The Potential Impact of the new BNG regime on Property Values
By Neil Seager BSc (Hons) MRICS , Managing Partner at Haslams Surveyors LLP
Since the provision of a minimum of 10% biodiversity net gain (BNG) on any new developments in England became mandatory on 12th February 2024, it has been interesting to observe firsthand the impacts on property values. While the new regime will undoubtedly increase environmental and social value, there are immediate financial drawbacks for developers and landowners. This is particularly the case for land that is already owned but for which a planning application has not yet been submitted. Conversely, the value of sites with extant planning consents secured prior to February 2024 have benefited from not having to provide a 10% BNG.
As a reminder to comply with the new BNG legislation, once planning permission is granted, a Biodiversity Gain Plan (BGP) must be submitted to and approved by the planning authority before development begins. The BNG can be achieved through onsite biodiversity gains, registered offsite biodiversity gains, or statutory biodiversity credits. The goal is to increase biodiversity value, contributing to a healthier and more resilient natural environment - all of which is to be applauded. However, based on my current experience, the cost of providing BNG - at least for now - directly affects a developer’s bottom line. Therefore, all other things being equal, the impact of the new regime has decreased land values. Furthermore, the land required to deliver BNG onsite is no longer available for development, which often means that potential development density, and thus land value, is reduced. As a result, it can be more financially beneficial for a developer to purchase offsite BNG units.
There is also another potential consequence of the BNG regime that the market will need to wrestle with. Both onsite and offsite BNG must legally last for a minimum of 30 years. This presents a clear challenge for onsite BNG where, for instance, a commercial developer, upon final letting, will be selling to an investor. Managing such BNG onsite for 30 years incurs costs that would have to be passed on to future owners. For now, this ongoing cost must, in some way, impact the investment profile as any future owner must consider it in their appraisal of the investment. Conceivably, albeit unlikely in my view, this cost could be passed on to a tenant through a service charge. Similar to the density point above, there would be no such impact with offsite BNG, as the cost of running the 30-year management plan is usually covered by the offsite BNG unit provider.
Potential future increases in BNG costs could lead developers to attempt to reduce other policy costs, based on the valuation viability of the development. It is too early to tell if this will occur or prove to be worthwhile. In the long term, ‘green’ developments, including those with responsible and well-maintained BNG, could become more valuable, thus offsetting the financial downside or even enhancing it. Ultimately, only time will reveal how the market adapts to this significant change in property development and valuation.