Biodiversity Net Gain Legislation marks a pivotal shift in residential development planning

On February 12, the introduction of Biodiversity Net Gain (BNG) legislation marked the biggest shift in planning regulations in decades. It mandates that developers ensure a biodiversity net gain of 10% for each development project. In practice this means that new developments must lead to a greater number of or higher-quality natural environments. Since the national planning policy framework already required net gains for biodiversity, BNG is not entirely new, but the conditions were previously patchy. BNG legislation aims to streamline and improve existing policies. The introduction of this policy has been hailed by the government as an ambitious government strategy to make sure the habitat for wildlife is in a better state than it was before development.

The rules are designed to protect England's natural environment. But understandably, developers have voiced concerns that BNG is yet another requirement in already lengthy planning application processes that often appears to thwart the residential building we so desperately need.

BNG is a method of creating and improving natural habitats by ensuring that any development has a measurable positive impact (net gain) on the environment. Biodiversity is measured in ‘units’ using the statutory biodiversity metric, which considers the type, condition and size of a habitat to calculate its biodiversity value. Developers must determine how many units existed pre-development, how many were lost during construction and how many are needed to achieve a net gain.

Developers will need to create a biodiversity gain plan outlining how they will achieve a BNG, which must be approved by local planning authorities before building work begins.

Preparing for BNG: are builders and developers ready?

Notwithstanding the good intentions of the scheme, as with so much in planning, the timing could have been better. At a time when developers are like many facing challenges over the cost of build and buyer affordability; some developers understandably view them as another hurdle on the track of housing targets. Others argue that leaving a site in better condition post-development may not always be feasible or commercially viable. All of this needs to be considered in the light of a drastic undersupply of new homes too.

There are three ways to achieve the Biodiversity Net Gain to facilitate action more quickly:

• On-site. Improve biodiversity on the development site, such as by installing birdboxes, preserving mature trees or letting areas grow wild.
• Off-site. Create biodiversity on land you own elsewhere. Alternately, buy biodiversity units from another landowner.
• Statutory biodiversity credits. Purchase statutory biodiversity credits from the government to fund habitat-creation in England.

These steps must be followed in order, with the last resort being purchasing credits from the government. Importantly, habitat improvements must be maintained by the landowner for 30 years, representing an ongoing responsibility.

While this may increase project costs - if approached in a positive way, there will be opportunities to enhance the end product and potentially increase the values.

The cost to developers will vary depending on the characteristics of their development and whether biodiversity activities are being undertaken on or off-site. For on-site biodiversity, developers will need to allocate land for habitat enhancement, potentially reducing the available space for housing and further impacting the profitability of the site. Additionally, any habitat created will need to be maintained by the landowner for 30 years, meaning an increase in operational costs. Other costs to consider include staff training to ensure compliance and the alteration of work schedules to build around optimum timings for habitat creation.

While these challenges at face value appear to hamper new build efforts; the fact is that they are now law and, we believe, some of these costs may be recouped in increased prices..

Anecdotally, many of our borrowers and their sales agents are advising that homebuyers are increasingly seeking more sustainable housing product, which means BNG may further enhance the premium that new homes command. Finally, developers that join the BNG market as sellers of off-site units may be able to generate a new revenue stream while helping to preserve the natural environment.

For developers, a couple of things are clear. Before development can commence, they will be required to obtain the LPA's approval of a biodiversity gain plan demonstrating how the development will deliver a BNG of 10% and ensure this is maintained for a minimum of 30 years.

Secondly, it is unlikely this is the end of these kinds of requirements. BNG is one part of a growing movement to increase the emphasis placed on the natural environment. There will undoubtedly be further regulations seeking to protect and enhance the natural environment in coming years.

For now, however, BNG is about making a positive contribution towards sustainable development. While market rebalancing takes time, these legislative changes may prove to be an opportunity. Developers and their brokers should know that financing these projects is still entirely possible and that there are opportunities to secure better terms with the right lenders.

At Pluto Finance, we incorporate Environmental, Social and Corporate Governance (ESG) factors into our investment analysis and decision-making processes, and we make a point of supporting developers who have a focus on sustainable development. This is demonstrated by our Low carbon lending product, whereby we fund developers and offer financing cost discounts to those who can implement whole life carbon reduction strategies to deliver housing beyond the current status-quo.

The future of residential development planning needs innovative strategies from lenders like ourselves in order to ensure the future of legislation changes like this can be sustained in the future. We like to think we are leading the charge on that.