Biggart Baillie Solicitors

Development - The Reality of Delivery

Friday, February 04, 2011

by Murray Shaw

Introduction

Over the past 5 years the Scottish planning system has gone through significant change all intended to make that system more effective and fit for purpose.  While those changes were not initiated by the current minority Government, they accepted the process that was ongoing when they came into power and followed it through, essentially as a tool in achieving their over arching purpose of “creating a more successful country, through increasing sustainable economic growth”. 

Their aspirations in that regard to a large extent have been overtaken by a significant deterioration in the UK and global economy.  It is salutary to think that just 3 or 4 years ago there were aspirations in Scotland to construct an economy that was as dynamic and significant as those found in Iceland and Ireland – 2 countries with very severe economic problems now. 

While the economic downturn has had significant effects throughout the economy, the development industry has been hit to a much greater extent that other parts of the economy, with a number of key players becoming insolvent and others significantly scaling back their activities.  In particular residential building rates are at their lowest in decades and the value of commercial property which is of critical significance has materially reduced with real problems for the Banks in particular.  Many jobs have been lost in the sector and there are real concerns about skill shortages in the future.

Despite the changes to the planning system many (particularly those in the development industry) still see planning as an impediment to development.  Even those who may not have the most extreme views in that context are concerned that the system is still too slow and cumbersome – the particular concern is that when the market turns back up if the planning system is not operating more effectively it may (or will) be an impediment to recovery. 

Development & Infrastructure Partners Group

Partly in response to these views the Scottish Government set up in 2009 a Development & Infrastructure Partners Group which has representatives from a number of bodies interested in the development process (including Heads of Planning, Local Authority Chief Executives, COSLA, Scottish Property Federation and Homes for Scotland).  An early objective in this group was to try and understand what issues did in fact block development in Scotland and to address these.

Arrangements were made for GVA Grimley (a consultant active in the field) to gather information for the Development & Infrastructure Partners Group.  GVA carried out detailed research and investigations and as a consequence of that identified a number of areas where work was necessary.  Some of these were almost at a “micro level” (such as the process in relation to agreeing Section 75 Agreements) while others were much more at the macro level including the lack of funding for key infrastructure projects, the lack of funding and finance in the market generally and a failure within Councils to understand development viability.

Development Delivery & Viability

As a consequence of this work the Scottish Government published on 30 December 2010 a paper entitled “Development, Delivery & Viability”.  Hopefully the date this paper was published was happenchance and not a deliberate attempt to bury it in the festive period!

The report identifies 10 critical recommendations from GVA and the Government’s response to these.

The key 10 recommendations were as follows:-

1. The Government should emphasis planning’s role in stimulating property and development generally and the benefits of the economic growth that thereby results.
2. The Government should continue to ensure that local authority staff have a better appreciation of development economics and development viability to ensure that developments are delivered.
3. Given the difficulties with upfront Bank borrowing (or the lack of it) the Government should investigate additional and different sources of funding including potentially playing a role in attracting equity investors.
4. Given the difficulties in funding upfront infrastructure the Government should investigate providing a funding stream to allow such infrastructure to be provided, the Government being repaid as development takes place.
5. The Government should look to provide greater simplicity and clarity in relation to Section 75 Agreements with a view to speeding up the development process and giving developers greater certainty as to what is to be expected of them.
6. The Government should consider publishing and reviewing annually an Infrastructure Plan.
7. Better guidance should be given with a view to improving place selection, the intention being to ensure that areas selected for development should actually have a realistic capability of being developed.
8. The Government should consider forming a central infrastructure team to play a role in co-ordinating activity with an appropriate level of knowledge.
9. The Government should consider undertaking further work or a methodology to ensure Master Plans develop in tandem with Business Plans. 
10. The issue of “development delivery” should be considered as another stream of the planning modernisation agenda in Scotland.

As the paper identifies there are no straightforward solutions and indeed some of the issues identified (referred to above) are “big issues”.  However it is not good enough simply to say “it’s the economy stupid” (to misquote an American President) and await for the economy to get back on course.  The extent of the downturn and the experience of the Banks in the downturn suggests there will be some fundamental differences in the way in which development takes place in the future – it seems unlikely going forward (for example) that upfront Bank borrowing will be such a predominant source of funding for new development. 

The report indicates that there is a need for collaborative working between all parts of the development industry with a view to encouraging a positive mentality and placing Scotland to ensure that when the upturn comes Scotland benefits to the fullest extent.

Conclusion

While the research work was undertaken by GVA in publishing the paper the Scottish Government has indicated the action it has taken or will be taking to address the recommendations made.  It is fair to say that rather more progress has been made in respect of some of these than with others.  Without being unduly critical the response suggests that there is a lot of discussion going on and a fair amount of work in progress but limited tangible outcomes.  In some instances given the current spending cuts it is difficult for the Scottish Government to act unilaterally.  There are no easy solutions to the need for development finance and the Scottish Government cannot invent one in isolation.  Given however that the recommendations from the GVA work are recommendations which come with the support of the Development & Infrastructure Partners Group which clearly acts at a high level and has representation from all sides of the development industry, active progress with the recommendations made will be to the benefit of Scotland and in reality is probably essential for the future financial wellbeing of the country.