Expected BNG Pricing and How The Market Will Evolve
With BNG coming into law, we examine how pricing of units and the market for Biodiversity Net Gain (BNG) will evolve, helping developers understand their options and risks in 2024 and beyond.
As a broker of BNG, Biodiversity Units UK regularly engages with both BNG Unit Providers and Developers. However, when securing BNG for our clients, we must also consider the relative supply and demand constraints.
Considering that BNG is a relatively new market, making accurate predictions can be challenging. Nevertheless, we can map out potential trends using specific data points and compare them with the Carbon Market to anticipate how things might evolve.
Broadly speaking the BNG market is going to be affected by 2 key aspects:
Quantity of Supply - availability of BNG Units, along with the necessary compliance paperwork to make them sellable.
The Number of Development Projects looking to secure a BNG Solution.
We expect that the rollout of BNG to be fairly bumpy. Whilst we are extremely optimistic about the role of Biodiversity Net Gain both for nature and the reputation benefits within the property industry, it is important to recognise that, like any new market there will be challenges in implementing this new legislation and scaling up its delivery.
As an example, we are already witnessing a significant shortage of approved Section 106 agreements in England. These agreements serve as the necessary paperwork until conservation covenants are fully implemented. Although there are reportedly a large number of BNG unit providers, very few of them have actually been granted their section 106 agreements.
This situation comes as a consequence of land owners having to understand the requirement for compliance, including habitat management plans and other aspects. Additionally, Local Planning Authorities (LPAs) often lack sufficient knowledge and capacity to grant these Section 106 agreements.
In addition, it appears that there is a shortage of BNG solutions currently implemented in the North West of England and many other regions across the UK. When examining information portals such as the Future Homes Hub, it becomes evident that there are large pockets of the country with very few providers in certain parts of the country. Additionally, very few have actually received their Section 106 agreements. Whilst this is not a complete picture of BNG in the UK, other data we have seen from other providers seems to mirror this.
Talking to developers, it appears that there is a distinct lack of secured BNG, which might be mitigated by a slow development market. Whilst last summer was arguably the lowest point for the UK’s property development market and has been building modestly since then, it’s fair to say that we are some way off the post-COVID highs of 2021. As we progress into 2024, we expect demand to increase significantly and given the lack of units, even a modest level of demand might outstrip supply and lead to significant price increases.
We suspect the market will go through the following evolution:
1. Very Early Stage BNG (February - October 2024) – during this period, we expect high price volatility and the scarcity of units.
2. Early Stage of the Market (October 2024 - October 2026) – prices will likely lower somewhat as more providers enter the market towards the end of 2024.
3. Semi-Mature phase of Market (October 26 onwards) - prices will fluctuate based on buoyancy of the development market and the availability of the units.
Given that BNG is now a mandatory part of future planning applications, it’s essential for developers to consider potential market fluctuations. Each developer’s circumstances are unique. Some might need to be certain of supply for an upcoming project and the need to secure BNG for planning, whereas others might be comfortable waiting to secure their units at the later stage. It is important to recognise that there are risks associated with not knowing how prices will react, and the impact for budgeting purposes.
As the market evolves, we also expect BNG Unit providers adapting their approach too. However, certain elements of the legislation, such as the requirement for units to be retired from the DEFRA registry, may limit the flexibility of the Unit providers. We do expect to see some ‘deposits’ and ‘options arrangements’ being used by developers to navigate the planning process.
About Biodiversity Units UK: Biodiversity Units UK Ltd assists property developers and their consultants in sourcing Biodiversity Net Gain (BNG) Units. With experience and understanding of the property development landscape, as well as strategic connections within the UK rewilding industry, not only are we able to understand the needs of developers but also ensure acquisition of ‘Best in Class’ BNG units at competitive prices. We aim to make the process of purchasing BNG Units simple and easy for developers.