Environment act to impact land acquisition and property development in the UK
After two years, a Bill, the Environment Act 2021 was passed in November 2021 and is set to bring about changes to land acquisition and property development, and their impact on biodiversity.
The Act brings in a minimum 10% Biodiversity Net Gain (BNG) as a statutory requirement for new developments and requires that any biodiversity gain is managed for a minimum of 30 years.
Announcing the Act, the Government said, “Legislation that will protect and enhance our environment for future generations has now passed into UK law. Through the Act, we will clean up the country’s air, restore natural habitats, increase biodiversity, reduce waste and make better use of our resources.”
“The new policy will have implications for property developers and landowners,” says Stephen Clark of bridging finance company Finbri. “Land values will be impacted as well as the cost implications to delivering BNG. There will be positives and negatives as a result of this change, but developers and landowners are likely to soon recognise that there will be financial implications.”
The Environment Act: Key Changes
The act codifies the impact of construction on water and air quality, as well as biodiversity, resource efficiency and waste reduction. Here are the key changes:
- An Office fo Environmental Protection (OEP) will be established to analyse and report the measures taken and their impact on the environment. The OEP will be a one-of-a-kind UK watchdog that aligns with the COP26 summit.
- The Local Planning Authority (LPA) will be tasked to carry out a broad range of operations that might stretch out their budget and expertise. This includes creating biodiversity reports every 5 years to analyse the previous session's work and laying out strategies for the next 5 years. However, the first such reports must be published within 3 years of the law.
- The Act amends the Town and Country Planning Act 1990 and makes it compulsory for a developer to convince the LPA that their new project will improve the net biodiversity of that region.
What is the biodiversity net gain (BNG)?
According to Part 6 of the Environment Act 2021, each new proposal for the planning permission should show how that project aims to improve at least 10% biodiversity value of a region. The BNG is set at 10%, meaning that an applicant must prove their project will lead to a 10% gain in value, whether on-site, off-site, or through purchasing biodiversity credits.
The biodiversity gain must be sustained and preserved for at least 30 years. LPA will create a publicly accessible registrar of all the gain sites in that region for transparency.
- On-site BNG: Developers can enhance the BNG of the property by planting trees and improving the habitat.
- Off-site BNG: In cases where it's not possible to improve the biodiversity of the property, developers can purchase a separate land or fund a landowner to improve biodiversity.
- Biodiversity credits: Even though the provisions for the credits haven't been ironed out yet, its likely to eventually allow property developers to buy credits that will enhance the biodiversity of a different site of the country.
What does BNG mean for developers?
Among many recent changes, biodiversity net gain (BNG) has been the most controversial one, particularly for developers. On the surface, it aims to mitigate the environmental impact of construction but also increases development costs for all projects. Here are some major implications:
- Increased scrutiny for land acquisition
Along with various advantages such as economic and geographic importance, premium locations tend to be surrounded by greenfield sites with rich biodiversity. It's difficult to improve the BNG of these areas without significantly increasing costs.
On-site BNG also means that developers will have less space for housing and recreational planning. Ultimately, it will change how sites are allocated for development.
- Developers may face the brunt of rising cost
It is likely that developers will have to set aside a budget to either acquire more land for on-site BNG or finance off-site BNG, or purchase bioviversity credits.
Addiitonally, any effort by developers to reduce the biodiversity value from the baseline before obtaining planning permission will be discarded. Since BNG will need to be demonstrated only after the development is completed, the total costs might go higher than expected and short-term solutions to any sudden expenses that might crop up in an ongoing project.
- Brownfield landowners may reap financial benefits
Land, specifically brownfield land, could feasibly see a rise in demand for off-site BNG. Developers will look for sites that are not suitable for development projects but ideal to create and enhance the biodiversity of that region to offset their on-site restrictions. However, sites that are completely unsuitable for habitat because of ground contamination or flooding are unlikely to see a shift in demand.
Who are the winners and losers?
It's evident that developers will have to adapt to and budget for the implications of the Environment Act and demonstrating a site’s ability to achieve at least 10% BNG will have to be a development consideration. Ultimately its going to cost more to develop land. The wide-ranging reforms that will impact planning and development should also result in environmentally positive outcomes for future builds and generations.
We suspect landowners of previously undesirable plots are likely to benefit from increased interest in their land as the value will no longer solely determined by its geographical location or planning. In fact may even be a small step towards ‘levelling’ up in the UK.