By Tyler Goodwin
Planning regulations are preventing vacant offices from being turned into vitally-needed homes, writes Tyler Goodwin
If I told you global investors were interested in one of the most derided parts of our failing housing market you would think I, or they, were mad. But hear me out.
Unless you work in real estate, you probably haven’t heard of permitted development rights (PDR). If you have, you won’t have heard anything good about them.
Yet PDR shouldn’t be controversial: it is simply a policy framework that can be used to convert millions of square feet of redundant and vacant offices into vitally-needed homes.
That said, it is true that there have been a significant number of bad conversions which have unfairly tarnished the concept, particularly in the wake of a policy shift in 2020 which campaigners claim led to sub-standard homes being built.
As ministers consult on further changes to the regulations, they must not forget there have been good examples too. Office-to-residential conversion may not be a perfect solution to the UK’s housing crisis but today’s lack of supply is beyond a crisis: with a backlog of 4.3m homes, even imperfect solutions must be considered.
The government’s response to poor examples of PDR so far has been to reduce the floorspace cap on such projects to only 1,500 square metres. But this only limits the chances of better conversions.
In the last few years institutional investors have embraced the residential rental market, supplying thousands of homes through the build-to-rent framework. This long-term capital only did so once there were opportunities to deliver at scale. They have driven up the quality of stock and acted as a stabilising factor in terms of delivery and rental rates. This could happen with PDR too. But with the current 1,500 square metres PDR ceiling – which in effect amounts to no more than 20 small residential units – their need for scale cannot be met.
Without decisive intervention the situation will worsen. Residential construction starts in London are down 74 per cent on a decade ago.
Over the past six months, I have met with more than 20 global institutional investors active in London with total global real estate assets under management in excess of £1.2 trillion. Every one of them wants to understand how they can participate; every one of them is concerned about size constraints.
Around the world, cities in Europe, the US and Canada are seizing the opportunity to convert vacant ‘brown’ B-grade office buildings into ‘green’ residential units.
Working from home and hybrid working have led to a structural decline in demand for these buildings as offices. Adaptive conversions can be both sustainable and economical, and can be delivered quickly to solve housing shortages and revitalise our high streets.
Without decisive intervention the situation will worsen. Residential construction starts in London are down 74 per cent on a decade ago, according to data from Molior. Central London rents rose 17 per cent in 2022 and nine per cent in 2023, according to Zoopla. No wonder Ipsosmori says almost one in five members of the public now rank housing as a concern, more than at any other time in the last five years.
As a Canadian who has lived in London for 10 years, I have read every year of the housing crisis and how urgently we need to hit targets. As the city and its population grows larger so does the deficit.
There is no one perfect response to this crisis, but PDR is one currently available tool that can enable the delivery of potentially thousands of new quality mid-market rental units to London and indeed across the UK. By tweaking the rules and lifting the ceiling, ministers have the opportunity to attract long-term capital, unlock supply and raise standards.
Tyler Goodwin is founder and chief executive of Seaforth
