From 2023, planning permission will only be granted to developments in England and Wales that achieve 10% biodiversity net gain. A strategic approach to net gain will be essential in limiting costs, expediting the planning process and ultimately ensuring development viability.

Kaela Fenn-Smith

Kaela Fenn-Smith

Forthcoming research from CBRE will show that limiting damage to habitats designated the most ecologically valuable should be the priority for developers. This is not simply because it is ‘the right thing to do’ (never mind the associated wellbeing, health, placemaking tool and value premium benefits). It’s because it will be easier and cheaper to meet the new net gain requirement if they do.

However, limiting damage to habitats is only possible up to a point. Under the new rules, lost habitat must be compensated for and the new rules allow this to be done via three main pathways:

• On site – create or improve the quality of habitat on the development site;

• Off site – either create or improve habitats away from the development site or purchase biodiversity units (BUs) from a third party. BUs are the ‘currency’ of net gain; or

• Credits – if other options are unavailable, purchase statutory biodiversity credits from DEFRA.

The costs of these options could be very different. DEFRA estimates an average cost of £19,700 per hectare of habitat created on site. But our research shows that offsite compensation has the potential to cost up to £231,000 per hectare (12 times as much) due to the relatively high estimated cost of purchasing individual BUs and the proposed cap on the number of BUs that can be created per hectare.

Net gain through purchase of government credits has the potential to be more expensive still. The government has stated its intention to set prices higher than the market price for BUs.

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Source: Shutterstock / PIXEL-to-the-PEOPLE

Furthermore, the market supplying the BUs needed for offsite habitat compensation is still developing. There is no guarantee that supply will meet demand, which could lead to inflated prices and supply bottlenecks.

We think, therefore, that planning for onsite habitat compensation will be lower risk and cheaper, as well as more ecologically desirable. The benefits of onsite compensation are even greater in areas where land and sales prices are lowest. Here the cost of net gain relative to land prices will be higher. Managing this effectively will be important to ensure development viability.

Net gain legislation is part of a wider agenda of securing better environmental outcomes from development. Our clients are now asking us to undertake increasing amounts of environmental due diligence and environmental impact assessment before buying assets or submitting planning applications.

Biodiversity needs to be factored properly into this advice, so our new research is aimed at giving our clients a better handle on what this rapidly evolving policy area might mean for land costs and strategic options for their sites and real estate investment decisions.

CBRE’s report, ‘A practical guide to biodiversity net gain strategy’ will be published this month.

Kaela Fenn-Smith is managing director of sustainability services and ESG for the UK and Ireland at CBRE