Budget 2017: the Chancellor’s housing plans could rob cities of the commercial space they need to thrive

Many cities face a tough challenge in balancing their commercial and residential property needs – extending permitted development rights will exacerbate this problem.

Housing was one of the biggest issues in yesterday’s Budget, with the Chancellor Phillip Hammond announcing a raft of policies he hopes will both improve affordability and boost supply.

Most of the discussion around these pledges has centred on the likely impact of the cuts to Stamp Duty, the stand-out announcement of the Budget. But one crucial consideration which has been overlooked is how the Chancellor’s housing  proposals will impact on the availability of commercial space in cities – a crucial factor for economic success in urban areas.

The Government wants to increase housing supply by making more efficient use of urban land, particularly in city centres, and announced a new consultation on ways to do so – including looking at the viability of increasing higher density housing, and further extensions to permitted development rights (through which commercial property can be converted into residential space, free from most of the usual planning).

We welcome proposals to increase density, for example by relaxing rules about preserving some of London’s historic sight-lines. However, even if such measures are implemented, there will nonetheless be an urgent need to look at other options to free up land in our most unaffordable cities. Above all, this means considering developing small parts of the green belt (as my colleague Anthony argued earlier this week).

In many of our cities there is already competition for space, with high demand for both commercial and residential property and a scarce supply of land leading to rising prices. The continued refusal to develop parts of the green belt mean intensifying this competition yet further.

Moreover, extending permitted development rights (PD) would seriously hamper cities in balancing their commercial and residential property needs. Getting this balance right is crucial in ensuing the built environment complements – rather than constrains – economic growth. However, PD strip local leaders of this power, by imposing a blanket preference for residential space without consideration for the economic impacts.

Many local authorities have already raised concerns about PD. Despite originally proposed as a means to revive struggling high streets – replacing empty commercial space with housing – in reality it has mainly impacted areas with a high demand for residential units. This is because high prices are incentivising developers to convert commercial space into residential property.

While central London is protected from PD – to protect valuable commercial space – many London boroughs are concerned that it will result in considerable losses of quality, often occupied, office space. Rental values have risen as a result, making it harder for businesses to find affordable property.

But this is not solely a concern for London. Research by the House of Lords highlights that other places around the country – such as within the Northern Powerhouse cities – are worried that the policy could “undermine some areas’ initiatives around physical and economic regeneration” by restricting the provision of essential, quality commercial space.

At present PD is limited to conversions, and the appearance of the property cannot be altered, which restricts the number of commercial buildings suitable for residential units. But yesterday it was announced that “a permitted development right to allow commercial buildings to be demolished and replaced with homes” would be considered. This is likely to encourage more PD in the areas already most significantly affected. In addition, the Government is considering making it “easier to convert retail and employment land into housing”.

The reliance on PD to provide new housing is the result of consistent failures to release enough new land for housing. Rather than consulting on widening its scope, alternatives should be considered which restore some control to local authorities. In some parts of the country there may be good reason to convert commercial space – if poor quality or long-term vacant – but in many areas vital space for businesses needs to be preserved.

The UK’s most successful cities are those whose city centres house high-skilled, knowledge-intensive businesses. If we fail to provide them with the commercial space they need we risk choking the economic performance which made those places desirable in the first place.

In early 2018 we’ll be publishing further research into the competition for space in UK cities and how policy can best manage it.

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