Planning charges do not take into account higher build costs of smaller housing sites, report finds

The report, carried out by the Royal Institute of Chartered Surveyors' Building Cost Information Service, found that average build costs are 6% higher for schemes with 10 homes or fewer than for larger residential developments, and 14% higher where such schemes comprise exclusively houses as opposed to flats.

The authors said this amounted to an increased base construction cost of over £100,000 on a typical housing scheme of between one and 10 homes. They said additional allowances to cover costs including external works and professional fees, which are often based on base costs, "could amount to an uplift of more than 20% of the total construction cost".

"There is no evidence that [the increased costs are] taken into account when assessing the viability of smaller housing schemes and some local planning authorities are setting section 106 or Community Infrastructure Levy (CIL) rates for smaller developments without making allowance for these extra costs," said the report.  

Planning expert Jo Miles of Pinsent Masons, the law firm behind Out-Law.com said: "The question of whether small housing developments should receive dispensations from planning charges is topical, with this study coming hot on the heels of last month’s High Court ruling in R (on the application of West Berkshire District Council and Reading Borough Council) v Secretary of State for Communities and Local Government . Following that case, the government has withdrawn those parts of its planning guidance which introduced an exemption for developments of 10 dwellings or fewer from providing affordable housing or tariff-style obligations. Whilst that decision will be seen as a win for local authorities concerned about meeting affordable housing needs in their area, the government has stated its intention to appeal, so uncertainty remains."

"This new report urges local authorities to consider setting a lower CIL rate for smaller housing developments to reflect the higher build costs associated with such schemes," said Miles. "Being a non-negotiable planning charge, unless a differential rate is identified in an authority’s adopted CIL charging schedule, then there is no scope to reduce the CIL charges levied on smaller schemes. Accordingly, any negotiation around the viability of individual small schemes will be centred on affordable housing and s106 obligations."

"Until such time as the government’s intentions on future policy for small housing developments is clarified, there is unlikely to be much appetite from local authorities to revisit their charging schedules to provide a lower differential CIL rate," Miles said. "However, those authorities who set higher differential CIL rates for small residential developments in reaction to the government’s exemption policy, may be wise to reconsider those rates in the wake of that policy being withdrawn".