Special report: Charge of the conversions

Exclusive research by Planning has revealed the impact of eased planning rules allowing offices to convert into homes. Jamie Carpenter analyses the results.

Delta Point: permission granted for conversion to 404 units under permitted development right
Delta Point: permission granted for conversion to 404 units under permitted development right

The vast, vacant Delta Point tower block in West Croydon, once occupied by BT, can boast a more eventful history than most office buildings. The 28,000 square metre 1980s edifice served as Gotham General Hospital in the 2012 Batman film The Dark Knight Rises, and two months ago a blaze on its roof sent a plume of black smoke floating over Croydon town centre. The latest chapter of Delta Point’s history has begun with the approval to convert it into just over 400 homes, making it the largest office conversion permitted under recently relaxed rules, according to research conducted by Planning over the past three months.

The controversial permitted development (PD) change, introduced in May 2013 for an initial three years, allows offices to be converted into homes without the need for planning permission. Speaking at the Institute of Economic Development’s annual conference last month, Department for Communities and Local Government (DCLG) chief planner Steve Quartermain revealed that officials predict that the move could create 32,000 homes. With the DCLG having consulted this summer on plans to extend the rules beyond 2016, but with little detailed data publicly available to assess the policy’s impact to date, Planning has sought to compile the most comprehensive set of figures yet on the take-up of the rules, the hotspots of activity, the number of units that could be created by approved applications and town halls’ responses to proposed conversions.

Planning’s figures, compiled through a series of Freedom of Information (FOI) requests to local authorities and extraction of data from council websites, reveal that London boroughs received 2,005 prior approval applications between May 2013 and July 2014 for office-to-residential conversions, while England’s core cities – Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield – received a total of 269 applications in the same period. The analysis found that approved prior approval notifications in London would enable the creation of 13,090 homes. In the core cities, homes in approved applications number 4,335.

Conversion hotspots identified

Planning's analysis found that the London Borough of Richmond-upon-Thames received the most office-to-residential prior approval applications (273) from May 2013 to July 2014, followed by the London Boroughs of Camden (147) and Hammersmith and Fulham (145). However, it also suggests that the PD right's effect may be most keenly felt in Croydon.

Seven London boroughs received a greater number of prior approval applications than Croydon's 105 applications between May 2013 and July 2014, according to Planning's findings. But the number of dwellings contained in Croydon's 80 approved applications - more than 2,500 - far outstrips any other district in London or the core cities (see infographic). The local authority with the next highest figure is Nottingham City Council, where approved prior approval notifications allow more than 1,050 units, according to the analysis.

Mike Kiely, director of planning at Croydon Council, attributes the large number of units in approved applications in the borough in part to a group of large-scale conversions that have secured prior approval under the new rules, including Delta Point. Four Croydon office blocks feature in a list compiled by Planning of the 20 largest office conversions to win backing in London and the core cities under the new rules, each containing more than 100 units (see infographic). Kiely is concerned about the impact of the policy as, under the PD rights, office conversions need not provide affordable housing contributions. He contends that they offer low-quality housing and fail to meet local need for family units. Kiely describes the conversions enabled by the PD right as "awful". "They are poor quality – some are as low as 13 square metres for a bedsit," he says.

Kiely points to figures presented to the council’s planning committee last month, which show that just 28 approved office conversions in the centre of Croydon would create 1,343 units if realised. Four-fifths of the proposed conversions fail to meet floorspace standards set out in strategic planning document the London Plan, the note suggests. The conversions will not make any affordable housing contributions, it adds, when under current council policies for conventional applications, 201 affordable homes would be expected. Kiely believes that the impact of the PD right makes the "biggest, strongest case for a proper planning system". "When you take it away, it completely falls apart," he says.

A source of additional housing supply?

The number of approved units identified by Planning’s investigation suggest that the office-to-residential PD right could produce significant numbers of homes. But the figures give only an indication of how many units could be created – in some instances, more than one application may have been submitted for the same building, while some applications do not state how many units would be built.

Despite the large number of approvals identified in the analysis, early indications are that the PD right has yet to generate significant numbers of completed homes. A paper issued last month by property firm JLL found that a "paltry" ten office-to-residential schemes are either under construction or completed so far under the right in London. Kiely says Croydon Council is "not seeing a huge amount of evidence" that conversions approved under the new rules are actually being implemented.

Michael Lowndes, executive director at consultancy Turley, says banks are often unwilling to lend on office conversions allowed under the PD right as they "don’t like the risk profile". According to Lowndes, banks are concerned about the possible quality of the end product under the eased rules. He adds that lenders are also concerned about potential for neighbouring offices to be converted into substandard housing, which would affect the potential values of the conversion they are funding.

Chad Sutton, head of planning at law firm Maples Teesdale, adds that some developers with prior approval for an office conversion have "no intention whatsoever of implementing these prior approvals". In these cases, he says, developers are using the prior approval as leverage to give themselves "negotiating room" when seeking normal planning permission for a conversion or new build residential development on the site of the office, in an attempt to reduce affordable housing contributions. "Some are banking a prior approval in order to create a negotiating position for an all-encompassing planning application," agrees Lowndes. Some councils will take this into account, he says, while others will not.

Peter Dines, a partner in property firm Gerald Eve’s planning team, says some prior approval applications may have purely been a valuation exercise to improve the appearance of a company’s balance sheet. "If you can suggest that the alternative use is residential, it’s going to produce a good figure for valuation purposes," he says.

Michael Bach, former principal planner at the Department of the Environment and its successors from 1990 to 2005, is cautious over how many extra units the PD right will generate. He says many conversions may still have come forward had the rules not been relaxed. He highlights Greater London Authority figures showing several thousand such conversions a year before the change. "What’s coming through the system now is a displacement activity," he says. But he cautions: "You are trading one lot of conversions for another, without the benefits."

Refusal rates revealed

Planning’s analysis also found that, for applications submitted in London between May 2013 and July 2014, 24 per cent of those determined were refused. In the core cities the figure was lower, with a refusal rate of only 8.1 per cent, the analysis found. A closer look at refusals in the capital found major variations between boroughs. In five – Barking and Dagenham, Bexley, Enfield, Ealing and Harrow – more than nine out of ten decisions were approvals, Planning’s analysis reveals (see infographic). But other boroughs are more hostile. The London Borough of Greenwich refused 60.9 per cent of decided applications, while the London Boroughs of Lambeth and Newham refused 42 and 40 per cent respectively, the analysis shows.

Under the tightly defined system of prior approval, councils can only assess proposed conversions on the basis of transport and highway impacts and contamination and flooding risks on the site. According to Sutton, the prior approval tests are "quite limited in scope". In theory, he points out, you should see a higher approval rate for prior approval bids than for full residential development applications. But in practice, he says, local politics is a factor. In London, he says, his experience is that some councils are "very happy" to allow prior approval applications, while others will either choose to refuse them or put in place strict conditions on approval.

David Churchill, a director at consultancy Iceni Projects, says varying refusal rates reflect how resistant various boroughs can be to a specific office building – or buildings across a whole district – being converted. "There are some flagship buildings that local authorities don’t want to lose," he says. Churchill suggests that in such instances, councils are happy to take their chances by refusing an application, leaving themselves open to an appeal. "It’s a reluctance to take a local decision," he says.

An analysis of prior approval decision notices issued by London boroughs reveals that the most commonly given reason for refusal – cited in nearly 200 notices – is concern over the transport or highways impact of a conversion, which is one of the three prior approval tests that councils can judge applications against (see infographic). The next most commonly cited reason for refusal – appearing in more than 150 notices – relates to applicants not being able to satisfy a requirement that the building to be converted is actually in office use. Regulations stipulate that buildings do not qualify for the PD right if they were not employed for a use falling within the B1(a) (offices) use class immediately prior to 30 May 2013, or, if the building was not in use immediately before that date, when last occupied.

Dines says he is aware of prior approval applications being blocked by councils for this reason. "You could put the blame on the person that submitted the application", he says, suggesting that in some instances they have been submitted by people who "don’t really understand how to put a prior approval application in and the evidence required". However, Dines adds that councils differ in how much information they require. He says he has seen a prior approval application to one authority that comprised "a half-side of A4 with a planning consultant saying it won’t flood, there’s no contamination and the roads are OK". "It got approved," he says.

Planning’s research found more than 50 appeals against refusals in London. Of those appeals that have been decided, nearly two-thirds were allowed. Richmond-upon-Thames Council’s decisions have been challenged more than any other authority according to Planning’s analysis. Here, applicants have submitted 17 appeals against office-to-residential refusals, with the majority yet to be decided (see infographic).

Floorspace losses detailed

Not all the authorities that responded to Planning’s FOI requests gave details of the size of the offices in line to be converted into homes under the PD right, or how many of those offices are occupied. However, the data from a group of authorities that did provide this information makes interesting reading.

Figures from the London Borough of Ealing show that the 30 office buildings for which applicants have secured prior approval to convert into homes contain more than 8,150 square metres of floorspace. Of these, 21 offices were occupied, Ealing’s figures show. The London Borough of Havering’s 12 allowed prior approval applications contain 2,800 square metres of floorspace, while the London Borough of Islington’s figure is 44,000 square metres and the Royal Borough of Kingston upon Thames’ more than 20,000 square metres.

Figures provided by the London Borough of Harrow suggest that more than 38,800 square metres of office floorspace would be lost if the conversions to which it has already given prior approval are implemented. At least a dozen offices with prior approval are occupied, its figures reveal. Outside the capital, Planning’s research found that approved office-to-residential prior approval applications in Birmingham have a total floorspace of more than 32,000 square metres. In Croydon, Kiely says, in terms of office space that has been given prior approval for conversion, "anecdotal evidence is that a significant amount is occupied".

With councils required to ask office-to-residential applicants for very little information – and with the jury very much out on how many units the controversial policy will generate – it could be some time before the impact of this experiment in relaxing planning controls becomes fully clear.

A further extended report with comprehensive application and appeal analysis as well as an office-to-residential toolkit for local authorities and consultants will soon be released by DCS COMPASS Online and Planning magazine. To register your interest please email dcs@haymarket.com.

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