Planning disparities must be ironed out

The speed of the planning system, however, is only one facet of how planning can assist with giving developers the confidence they need to decide Scotland is the place to build. How the planning system deals with the economic viability of projects also influences whether developers seek to invest resources and capital into specific markets.

Planning obligations, usually in the form of payments set out in legally binding agreements with the local authority, are put in place prior to the issuing of planning permission. These agreements offset the impacts of development by ensuring vital infrastructure, such as roads, schools, parks, and affordable housing, accompanies new projects. However, entering a planning obligation can have financial consequences for developers, potentially making proposals uneconomic. It’s a delicate balance for a local authority to strike as weak obligations may leave communities without essential amenities.

In Scotland, there are no current adopted national planning policies or guidance to indicate what constitutes a viable development. The draft guidance emphasises the importance of viability in the preparation of policy and negotiation of individual planning obligations, but the approach to viability varies and is often debated, which can result in additional planning appeals and subsequent delays.

Consequently, the Scottish Government has sought to address development viability in their recently consulted-on, updated draft of the Guidance on Planning Obligations and Good Neighbour Agreements.

Where viability is an issue, the draft guidance is open to the possibility of a planning authority foregoing contributions or staging payments to suit a specific project when in the public interest. Nevertheless, the direction to local authority planners still lacks sufficient detail and is liable to maintain inconsistencies.

This is at odds with more detailed guidance on viability in England. During the plan-making process in England, the National Planning Practice Guidance (NPPG) specifies that viability assessments should ensure policies are realistic and deliverable, with engagement at this stage preventing the need for assessments to be dealt with on an application-by-application basis.

NPPG also assumed 15-20% gross development value (GDV) is a suitable developer return, with flexibility to take account of differing scales of development. By contrast, a recent planning appeal decision in Edinburgh led a Reporter appointed by Scottish Ministers to conclude that 2.49% GDV may be considered by some developers as viable, on the basis that it will not result in a loss. Clearly, setting agreed profit benchmarks, as in England, would begin to address disparities in approach.

In a recent letter to planning authorities, Ivan McKee, Minister for Public Finance and Mairi McAllan, Cabinet Secretary for Housing, emphasised the importance of due consideration being given to the economic viability of proposals presented by small or medium-sized housebuilders and the development of smaller sites. However, as UK-wide build costs have increased by 14% since 2022, the viability of projects is at the forefront of decision-making for all developers.

The consultation on the draft guidance closed on 30 September. The Scottish Government now has an opportunity to take a leading role in redressing the imbalance of development viability in planning - by updating the final guidance document to provide clarity to all users of the planning system. It’s an opportunity it will hopefully grasp.

Steven Stewart is a Partner, Shoosmiths​