Planning for Living Sectors development in London
Positive shifts open new opportunities
The UK planning system often makes headlines for all the wrong reasons, with stories about delays, inconsistent decision-making, and political interference potentially deterring investors considering the London market. However, looking beyond these headlines reveals a more nuanced picture, with significant positive changes underway that are creating opportunities for living sectors development.
The revised National Planning Policy Framework (NPPF) from December reinstated mandatory housing targets nationwide and strengthened enforcement mechanisms – this has given policy real teeth. It now includes a simplified ‘tilted balance’ test that favours approving development schemes when councils fail to meet housing requirements and when a project's benefits outweigh its impacts.
Another significant addition is the brownfield land presumption (Paragraph 125C), creating further opportunities for development with a presumption in favour of development on previously developed land. With housing targets via the standard method simultaneously increasing, many councils now find themselves subject to these presumptions – opening doors for well-positioned developments.
The Planning and Infrastructure Bill has now been published, which seeks to further reduce the burden on developers and to simplify the planning process. Included is a reform of the planning committee procedure, giving more powers to professional planning officers and limiting the number of applications to be determined by planning committee. This is a very positive move. Also suggested is the ability for planning authorities to set their own fee rates for planning applications, and to reinvest these funds into the planning system. Assuming this money is spent in the right areas, that will hugely help the speed and quality of decision making.
These planning improvements come at a critical time. According to Knight Frank's NextGen Living 2025 research, 60% of investors cite planning issues as one of the key obstacles to growth in living sectors, making it the second biggest concern after construction cost inflation (81%). The planning challenges have contributed to housing permissions falling to their lowest level in a decade, directly impacting development activity. For London specifically, BTR starts fell to their lowest annual level since 2014 in the year to Q3 2024, with fewer than 2,500 homes starting on site.
Despite these challenges, investor ambition remains strong. With construction cost inflation moderating to 2.9% in 2024 from a peak of 15.5% in 2022, and further stability anticipated in 2025, viability pressures are easing – creating better conditions for the recent planning improvements to unlock new development opportunities.
For the living sectors specifically, they are gaining greater recognition in national policy, which is moving in the right direction. Meanwhile, at a local level, the London Plan and associated guidance is setting out clear expectations for development, and boroughs are adopting policies. This is providing greater clarity for the investment landscape, and should lead to improved decision-making for these asset classes.
While these changes are encouraging, securing planning permission still requires careful consideration, and there are some obvious factors developers should consider in order to maximise chances of planning success.
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Strategic location selection
Location selection has become increasingly critical, particularly as funding markets tighten. For co-living and student accommodation, centrally located sites in Zones 1 and 2 with excellent transport links are strongly preferred by both investors and planning authorities. Crucially, there's growing alignment between where policy directs these developments and where funding partners want to invest.
For co-living particularly, vibrant areas – such as Stratford, Wembley, Canary Wharf, Harrow and Earlsfield – will appeal to young professionals and tend to perform well. For student accommodation, proximity to universities and amenities remains essential, with Zones 1 -3 locations most desirable.
That said, attitudes vary significantly from borough to borough. Ealing remains positive toward living sectors in the right location, while Camden will accept student accommodation but generally opposes co-living. Lewisham, and Lambeth are broadly supportive. Meanwhile, Wandsworth has shifted from being highly accommodating to much more restrictive.
With all this in mind, it is important to do research and seek advice from planning experts – ideally before site selection.
Embrace mixed-use development
The most significant trend across all living sectors is the growing expectation for mixed-use schemes, particularly those incorporating affordable housing. While co-living and student housing have traditionally provided payments in lieu of on-site affordable housing or provided affordable student accommodation, London boroughs are increasingly seeking traditional affordable housing delivery within these developments.
Boroughs such as Southwark, Camden, Tower Hamlets, Newham and Lambeth are leading this shift through their local plans. There are now many examples across London of successful mixed use schemes, albeit it is essential that the uses and tenures are clearly separate to meet funding requirements.
Design considerations
Design considerations are increasingly shaped by regulatory factors. Many developers are deliberately designing schemes to remain under the 18-metre threshold that triggers Gateway 2 requirements. This process is causing significant delays and uncertainty, and many are opting to design a scheme to avoid it. Some developers are choosing to keep schemes under the thresholds where schemes are referred to the GLA, as theoretically at least, this could speed up decision making, reduce cost, and potentially allow greater flexibility in the end product which can be more attractive to investors. The benefits of these approaches of course need to be balanced against the potential sub-optimisation of site capacity, and that the GLA can be a useful ally in negotiating complex applications.
Positive shifts open new opportunities
The UK planning system often makes headlines for all the wrong reasons, with stories about delays, inconsistent decision-making, and political interference potentially deterring investors considering the London market. However, looking beyond these headlines reveals a more nuanced picture, with significant positive changes underway that are creating opportunities for living sectors development.
The revised National Planning Policy Framework (NPPF) from December reinstated mandatory housing targets nationwide and strengthened enforcement mechanisms – this has given policy real teeth. It now includes a simplified ‘tilted balance’ test that favours approving development schemes when councils fail to meet housing requirements and when a project's benefits outweigh its impacts.
Another significant addition is the brownfield land presumption (Paragraph 125C), creating further opportunities for development with a presumption in favour of development on previously developed land. With housing targets via the standard method simultaneously increasing, many councils now find themselves subject to these presumptions – opening doors for well-positioned developments. In this evolving environment, three major trends are emerging that will define the commercial real estate (CRE) lending landscape in the year ahead.
Strategic location selection
Location selection has become increasingly critical, particularly as funding markets tighten. For co-living and student accommodation, centrally located sites in Zones 1 and 2 with excellent transport links are strongly preferred by both investors and planning authorities. Crucially, there's growing alignment between where policy directs these developments and where funding partners want to invest.
For co-living particularly, vibrant areas – such as Stratford, Wembley, Canary Wharf, Harrow and Earlsfield – will appeal to young professionals and tend to perform well. For student accommodation, proximity to universities and amenities remains essential, with Zones 1 -3 locations most desirable.
That said, attitudes vary significantly from borough to borough. Ealing remains positive toward living sectors in the right location, while Camden will accept student accommodation but generally opposes co-living. Lewisham, and Lambeth are broadly supportive. Meanwhile, Wandsworth has shifted from being highly accommodating to much more restrictive.
With all this in mind, it is important to do research and seek advice from planning experts – ideally before site selection.
Embrace mixed-use development
The most significant trend across all living sectors is the growing expectation for mixed-use schemes, particularly those incorporating affordable housing. While co-living and student housing have traditionally provided payments in lieu of on-site affordable housing or provided affordable student accommodation, London boroughs are increasingly seeking traditional affordable housing delivery within these developments.
Boroughs such as Southwark, Camden, Tower Hamlets, Newham and Lambeth are leading this shift through their local plans. There are now many examples across London of successful mixed use schemes, albeit it is essential that the uses and tenures are clearly separate to meet funding requirements.
Looking ahead
The planning environment for living sectors remains complex but is showing signs of improvement. With the NPPF and Planning and Infrastructure Bill now published, we can expect further positive changes to come.
With housing demand remaining high and policy shifts creating more certainty, now is a promising time to move forward with well-conceived living sector developments in carefully selected London locations. Where the opportunity arises to create mixed use schemes, we’d encourage investors and developers to look carefully at these, as they may well present a smoother route through the planning system.
Written by Chris Benham, Head of Planning, London at Knight Frank
