40% rise in property conversions to meet demand for homes

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40% rise in property conversions to meet demand for homes

40% rise in property conversions to meet demand for homes

Driven by high demand thanks to increased mortgage lending. Government announces that rules on "change of use" to become permanent.

Conversions of offices, retail shops, and agricultural properties into homes jumped 40% from 982 to 1,355 in England in the second quarter of 2015 compared to the same quarter a year ago*, says EMW, the commercial law firm.

EMW explains that developers are using conversions to increase the amount of property on the market to address the current housing shortage, as growth in mortgage lending boosts the already strong demand for homes. August saw an increase of £3.4 billion in mortgage lending, up from £8.8 billion to £12.2 billion, which was the biggest monthly increase since spring 2008, before the full effects of the recession were felt.

EMW adds that a major reason behind the strong rise in conversions has been developers' use of Permitted Development Rights, otherwise known as 'prior approvals', that allow them to bypass formal planning applications for conversions.

The Government has just announced (13 October) that these rules will become permanent and extended to ease construction of more housing. The planning minister also revealed that new Permitted Development Rights will enable light industrial buildings and launderettes to change to residential use subject to meeting certain criteria and further details will be published in due course.

EMW explains that in areas such as London where demand for housing is particularly high, converting offices and retail space to residential use can be particularly profitable. Residential property conversions in the capital accounted for 20% of all conversions in the second quarter of 2015.

Permitted Development Rights were introduced in May 2013 to make converting property, with certain exemptions including some central districts in London, from their original purpose easier. EMW says that developers have been keen to use this so-called 'prior approval' route and welcome the Government's announcement that the scheme has been expanded. These 'prior approval' conversions accounted for nearly 40% of all conversions in the second quarter of 2015.

EMW adds that 'prior approval' can often be the cheaper and quicker option for developers. Unlike formal planning applications, developers are not required to pay council levies on social housing or infrastructure with these conversions through Section 106 agreements.

While these levies are payable under certain conditions, including if the property is in London where the Mayoral Community Infrastructure Levy applies, the majority of cases can avoid these charges under the "vacancy test" where the development just relates to the change of use.

Marco Mauro, Associate at EMW, comments

"With the current housing shortage, developers are looking to innovative ways to bridge this gap. 'Prior approval' gives developers the opportunity to make those conversions more quickly and cheaply than they could if they had to apply for formal planning permission or construct new housing. Developers are pleased that the 'prior approval' route has become permanent and even expanded as they can avoid the often time-consuming process of gaining planning permission. Prior approval allows developers to convert more property into housing quickly, easing the pressure on the current stock."

40% rise in number of conversions to residential use as developers look to demand rising demand

*The latest figures available.
**Latest statistics from the Bank of England.

For more information, contact Marco Mauro.