Turning shut-down shops into homes? It’ll be the developers who enjoy the bargains

Landowners of Britain, rejoice! Your government has not forgotten you. Magnanimous and generous as it is, it has dedicated the vast public resources at its disposal to a noble cause, that of increasing the value of the property you own. Planning is relaxed, taxation reduced and subsidies introduced, all with the effect of increasing the already high prices of land and buildings in this country.

Rowan Moore  www.theguardian.com 

The government doesn’t put it like this. Its departments and ministers say that “we can help the high street to adapt and thrive for the future” or that its policies “will help support the creation of much-needed homes” or that first-time buyers will have a better chance to get on the property ladder. But the most certain effect is that often substantial windfalls arrive in the balance sheets of those who already own.

Take, for example, the policy that shops can be made into homes without planning permission, which came into effect in April. As has been widely pointed out, this is likely to have the effect of accelerating rather than reversing the decline in high streets, as owners push out viable businesses for no other reason than that they can make more money by turning their premises into homes.

What was once an active shopfront, with people going in and out all day long, becomes a domestic front door, which contributes less to the liveliness of the neighbourhood. Past downturns have enabled new businesses to flourish, taking advantage of low rents to revive high streets – market cycles, to put it another way, periodically reduce owners’ wealth to the benefit of tenants and the liveliness of the high street. Conversion from retail excludes that possibility for ever.

There are, of course, redundant retail buildings that can beneficially be turned into homes, but it requires some planning to work out where this is best done and planning is what the new policy excludes. It also removes the possibility of what is called planning gain, realised through instruments such as section 106 agreements or the community infrastructure levy (CIL), which is the ability of local authorities to require contributions to such things as affordable housing as a condition of planning permission.

We have been here before, with the eight-year-old policy of enabling offices to be made into homes without planning consent. The effects, in terms of the quality of the homes created, have been largely disastrous. As with the new policy on retail, the opportunity for planning gain was removed, so that the owners of office blocks that benefited from the policy sometimes saw their values double. “Retail,” say the property consultants Lambert Smith Hampton in relation to the new policy, “may offer far greater potential for change of use to residential over the years ahead than offices.” They also say that “the scale of opportunity is, potentially, huge”, that the absence of section 106 requirements is “a specific pull factor” and that “seeking change of use via this route can support developer profit margins and boost scheme viability”.

This is, in effect, a vast giveaway of public assets. Ever since the Town and Country Planning Act of 1947, development rights to land – as opposed to the land itself – are, in effect, public property. When planning permission is granted, a defined part of those rights and whatever value goes with it are transferred to the landowner. This principle gives local authorities leverage to require public benefits and to plan development. If those rights are simply given away, as is happening with retail-to-residential conversions, value and leverage go with them.

Meanwhile, the government has used public finances on a number of schemes intended to help first-time buyers and others desperate for a home that suits their needs. The help-to-buy programme, which started in 2013, enables buyers to borrow money from the government on favourable terms. Last summer, as part of its response to the pandemic, the Treasury reduced the stamp duty that you have to pay when you buy a house. This reduction is temporary and is due to be phased out later this year.

Both measures might have their uses in reviving stagnant property markets, but where demand is high they have the effect of pushing up the prices of homes, thus cancelling out the benefit they might have brought to buyers. One of the side effects of help to buy was to enlarge the profits of housebuilding giants such as Persimmon, which contributed to the £75m bonus that its chief executive, Jeff Fairburn, took in 2017, having first been offered more than £100m. Purchasers report developers using help to buy to push up the value of their flat. Meanwhile, the price of an average home rose by £24,000 in the 12 months from March 2020, despite the economic contraction of lockdown, substantially boosted by the stamp duty holiday.

Further winning owners are likely to be created by the government’s makeover of the planning system, set out in a white paper last year, which figured prominently in the recent Queen’s speech. Areas of the country will be zoned for “growth”, benefiting from automatic outline planning permission, which, again, is likely to increase values. Here, at least, there are plans to capture some of this value for public benefits, replacing section 106 and CIL with a new levy. There’s too little detail yet to know how this will work. We can only hope that the government will buck its own trends and make sure that it benefits the property have-nots over the already-have-plenties.