challenge to development and growth in the property market. The promise to hire additional planning officers and allow certain applications to be fast-tracked will help reduce the significant planning applications backlog, says Harry Petrou, associate in Kingsley Napley’s real estate and construction team.

He adds, however, that this may not go far enough: “Hiring additional staff does not address the strict planning rules that are a major factor in creating a backlog in the first place. The existing rules are rigid and were put in place to limit the spread of urban development into rural areas through the use of green belts, giving way to a ‘not-in-my-back-yard’ (nimby) mentality by residents. This has made it significantly more difficult to develop new residential properties. The government will need to conduct an in-depth review of the regulation itself if it is looking to make a significant impact in this parliamentary cycle.”

The planning process is mired in localism and administration and needs to change, proclaims Jansons: “It currently takes too long to get anything through the system. Local authorities have been getting away with murder for a long time. The statutory 13 weeks that the planning process is supposed to take is largely ignored. We’re hopeful Labour will set strict targets and ensure there are penalties for authorities if these aren’t met.”

Despite its merits, the Planning and Infrastructure Bill has faced significant criticism, says Barnes Law solicitor, Will Moran: “Critics argue that expediting the planning process might undermine local control and reduce opportunities for community input. There are concerns that this may lead to developments and infrastructure projects that do not align with local needs or environmental standards.”

Wind farms

The end to the effective ban on new onshore wind farms invites investment and development opportunities, says Beak: “Climate change is now intertwined with property development and construction; the encouragement of onshore wind farms can help to alleviate the pressure on the property industry to assist in achieving net zero targets.”

However, as Richard Ellard, Thomson Snell & Passmore’s head of real estate, comments: “While new planning changes announced around onshore wind turbines will help with the green energy needed to support new housing projects and could also form a useful source of diversification for farmers and landowners, it’s also likely to raise some hackles among local residents.”

National Planning Policy Framework (NPPF)

Another key proposal which is likely to see ‘nimbyism’ raise its ugly head is the planned reform to the NPPF. This would see the strict rules, which currently make it difficult to obtain planning permission to build on the protected green belt, relaxed. What Labour describes as ‘poor quality and ugly areas’ of the green belt – such as wasteland and disused car parks – will be recategorised as ‘grey belt’; English councils will be expected to prioritise building on brownfield sites and the grey belt, with developments on the latter required to offer 50% affordable housing.

The review of green belt boundaries is likely to be contentious, but in many ways one of the most welcome proposals, says Patrick Adie, partner and national head of housebuilding and strategic land at Freeths: “The green belt is seen as a somewhat sacred talisman of British identity, with various campaign groups that set out to protect rural spaces. While the protection of rural areas is laudable, there is a trade-off. Limiting zones available for development ultimately means less housing and makes houses more unaffordable, due to demand outstripping supply. Therefore, the review of the green belt boundaries, and particularly bringing forward sites with little aesthetic or habitat quality, has to be seen as making the right choice when balancing these competing concerns.”

Green belt building has always been contentious, but the government recognises that the housing crisis has reached a point where this luxury can no longer be afforded, says Beak: “The focus on grey belt land should remove the contention from green belt building. We have certainly seen more appetite from investors and developers to purchase and build on grey belt and brownfield sites – the latter is a growing market and a solution to bring life back into disused land, rather than decrease the recreational areas of the green belt.”

As part of the NPPF update, Labour has pledged to require local authorities to have an up-to-date local plan with a presumption in favour of sustainable development, says Fladgate partner, Kirsty Corkum. “However, although a pro-development policy is key, it will take years for the impact to filter down and result in new building completion. Labour promises to ensure that local communities continue to shape housing in their area but would intervene to build the houses that are needed. It may have to. At a local level, planning councillors may still be influenced by local opposition to development. But with government targets and intervention, such opposition is likely to delay / increase costs rather than prevent development.”

Compulsory purchase

Labour’s plans to reform compulsory purchase compensation rules “to ensure that compensation paid to landowners is fair but not excessive where important social and physical infrastructure and affordable housing are being delivered”, would arguably result in new towns and urban extensions being easier for the public sector to deliver, says Brian Dowling, partner in Boyes Turner’s residential development and housebuilder team.

However, a partial or comprehensive removal of ‘hope value’ for compulsory purchase compensation – which forces councils to pay estimates of what the land could be worth if developed rather than its current value – will be controversial, and if introduced, lead to litigation, Dowling says: “It doesn’t seem fair to allow developers and contractors to make a margin on large new schemes but lock out the landowners who are essential to the process. An alternative would be to use more deferred consideration and participation structures to bring landowners along and have them feel like they are being adequately paid for the loss of their land.”

Skills shortages

Any government proposals will only be successful if they address the ongoing skills shortage in the industry, says Adie: “The construction industry has suffered from a skills shortage for years, mostly due to an absence of a coherent government strategy to address this (plus Brexit complications and general market uncertainty). Any strategy should include training initiatives and making construction careers more easily accessible / attractive and improving access to finance for smaller developers such as offering loan guarantees or partnerships with financial institutions.”

Dowling agrees: “It’s essential the government tackles the talent pipeline. One-fifth of the building workforce is over 50 and, while skilled immigration addresses this in the short-term – and we’d argue for more allowances here – it’s not a long-term solution. The industry is set to fall off a cliff-edge as more builders and trades retire. We need to look at apprenticeships, close the skills gap, open opportunities for women, encourage more offsite construction and make the sector more attractive for young people.”

Renters’ rights

The general election condemned the Renters’ Reform Bill to the legislative scrapheap, but key elements have been resurrected to form part of Labour’s Renters’ Rights Bill. These include:

• an end to rental bidding wars
• applying the Decent Homes Standard to the private rented sector
• requiring social housing landlords to deal with serious hazards expeditiously
• creating a digital private rented sector database, and
• supporting cheaper and faster tenancy-related dispute resolution.

Perhaps the most notable proposal is the abolition of section 21 (no-fault) evictions under the Housing Act (HA)1988. This aims to simplify tenancy arrangements by making all tenancies periodic – the tenancy will end only if the tenant wants to leave, or if the landlord has a valid reason, as defined by section 8 grounds of the HA 1988.

Many landlords will be wary of this change, says Ellard: “Although the government claims landlords will still have recourse to evict anti-social tenants or those who do not pay rent, plus have a way to get back possession of their property should they wish to live in / sell it, many point to the current backlog in the court system which needs to be improved. This should go hand in hand with implementing new rental legislation to help avoid a surge of landlords selling up, and therefore putting more pressure on an already overburdened rental market.”

However, as James Vernor-Miles, residential property partner at Hunters Law, points out: “The intended consequence of this measure, I suspect, is that second-property owners and ‘buy-to-let’ landlords will start selling this surplus housing stock and return it to the owner-occupier market. That may be a good thing.”

Tenure reform

The Leasehold and Freehold Reform Act 2024 made it through the election wash-up procedure and on to the statute books, says Ben Yates, senior associate PSL (construction) at Gateley Legal: “But only a handful of sections will come into force automatically; the rest require new secondary legislation – it is not yet understood whether this is intended, or whether the preference is to amend or even replace the act.”

The government should make producing secondary legislation for the act a priority, says Vernor-Miles: “Ideally, it should press on with its ground rent cap for existing residential leases. Until this re-enfranchisement policy is completed, the leasehold property market will remain in limbo or the doldrums. Which sounds quite painful.”

The act seems set to have a considerable effect on investors and pension funds operating within the commercial real estate sector, says Dorsey & Whitney partner, Melissa Moyle: “Investors will have factored increasing ground rents into their long-term forecasts, but caps on these prices could mean these plans will have to be revisited. Compounded with the changes which mean investors could lose the opportunity to sell freeholds to boost revenue after completion, investment in the sector could become less appealing.”

Investors should not react too quickly though, she says: “The proposals will be open to consultation, meaning the bill will be subject to change. Labour’s pledges to reinvigorate the economy may see it welcoming input from key market players when formulating policies that affect investors, in turn neutralising the more extreme aspects of the bill.”

The government has also pledged to introduce a Leasehold and Commonhold Reform Bill, which would:

• ban the sale of new leasehold flats so commonhold becomes the default tenure
• regulate ground rents
• end forfeiture, and
• implement Law Commission recommendations on lease extensions, freehold purchases and right to manage.

Callum Nuttall, property platform head at Gateley Legal, says: “Given the failure to introduce commonhold into the England and Wales property market previously, significant thought and consultation with key stakeholders – including legal practitioners – is vital to ensure the system works practically. It is not a topic for rushed and ill-thought-out legislation.”

The proposals to increase commonhold will also require upskilling of lawyers, says Adie: “There are understood to be fewer than 200 commonhold properties in England and Wales, since the relevant legislation was introduced in 2002. Clearly, this has been a failed form of tenure, so if the government is serious about promoting it, there will need to be a significant shift in understanding and it would likely need to be mandatory in many situations for this to take hold.”

Building safety

While the Renters’ Rights Bill and the Leasehold and Freehold Reform Act seek to introduce additional rights for leaseholders, there remain hundreds of thousands of people living in unsafe buildings, says Walker Morris real estate partner, Lewis Couth: “Seven years have passed since the Grenfell Tower tragedy and building safety has been at the forefront since. Labour’s manifesto said it would ‘review how to better protect leaseholders from costs and take steps to accelerate the pace of remediation across the country’. As well as getting Britain building again, building safety must remain at the forefront.”

While proposed changes to the NPPF will be touted as an enabler for streamlining the early stages of new developments, the requirement of higher-risk buildings under the Building Safety Act 2022 – such as those over 18m or seven storeys high, and containing two or more residential units – to pass through the gateway process for building control will require an appropriately resourced building safety regulator to realise the construction of many new homes, says Gateley Vinden’s building consultancy director, Adrian Gladstone: “This will require further targeted investment from government which, if not forthcoming, may hinder the ability of Labour to deliver its lofty homebuilding targets.”

More recent revisions of the act have also intensified the focus on assembling essential documents, says Nicolas: “Clients are now actively seeking new surveys and documentation which were previously unavailable, alongside implementing a more stringent due diligence process for fire safety. As investors realise the scope of their obligations, the industry will need time to adapt to understand and integrate these standards into their commercial building and planning practices.”

Tax issues

Given the need to raise funds, it can be assumed that taxation of property under the new government will increase, says Matt Spencer, tax partner specialising in real estate matters at Kingsley Napley: “Labour has committed to increasing the SDLT (stamp duty land tax) surcharge payable by non-residents from 2% to 3%. This will bring the top rate of SDLT on residential property to an eye-watering 18%. Bear in mind the top rate was 1% in July 1997 and 4% in April 2011. We don’t expect a dramatic overhaul of the property tax system, more likely is a freezing of bands, dragging more properties into higher SDLT bands as property prices increase.”

Labour has not yet ruled out increasing capital gains tax – currently levied at 20% on gains made from selling assets – which would be a major concern for sellers. It has, however, pledged to replace the existing business rates regime with a new system, intended to ensure online retailers pay and thus create a more level playing field, says Adie: “Clearly, this change is required, as the current system creates an unfairness to physical retailers and contributes to the ongoing drain of city and town centre retail, but getting large online retailers – who operate internationally with complex company structures – to pay fairly and without overly disincentivising smaller local online retailers will be a difficult task.”

The property market is ready to spark back into life and hopefully Labour will do that, concludes Jansons: “We need to see a fresh approach, not historical Labour policies like raising taxes which will be a huge disincentive. The headlines they’re giving us sound great; now we’d like to see them do what they’re promising. We’re all anticipating change – now we need to see it happen.”