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High levels of nutrients in rivers are increasingly blocking new development. We consider the implications for housing supply and the land market
Thirty-two English Local Planning Authorities (LPAs) – almost 10% of all LPAs – have been identified as areas where nutrient neutrality for new development is needed to maintain water quality. This could cut housing delivery in the affected areas by more than half, driving up the prices of new homes and blocking any improvement to housing affordability.
The issue of nitrates and phosphates in water systems became an immediate challenge for developers following a Court of Justice of the European Union judgement issued in late 2018 concerning the interpretation of the Habitats Directive. At high concentrations, these nutrients cause excess algae to grow, depleting oxygen in the water and damaging other aquatic life. Following the judgement, in Special Protection Areas, any new development must comply with the EU legislation that sets the recommended limits for nutrient levels in the water.
This has effectively created a moratorium on all new housing development in affected locations that would discharge into a protected water system, whether directly, or indirectly via one of its river catchments. Twenty councils have been advised by Natural England that permission cannot be legally granted for developments that are not nitrate and phosphate neutral.
The first location Natural England issued guidance for was the Solent on the South Coast, and the issue has subsequently spread to multiple locations across the UK. Most recently, Cornwall Council has paused issuing planning consents for development in the catchment of the River Camel Special Area of Conservation after Natural England highlighted concerns over excess levels of phosphates in April 2021. The issue may yet become even more widespread.
The total housing need in the affected areas amounts to 33,700 homes per year in England and around 500 additional households annually in Wales. In 2019/20, 27,728 new homes were built in these areas, meeting only 81% of the level of housing required. But this level of housebuilding, already below what is needed, has been largely delivered from a pipeline of consented land built up before the issue of nutrient neutrality began to pose an obstacle to development.
The volume of new homes being delivered could fall by 50–70% from its existing level, unless mitigation schemes are established, according to our analysis of the flow of consented land in the Solent region. This would cause a tightening land market and severely limit these areas’ potential to meet housing need.
As the area with the longest history of this issue, housing delivery in the Solent provides a useful guide to the potential impact nationally on land supply and development. The eight local authorities in the Solent area have a combined housing need under the standard method of 6,200 homes per year, but over the past five years, net additional dwellings have averaged only 63% of need. Indications from the planning system are that this shortfall is likely to continue, creating a significant shortage of new housing and potentially exacerbating affordability problems in the region.
The chart below shows the impact that the requirement for nutrient neutrality has had on the flow of consented land in the Solent region over the past five years. The number of consents being granted had been growing steadily from 2016, driven by a robust housing market and following the national rise in consents post-NPPF. But consents have been 50–72% below their early 2018 peak level since the initial European Court of Justice Habitats Directive ruling in November 2018. This is in contrast to the overall trend in England. Nationally, the number of consents peaked in mid-2019, and have remained within 18% of that figure every quarter since, despite the disruption caused by Covid-19.
The Partnership for Southern Hampshire reports that within the first year of restrictions being imposed, planning applications for over 7,000 homes were delayed. Our most recent analysis has identified over 21,000 homes currently in planning across the eight LPAs, with 59% of those yet to be determined more than two years after the application was first submitted. The most extreme example of the blockage in planning is in Fareham. In 2020, just 27 homes received planning consent in the local authority, and there are currently 8,770 homes at application stage. Fareham is already failing to meet housing need, with the presumption in favour of sustainable development in place following the most recent Housing Delivery Test results (2019/20).
What does this mean for land supply and the land market?
If the level of disruption to the planning system seen over the last three years in the Solent is replicated in the LPAs shown in the map above where nutrient neutrality is an emerging issue, the total number of homes gaining permission annually would fall by around 11,000. While this is a relatively small amount in the national context, it would amount to a 60% fall in permissions in the 20 affected LPAs. This would severely restrict the consented land pipeline in these locations. It also does not account for the potential impact on land supply if high levels of nutrients are found in other protected bodies of water.
The situation will be exacerbated by the fact that prior to the onset of nutrient restrictions, many of these LPAs were already failing to deliver enough newly consented sites to keep up with build out rates, or meet housing need. In 50% of the affected LPAs, sites have been built out at a faster rate than they have been consenting new homes over the past five years, showing that there is already a misalignment between the demand for new homes and the speed at which the planning system can deliver new sites. As a consequence, it is likely that developers in these locations will soon be facing a land shortage, leading to a fall in delivery.
The shortage of land supply is already leading to increased competition for sites, and in some cases, this is translating to upward pressure on values
Emily Williams, Associate Director, Savills Research
This poses two main problems for housebuilding. Firstly, the shortage of land supply is already leading to increased competition for sites, and in some cases, this is translating to upward pressure on values. Secondly, to unlock more supply, housebuilders will also have to begin to factor the cost of offsetting nutrients associated with development. This can be done through on-site mitigation measures, bespoke off-site mitigation projects, or purchasing of nutrient offset credits from an existing scheme. The HBF has recently estimated that this will cost around £5,000 per home.
As a consequence, it will be less viable to build in these areas, potentially limiting the capacity to deliver developer contributions including affordable housing. Until increasing numbers of mitigation schemes can be established, providing a simple and efficient way to unlock development sites, nutrient neutrality will pose a significant obstacle to meeting housing need and tackling housing affordability.