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How converting office blocks into apartments can boost housing supply

Converting empty office blocks and other commercial space into residential space could provide one solution to the UK’s housing crisis, according to the Nationwide Building Society.

In its monthly house price index, the lender said the change of use sector has been growing, adding to the number of homes being created each year. This has been boosted by a shift in government policy since 2013 that means planning applications for converting offices into residential properties are automatically granted.

In 2006-07, there were around 20,000 such conversions, a figure that had almost doubled to 37,000 in 2016-17. Half of those conversions were given the go-ahead under the new planning policy. Developers still need to have prior approval for their project, such as its impact on transport and highways, along with contamination, flood and noise risks.

London and other cities with large commercial districts have seen the biggest boost in change of use from offices to apartments and homes.

Change of use has significant effect

Robert Gardner, chief economist of Nationwide, said: “Construction of new build properties is still too low, with completions in England over the past 12 months around 13 percent below 2007 levels.

“But the picture improves significantly if we add in new dwellings that have been created by converting larger homes into more units and those created by change of use, such as offices transformed into flats.

“Interestingly, it is change of use of buildings – from shops, offices and other commercial purposes, to homes – that is providing the biggest boost. 

“In London, homes created by change of use accounted for more than a fifth of new dwellings added in the capital in 2016/17, well above the 16 percent recorded in the rest of England.

“While across the UK, the price of housing and residential land is higher than the price of commercial property and commercial land, in London the gap is sufficiently large to dwarf conversion costs and make the developments very profitable.

“Other cities with expensive housing and limited supply also appear to be benefiting from the policy change. For example, in Bristol, net change of use accounted for the majority of new housing supply in 2016/17, with 1,040 additions from change of use versus 900 new builds.”

Not the only solution

Mr Gardner did sound a note of caution, saying that converting commercial buildings to residential cannot be the only solution to the major problem of lack of supply in the UK housing market.

He added: “While this is an encouraging development, we shouldn’t overstate its significance. The growth in change of use may well slow in future years as developers have probably converted the easiest sites and the stock of suitable commercial property will reduce.”

In last month’s Budget, the Government announced plans to increase the number of new homes provided in England to 300,000 annually by the mid-2020s. The conversion of commercial property may provide only a tiny percentage of that figure, but it is a welcome addition to diversifying the types of homes provided.

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