By Paul Knox, Managing Director, Pearce Homes (Barnstaple)

Biodiversity net gain (BNG) is a strategy to develop land and contribute to the recovery of nature while developing land. It is seeking to ensure the habitat for wildlife is in a better state than it was before development.

It will become law on the 1st November 2023 for developers to demonstrate the steps that have been taken to either preserve, protect, mitigate, or enhance any habitats found on site.  This may include an increase in natural habitats and ecological features over time, which goes above the habitat originally on site.

The essence of this Government policy cannot be argued against. We are all custodians of this planet and we should all do what we can to preserve and enhance wildlife and habitat. The policy however is flawed and already having unintended consequences.

What must developers do?

Developers must try to avoid loss of habitat to a piece of land they plan to do development work on. If you cannot do this, you must create habitat either on-site or off-site. With a housing crisis gripping the country and none more so than my area of the country, the South West, this policy takes no account that houses are allocated in the local plan which in turn has allocated the change of land status and condition. The BNG policy that all developers were happy to embrace at the seed stage of policy development has grown into an almost undeliverable nightmare which is often requiring off-site taxation to solve. In the process of trying to solve the problem the allocated houses are being delayed by BNG policy, further exacerbating housing supply.

On-site means on the land your development work is on. Off-site is either your own land away from the development site, or you have leased an area of land elsewhere or purchased BNG units from a land manager. If you cannot use on-site or off-site land, you must buy statutory credits from the government. You must provide evidence for using this option as a last resort. The government proposes to invest in habitat creation elsewhere in England with this money.

Developers may be able to combine all options to make up the 10% BNG improvement. They must discuss this with an ecologist, as there is a need to prove why you cannot use one single option. Working with an ecologist has become the defining task in terms of timescale for housing delivery and with mandated requirements consultant fee scales have escalated way beyond what one would expect. Ecology studies, their recommendations and BNG outcomes will often add two years to the process delaying commencement of new housing and adding tens of thousands of pounds to the average units’ costs on housing developments with further off-site payments even being quoted in millions for larger sites.

Where is the money coming from? 

Policy makers will inform you it comes from land value uplift as a result of planning approval. Developers will tell you it is having an impact on land values but to ensure ongoing land release it is actually also coming from house sales receipts or having direct impact on the viability of schemes. In some cases it is thwarting development completely, again adding to the issue of insufficient housing supply.

The show stopper is that you must get approval from your local planning authority before you can start building. This is not a planning condition that can be satisfied along the way. It will be law and all legal agreements to deliver on and off-site solutions must be fully in place before you can start any development with off-site BNG payments having to be paid up front harming cash flow models.

In our area we were selected to trial BNG early so as early adopters we have had a good insight into the ramifications of the policy. From an SME housebuilder perspective there are a number of things that Government could do. 

Firstly not all habitat and ecological upgrades available to developers are recognised in the BNG metric developed by Natural England and Defra. As a Trade Federation NFB through the HBA are lobbying hard to get all biodiversity enhancements recognised within the calculation, opening up more options to score on-site credits and deliver more on-site solutions.

Secondly there is no recognition of the actual local need for 10% enhancement. Is 10% right for every location? Perversely in inner cities where more brownfield development occurs, as there is little in the way of existing BNG on the ground very little new BNG is delivered. 10% of nothing is nothing. Conversely where I live the dominant landscape is very bio-diverse and consequently we are being asked to deliver 10% gains where 10% is not needed and 5% would be plenty or ‘no net loss’ would be fine. The imbalance from rural to urban needs to be looked at and rectified with a flexible percentage being developed on location based need.

Thirdly a trading market is being born in poor value land and BNG credits with middle men looking to ramp up credit costs and 30 year land lease values. There are already cases of BNG land lease and sales agreements outstripping productive agricultural values. In the long run this could have serious impacts on productive land use and Government should have an eye on protecting food security.

Finally there is an imbalance between large scale development and small sites (below 50 units). Large scale developers who already exist in a market where their ‘per unit’ development and land costs are much lower are largely able to solve BNG on their large scale site. SME developers who already pay far higher ‘per unit’ land and development costs are finding pro-rata that BNG costs and taxation is also much higher per unit, putting SMEs at a further disadvantage. Due to this financial disadvantage HBA are further lobbying for small sites below 50 units to be mandated to provide BNG on-site only and be exempted for any off-site demands.

These are points that Government should look to address urgently if it wishes to avoid a hiatus in housing supply and applying further pressure to SMEs that are finding it very difficult to deliver in a market dominated by national developers and upward spiralling policy and legislative demands. 

There is no doubt we all agree in the sentiment of BNG but the policy is already causing profound difficulty and delay in housing supply on top of planning performance issues. A more flexible and workable policy is needed to get SMEs building.