The likely impact of the new nutrient neutrality rules on the supply of new homes
The issue of nutrient neutrality has become a significant hurdle, leading to a backlog of 150,000 homes caught up in the planning system. If each new development had included a provision for 30% affordable homes, we could have seen an increase of at least 45,000 affordable homes. And such a boost would have greatly helped in alleviating the annual net loss of 14,000 social rent homes that we have been experiencing over the last 12 years [Inside Housing figures].
The problem is generated primarily by agricultural processes and the regulation of water companies. But while new housing development accounts for less than 1% of the problem, it has been burdened with the responsibility to address this issue. The imposed requirements for mitigation phosphates and nitrates have hindered the granting of planning permission, leading to a significant shortage in housing supply. This issue has also become highly political. The Government sells the solution as the removal of another EU-era rule and the continuation of Brexit; while environmental objectors conflate the issue, compounded by the public scrutiny that water companies are facing for their pollution practices. In this article, we will delve into the repercussions of the nutrient neutrality problem for the development industry and the unanswered questions surrounding its resolution.
It all began four years ago, when Natural England sent letters to several local planning authorities, stating that housing developments could not proceed if they did not implement mitigation for water neutrality. As discussed above, this requirement has caused numerous applications for housing development to become “stuck” in the system, leading to the estimated backlog of 150,000 homes. The industry has lobbied the Government for a resolution and sought to identify practical solutions to the issue. Initially, this led to the introduction of nutrient credit schemes, whereby local authorities would identify and purchase land for mitigation for the planting of wetlands and sell “mitigation credits” to developers. What we found, was that this took local authorities a very long time to set up, and the few credit schemes that were running only provided a limited number of credits for sale. In short, this was not a success. Eventually, the Government rightly concluded that legislation was needed to remove the planning system from the problem – it is, after all, the responsibility of the water industry to regulate. This resulted in the proposed amendments to the Levelling Up and Regeneration Bill (LURB) in August 2023. However, while it was assumed these amendments would be supported, they were voted down by Labour peers in the House of Lords. The LURB has now received Royal Assent, leaving the Government little time to enact secondary legalisation before the next General Election.
There was a possibility that a new Bill addressing nutrient neutrality would be introduced in the King’s speech on 7 November, but in late October unconfirmed media reports stated that Michael Gove is now not planning to bring forward fresh legislation to tackle the issue. This is despite having told a fringe event at the Conservative Party just days previously that he wanted the rules to be scrapped “at the first available opportunity”.
Even were a new Bill to be introduced in the King’s Speech, the limited timeframe before the next general election may, again, hinder the enactment of secondary legislation. It also remains unclear how the Labour party would approach this problem if they were to form the next UK government, adding further uncertainty to the scenario.
As it stands, no progress has been made, and the approximately 45,000 affordable homes stuck in planning limbo continue to linger. The cost of implementing mitigation measures is financially burdensome for developers, leading to further hesitancy in committing to these measures. Local planning authorities continue to require expensive mitigation which exacerbates the delay in housing delivery. Furthermore, the uncertainty surrounding the potential scrapping of mitigation measures creates an unfavourable environment for developers and the dilapidating trust in the system may only fall further if developers who have already paid for phosphate mitigation face the possibility of its elimination through subsequent legislation.
Unfortunately, the resolution of the nutrient neutrality problem may not occur until 2030 when the Levelling Up and Regeneration Act imposes a new duty on water companies to upgrade wastewater treatment areas. In the meantime, the backlog of housing sites has meant that local authorities are finding it increasingly difficult to identify a short-term housing land supply, with many delivering less than the required five years. This prolonged timeline only exacerbates the housing crisis and our reliance on an appeal-based, rather than a plan-led system.
The nutrient neutrality issue has caused significant setbacks in the planning system, particularly concerning new housing development and the recent rejection of amendments to the LURB and the likely omission of a new Bill in the King’s Speech has left us at square one, with no immediate solution in sight.