Last year the government published new legislation that expanded on the existing permitted development rights that allow for upward extensions on certain properties as well as the rights that allow for existing buildings to be demolished and replaced with new housing without needing full planning permission. The aim behind this new piece of legislation is to reduce the pressure of new developments being done on greenfield sites as well as to allow for more homes to be built that fit the character of the local area without any of the usual red tape that you would experience with a full planning application.
Other changes that have been made around this matter also include new planning asset use classes which allows for a greater variety of uses to be interchanged without the need for planning permission. In turn, this provides greater variety to the types of properties that fall within these use classes therefore meaning they become more valuable as they offer more variety in what they can be.
Another major change the government has introduced is the introduction of the minimum space standards for permitted developments. Previously, permitted developments via the prior approval process were exempt from the minimum space standards in place for the construction of newly built homes. This resulted in a number of smaller homes being built as developers looked to maximise density to increase profits. This ultimately led to end user complaints. The government has now since applied the same minimum standards to permitted development with an aim to increase the quality of housing across the UK.
The above will all be detailed throughout this market insight as well as some commentary on how these changes could impact the UK property market.
The new changes in planning use classes were announced early last year and took effect from 1 September 2020. The new planning use classes replaces the previous A (shops, services, food and drink), B1 (business) and D (non-residential, assembly and leisure) classes by creating a new broader Class E (commercial, business and service) and two more class Fs (1. Learning and non-residential institutions and 2. Local community).
This transition has not been seamless though and some previous uses that were within Class A or D don’t fit into the new E and F classes. This has left them undefined and have therefore become ‘Sui Generis’. These include:
This new class that combines the previous Classes A, B1 & D means it is now much easier for buildings that come under this use class to be changed to another without any need for planning permission.
Under the new rules, a shop is now able to change to an office and then to a gym and back to a shop again, without any need for planning permission. With this type of versatility, the new use classes will have secondary impacts on other processes which are influenced by the class regime. Valuation procedures will now need to be more in depth as they will need to take into consideration the wider range of possible uses that a property can have. This is going to increase the value of these properties as it allows for so much versatility in what that property can be. For example, rents for gyms may be declining but rents for office space may be increasing in the local area. Under these new rules the space can be converted from a gym to an office without planning permission and the rental income received is going to be higher. This type of flexibility reduces long term risk which will effectively increase the value of the properties falling within this use class.
Another piece of legislation that was passed by the government in July last year, was to allow for upward extensions of dwellings, commercial and mixed-use properties through permitted development.
The new legislation states that two storeys can be built via permitted development if the existing building is two or more storeys tall, or one additional storey if the existing building is only one storey. This will allow homeowners and developers to increase the size of their existing properties, either to create more space or to create new dwellings.
There are however a number of restrictions that must be considered before a homeowner can extend vertically through permitted development:
There will also be a requirement for a prior approval application which can be refused by the local council if they feel that the proposed extension doesn’t comply with local restrictions and conditions.
With the need for a prior approval application, it means the council are now able to stop an upward extension if they deem that it would have a negative impact on the local community. This should alleviate the previous concerns from permitted development where overdeveloped and aesthetically displeasing developments were taking place and the council had no say in the matter.
Therefore by the need for a prior approval application, we should see not only better quality homes be developed, but also a better quality of community for local residents. Those applying for prior approval so they can add additional dwellings will need to consider the following within their application:
There are further benefits for the UK property market and economy in general. With the introduction of this legislation, homeowners now have the option of either moving house or extending their existing home. They can either move house and spend money on stamp duty and legals, or they can save that money and spend it on extending their home which creates one of two benefits. They can either extend their home and have more space which in turn will increase the value of their property or they can create an additional dwelling to sell. In the event that homeowners add an additional dwelling, this will give them more money which in turn will be able to be pumped back into the economy.
As we have learned from previous market insights, when there is an increase in economic activity this has a knock on effect to the UK property market. However, in the case of homeowners who choose to extend their existing homes for more space, this will lead to larger and better quality homes. The reason why the homes will be better quality is because homeowners are extending their homes for themselves, and so aren’t going to cut corners when it comes to finishes as they are the ones who are living the property.
Additionally, those who live in larger cities within the UK will have the ability to vertically extend and create more outdoor spaces such as balconies, terraces and roof gardens - a rare amenity in the larger cities. This will increase the quality of life for the residents in those dwellings which will ultimately increase the desirability and value of those properties.
In order for existing buildings to qualify, the buildings must not be located, or form part of:
It must also be noted that it’s not only residential properties that are able to be extended vertically but also commercial or mixed-use properties.
This legislation therefore gives businesses the opportunity to extend their premises and create dwellings above their existing buildings without the need for a full planning application. This has come in at a vital time for businesses who may be affected by the effects of Covid-19. Now, a business who has been struggling for customers can invest its capital into extending their premises and adding additional space which they can then sell. This will give them a significant return on investment and give them a much needed cash boost that so many businesses across the UK need during this time. This money will then be pumped back into the economy, via the supply chain, which as discussed earlier will have a knock on effect to the UK property market.
Another inclusion within these new changes is the ability for old and vacant buildings to be demolished and replaced with residential buildings, being either a single block of flats or one detached dwelling.
The new legislation that was introduced last year states that purpose built residential blocks and B1 buildings such as offices, research and development and light industrial can be replaced with new housing subject to prior approval.
In order for permitted development to apply, the existing building must be free-standing and vacant for at least six months prior to the application. The existing building must also have a footprint of less than 1,000 sqm, not exceed 18 metres in height and must have been built before 1st January 1990. The same rules listed for vertical extensions in regards to protected land, special scientific interest etc also applies to this type of permitted development as well.
The process for someone wanting to demolish a vacant building and replace it with a residential building works in a similar way to how one may extend their home vertically. A developer will not need planning permission to demolish and rebuild vacant commercial and residential buildings if they are going to replace it with homes.
Instead, developers will only need to submit a far simpler application through the prior approval process already mentioned above. Although the application is simpler, these new changes will benefit both the developer and the council. On the one hand, the developer who wants to demolish and rebuild will be able to save time and money on submitting a prior approval application as opposed to needing to submit a full planning application.
On the other hand, in the eyes of the council, it means they save time not needing to review a full planning application. It also means that because developers are more incentivised to demolish and rebuild instead of converting an existing office building, it means the quality of homes built will be much better and the council get a say in the aesthetics and impact of that building being developed which they previously didn’t get in an office to residential conversion (whereby a developer made use of the previous prior approval incentive).
In terms of the benefits these changes are likely to have, property developers are the most likely to benefit from this as land is now more readily available to construct blocks of flats which is perhaps too big of a project for your amateur self builder. However, this doesn’t mean it will just be property developers who benefit financially as the government has also allowed for a purpose built detached dwelling to be constructed under the same guidelines.
It enables a lot of small office and retail units that have been left vacant to be demolished and replaced with new homes. This gives for a greater supply of plots for a self builder who wants to build their own home, particularly in urban areas where you tend to find office and retail units.
Other benefits besides financial will be the better quality of homes that will be built. Instead of a conversion of an existing building where there may be existing problems, these new homes will be ground up developments so there won’t be any pre existing conditions that might cause headaches for the residents moving in. Therefore, because the building will be purpose built as flats, residents shouldn’t have any issues as everything would have been thought through.
In essence, this will result in better built and higher quality homes which in turn will result in these homes being more desirable therefore meaning property values will be higher. This will ultimately boost the UK property market.
On 1 October 2020, housing secretary Robert Jenrick announced that all new homes that are delivered through permitted development in England will have to adhere to the minimum space standards which are currently required for all new build properties being built.
Before this, homes delivered through permitted development rights such as an office to residential conversion did not need to comply with these standards. This was somewhat of a loophole that meant that greedy property developers were able to cram lots of small units (with a minimum size of 30sq-m) into a building that wouldn’t usually meet the minimum space standards.
The government has confirmed that by introducing the nationally described space standards for permitted development, it will stop a minority of developers delivering small homes without justification that in turn will just sit vacant on the housing market.
To give an idea of the impact, many developers, particularly in larger cities such as London, were building small, cramped flats sometimes as small as 25 sq-m. With the new changes, the smallest flat that can now be built is 37 sqm in size or 39 sqm (if the flat has a bathroom and not a shower room). This is what the government deems suitable for a single resident living in a one bedroom flat.
As the number of residents and number of bedrooms increases, the minimum space standards still complies and each combination of residents and bedrooms must be a minimum size, this is detailed in the table below:
With this introduction of the minimum space standards for permitted development, it will mean that homes which are created through the prior approval route will be larger homes as it is no longer possible for developers to create dwellings smaller than 37 sqm.
As a result of larger homes being built, it will result in a much better quality of living for residents meaning the demand ultimately increases. This in turn will result in higher property prices for these types of dwellings, thus strengthening the UK property market. Furthermore, we should see property prices increase because the cheapest type of flats (the typical 25 sq-m studios) will no longer be able to be built, therefore pushing the average property value up.
In conclusion, the changes in permitted development rights means it is now simpler and cheaper to do as follows:
All these changes will have a positive impact on the UK property market, not just in monetary terms but also quality. Both in terms of quality of life and quality of the properties.
Perhaps the biggest factor towards why better quality homes will be delivered is because of the prior approval process that requires applicants to submit an application to the council. This will mean if the proposed development is aesthetically displeasing or will negatively impact the local area, then the council can still reject the proposal.
This contrasts to the previous set up of developers being able to convert an office into residential units without being impacted by the national minimum space standards. This is no longer the case and developers will now be required to abide by the minimum space standards, therefore creating larger homes which will lead to a better quality of life for the residents who live there as they have more space.
This is the same philosophy for those who choose to extend their existing dwellings vertically. By extending their homes, homeowners will have more space meaning they will enjoy a better quality of life. Since homeowners are extending their own homes, it is likely that the quality of the finishes will be much better.
Due to the increase in quality of life as well as overall quality of the property, the price of those properties will increase thus boosting the UK property market. It must also be noted that since the introduction of the minimum space standards for permitted development, developers are no longer able to build units below 37 sqm. This will mean that over time, smaller units will no longer be on the market and instead will be replaced by larger units. Ultimately increasing the average property price.
In terms of how the change of the planning use classes will affect the UK property market, it will have an impact more on the commercial property market. Now that there are more planning use classes bundled together, it makes properties within this use class far more versatile in what they can be. Therefore providing commercial landlords or would be purchasers with the ability to adapt those vacant commercial properties to overcome economic downturns in particular sectors.
As previously mentioned, if rents for gyms are decreasing but rents for office space is increasing, that gym can now be turned into an office and rented out for more. Something that wasn’t possible before these new planning changes come into play.
This will only have a positive effect on commercial property prices whilst providing a much needed solution to a high street damaged by the evolution of online shopping.
JaeVee joint ventures with experienced property developers to bring residential schemes to life in the UK whilst helping to tackle the housing shortage problem. The structure of our model creates equity investment opportunities for investors into these projects, where investors enjoy the profits of a successful development without sacrificing their demands on control, protection and accessibility.
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