If there were an equivalent of the ASA for government announcements then Eric Pickles’ latest would have jammed phone lines with the flood of complaints.
His announcement that offices can be converted to residential without the bureaucratic bother of gaining planning permission or the inconvenient cost of providing affordable housing was headlined ‘promoting regeneration’. Those of us in the regeneration world can get quite upset when greedy property developers use the word as a socially acceptable cover for their activities but Pickles takes the biscuit (so to speak).
But it doesn’t end there.
With amazing doublespeak the statement goes on to say ‘We want to promote the use of brownfield land to assist regeneration, and get empty and underused buildings back into productive use. Using such previously developed land and buildings will help us promote economic growth and still ensure that we safeguard environmentally protected land.’
Bear in mind that this is a statement to parliament as well as to the wider country. Any reasonable person would think that this measure just applied to ‘empty and underused buildings’. On that basis this sounds like a pretty reasonable policy. We need housing, we need housebuilding to create jobs, so why not for a short period of time (three years) allow empty offices to become homes.
Well, first this applies to all offices including those currently under construction or just completed and those that are full of businesses and second this doesn’t apply to new house building, which will still require planning permission, only to changes of use which don’t alter the appearance of the property.
And I could go on. So I will.
In the statement, Pickles says, ‘Mary Portas’s review called for the government to ease the rules surrounding change of use.’. Well yes she did, but not this change. And the change in relation to town centres is opaque in the extreme. Translation of these words anyone – ‘we will allow a range of buildings to convert temporarily to a set of alternative uses including shops (A1), financial and professional services (A2), restaurants and cafes (A3) and offices (B1) for up to 2 years.’? Which range of buildings? What about land? Is this temporary permission or permanent if changed in next two years?
He also says ‘In April 2011, we ran a consultation Relaxation of planning rules for change of use from commercial to residential which sought views on introducing permitted development rights for change of use from commercial to residential uses.’ but fails to say that 64% of respondents, including the Local Government Association, opposed it!
He goes on ‘Complementing this policy change, in the written ministerial statement of 6 September 2012, official report, column 34WS, I announced the introduction of permitted development rights to enable change of use from commercial to residential purposes.’
Well yes. Kind of. In fact he said ‘We have already undertaken a series of measures to make change of use easier, to help get empty buildings back into productive use. We will introduce permitted development rights to enable change of use from commercial to residential purposes, while providing the opportunity for authorities to seek a local exemption where they believe there will be an adverse economic impact. This common sense measure will help the regeneration of our towns and cities.’ So the regeneration word again, the misleading empty buildings formulation and the soothing opportunity for local authorities to opt out.
But it seems that this opt out opportunity may turn out to be illusory for many. The Chief Planning Officer letter accompanying the current statement says ‘exemptions will only be granted in exceptional circumstances, where local authorities demonstrate clearly that the introduction of these new permitted development rights in a particular area will lead to:
A. the loss of a nationally significant area of economic activity or
B. substantial adverse economic consequences at the local authority level which are not offset by the positive benefits the new rights would bring. If you propose to request an exemption it must relate only to the geographical area justifiable in the light of the above criteria.’
And there is a one off chance to make this case which must be submitted by 22nd February. Hardly time to get a committee approval never mind get together the evidence the submission requires.
And just to add insult to injury, who do we think will make the decisions? Yes, you guessed it, Eric Pickles! You couldn’t make it up.
This exception is mainly to appease the City who have lobbied hard but I know that places like Manchester and Westminster are also horrified by this prospect.
So why does all of this matter?
Well very simply because our economy needs a boost, not undermining. As Savills have so frequently pointed out, residential values are higher than office values pretty much everywhere. So property owners will immediately set about terminating the leases of the businesses that are so inconveniently occupying their buildings in areas where local authorities fail to get an exemption.
They will then change the use without planning permission. They will probably do this in some kind of temporary way – a bit of chip board and some temporary bathrooms – because they won’t have much time to do the job properly by the time they have got rid of the businesses.
And then a variety of things will happen. Some buildings will be converted. Some will seek planning permission for new buildings (having already established the principle of residential use). All this will take some time. None of this will deliver any affordable housing and much of it won’t happen quickly.
At the same time the supply of offices and other workspace will shrink significantly and rents will rise. Job creation will be reduced.
A functioning office market needs a vacancy rate of around 10% to accommodate the ability of firms to move when they need to. According to Jones Lang Lasalle the UK vacancy rate is currently around 12% and the London rate around 6%. There are some cities, like Birmingham, where vacancy rates are significantly higher but overall it is not clear there is a problem of empty offices.
And this as we might just have started the triple dip of the current recession with the office occupancy market close to its weakest. And once buildings are converted to residential and leases, which are usually at least 125 years long, have been sold, then there is no go going back on this policy.
The biggest damage, ironically, is going to be to the UK’s fastest growing business sector, creative and knowledge industries. I’m pretty certain that Tech City will qualify for exemption if the local authorities involved (Camden, Islington, Hackney, Tower Hamlets, The City and Newham) collaborate to make the case – in four weeks? But the similar areas in other boroughs and cities like Bermondsey in Southwark, Northern Quarter in Manchester, Holbeck in Leeds, Creative Industries Quarter in Sheffield and many many more may not pass the test or their local authorities may not have the staff to make the case as they scramble to save their CBDs.
These kinds of businesses have traditionally occupied on leases shorter than 3 years so may well find themselves out on the street with nowhere they can afford to go.
The most vulnerable will be the buildings currently housing artists in places like Hackney Wick, Deptford, Peckham and Tottenham in London and in Ancoats in Manchester, Ouseburn in Newcastle, Headingly in Leeds and many many more.
This is a change as big as the one which created the B1 use class and led to unsustainable office parks on motorway junctions (now fast losing their attractiveness).
There will inevitably be a plethora of unintended and unenvisioned consequences. One will be the impact on rates retention currently becoming law through the Growth and Infrastructure Bill. Local authorities will see their rates base eroded as buildings convert to residential and, with no rates revaluation (recently postponed by the government), no ability to catch up.
It will be interesting to see if rising values stimulate office development but given the substantial gap between higher residential values and lower office values in most places this seems unlikely. It may be that there are vacant sites zoned for offices that will be redeveloped for residential (particularly in inner London) but again the residential development market is constrained by financing not by planning at the moment, particularly in central locations.
But I don’t want to appear like a doom merchant. The reality is that in three years the damage that can be done to the long term supply of offices is limited. Most buildings have leases that run longer than this which is one reason why the policy may turn out to focus mainly on the very few empty buildings that remain due to the Business Premises Renovation Allowance (which, with judicious use of bank debt, allows higher rate tax payers to reclaim 100% of their investment – a no loss gamble!). Yes, ironically, Government gives tax breaks to people who renovate office buildings, vacant for more than 12 months, for office use (not residential). And they just extended it for another five years!
Also, even though residential values are almost invariably higher than office values at the moment, the costs of conversion mean that it won’t be viable to convert many buildings. And where it does happen in a limited way we may end up with more interesting mixed use areas with more vibrant ground floor uses that gain a weekend and night time trade.
Much more damaging is the promise by Pickles that ‘a review of the benefits from the policy at that point[3 yeats]. This will provide Parliament with the opportunity to extend the policy indefinitely should it wish.’ Game theory cuts in at this point. For those buildings where landlords cannot get rid of their tenants in time their view of what will happen after three years will decide their actions so the policies of the other political parties will become important. It may be that Pickles plans to try and make this permanent before the general election though subsequent reversal doesn’t seem likely to be too difficult.
So, given the opposition exhibited in the consultation, including by many Conservative local authorities, and the fact that government has already rebalanced development towards housing in the NPPF, why is Pickles and his new Policy Exchange Planning Minister Nick Boles, crashing on with this?
A charitable explanation is a blind attachment to markets as the only efficient way of allocating resources (despite the weight of evidence to the contrary). A less charitable explanation is the pressure they are under from the owners of the buildings who will receive an (initially untaxed) windfall profit, not only for the buildings where they change the use but also for all their other office buildings that are now a more expensive and scarce commodity.
Achieving regeneration, boosting the economy through job creation or expanding housing numbers it ain’t.