Britain’s housing crisis is being worsened by outdated and obstructive planning policies, and the review mechanisms

Christopher Worrall is a housing columnist for LFF. He is on the Executive Committee of the Labour Housing Group, Co-Host of the Priced Out Podcast, and Chair of the Local Government and Housing Member Policy Group of the Fabian Society. 

Britain’s housing crisis is being worsened by outdated and obstructive planning policies, and the review mechanisms in the draft National Planning Policy Framework (NPPF) are a prime example. These cumbersome late-stage reviews are deterring investment, delaying projects, and driving up costs. If Labour is serious about delivering on its promise of growth and revitalizing the economy, it must reassess these flawed policies that are stalling development and scaring off investors. It’s time for a planning overhaul that encourages, not blocks, the homes and infrastructure the UK desperately needs.

Can planning reform unshackle the chains on private investment in our housing sector?

Prime Minister Sir Keir Starmer recently emphasised Labour’s priority to make the UK the fastest-growing economy in the G7. The key to this mission? Private sector investment in housing and infrastructure. However, outdated and cumbersome planning regulations are hindering this growth. Starmer highlighted how these regulations, especially around planning, have blocked the investment needed to rebuild the country. A prime example is the two-year delay caused by the planning system for East Anglia 2, a wind farm project requiring over 4,000 documents to get approval. Before being set upon through judicial review, which delayed the project for a further two years, merely six weeks after receiving planning permission.

But it is encouraging to see the current Labour government continue to grasp the thorny nettle of planning reform. While there is recognition Labour has taken materially significant steps to unblock the system, there is still much to be done. For example, in London the adoption of review mechanisms have become a bane to both inward international and domestic investment into housebuilding. Meanwhile, late-stage reviews have been set out in the draft NPPF proposals from government. Specifically, they have been set out under section 29.C, which relates to Green Belt land and Benchmark Land Values.

How planning red tape is driving investors away

Labour’s efforts to reform the planning system are crucial to unlocking the UK’s growth potential. Yet, one major sticking point—late-stage viability reviews—poses a significant obstacle. These reviews, where councils demand additional contributions if a project turns out to be more profitable than initially forecast, deter investment by shifting all the risk onto developers while providing no protection if the project becomes less viable. This has been especially damaging in London, where onerous review processes undermine investor confidence, making it difficult to attract the capital needed for new housing and infrastructure projects. The capital has after all failed to hit its housing targets in each of the past 5 years. With renewed targets of 80,000 homes a year, just shy of the actual increased target the Tories implemented before leaving office of 83,000 a year, once calculated correctly, changes to review mechanisms must be enacted to unlock development before it is too late. And not implemented nationwide.

Review mechanisms are stalling development

Late-stage viability reviews distort the risk-reward balance for developers, making investments less attractive. These reviews force developers to share a portion of their profits with councils without any risk sharing if the project turns out to be less profitable due to unforeseen costs. As a result, many projects have stalled or remain unbuilt, adding to the housing crisis. The system is adversarial, pitting developers and councils against each other, often resulting in projects becoming unfundable. The inclusion of these reviews in the revised National Planning Policy Framework (NPPF) further complicates the situation.

These additional catch up costs, often based on negotiated positions, mean any upside case investors may potentially perceive to obtain are destroyed. While the well intentioned mechanism is based in a perceived upholding of fairness, it is not. The council does not take on any financial downside risk.

Bad faith acting pits teams of consultants against each other. Each with their own agenda to obtain the most financially secure position. The result is developers often reluctantly acquiescing to agree such mechanisms in order to obtain a consent. Yet once obtained these consents often become no longer investable.

Senior living, build-to-rent, market sale, and other forms of development have all been effected. With funders risk profiles being materially altered. The same premise of fairness is a one way street. For, example if developers were to come after the council, having agreed a position at a point in time, faced with the uncertainty of future supply chain movements, and were to demand cash from councils there would be outrage. But when the shoe is placed on the other foot there are none.

The inclusion of the late-stage review mechanism in the NPPF have many who have just about weathered the economic storm concerned. The RICS recently submitted to the consultation on the draft NPPF with a revised Annex 4, which related to the late-stage review element concerning viability of green belt release. Planning barristers have too highlighted concerns regarding viability negotiation including late-stage reviews.

Cutting red tape: a path to revitalizing investment and development through removing review mechanisms

For Labour to truly embody a pro-growth agenda, it must eliminate late-stage review mechanisms from the revised NPPF and strategic plans like the London Plan. Alternative policies, such as offering density bonuses in brownfield planning, could incentivize affordable housing development without the burdensome review process. These alternatives could meet the same goals—more affordable housing and sustainable growth—while restoring investor confidence and removing barriers to much-needed development.

But ensuring policy compliance over the life of a project is important

Proponents of late-stage reviews argue that these mechanisms ensure developers remain compliant with affordable housing policies throughout the life of a project. They can also help local authorities secure additional funding when house prices rise, ensuring perceived fairness and policy compliance. However, while these reviews are intended to address uncertainty in the development process, they have become cumbersome, adversarial, and ultimately counterproductive to encouraging the private investment Labour seeks.

Time to act: reforming planning rules further to unlock growth

If Labour is serious about transforming the UK’s economic prospects and boosting investment, it must reconsider late-stage reviews in the planning process. By removing these obstacles and embracing more investment-friendly policies, Labour can foster growth, build more homes, and meet the country’s infrastructure needs, all while staying committed to its mission of economic stability and prosperity.

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