Philip Barnes – Blog


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LONDON’S GETTING BETTER AND BETTER….. THE ONLY LOSERS ARE LONDONERS

One of the “perks” of this job is that I get to sit in on lots of discussions about the causes, symptoms and solutions for the UK’s housing crisis.

Two things always tend to strike me. First how many people claim to have discovered the single “silver bullet” which, when addressed, will solve the crisis. And second how London centric the discussions often
are.

In respect of the former the reality is that there are huge number of causes and possible solutions. Every lever needs to be pulled right now rather than just one or two which suit the politics of the proponent.

In respect of the latter the London focus is entirely understandable. The participants usually live in London or the South East and are often personally affected by the incredible dynamics of the London market.

Rather than one simple cause of the London overheating it seems, at this particular moment, that there are a range of positive forces making London more and more attractive as a City. This is generating housing demand from numerous sources relentlessly pushing the market upward. What are these forces and would it be sensible to try and hold them back?

The first is undoubtedly the dramatic rise in the quality of London’s schools. 20 years ago they were a basket case – now thanks to a range of investment programs (The London Challenge, Pupil Premium, higher teacher salaries, Study Plus) they are perhaps the best in the Country. No longer do young families flee London in order to give their kids a chance in life. This means even less homes on the market available for others.

Secondly overseas investors want to invest here. The political stability since The Glorious Revolution in 1688 is in stark contrast to, inter alia, Ukraine, Thailand, Greece or even France. This confidence and investment in our country is helping to get new homes built. Any idea that investment which gets homes built, is somehow unwelcome, seems folly to me. Once built they are occupied by Londoners and absorb market pressure.

Walking round London is simply different to walking round other UK cities. You can feel the economic confidence – on the street, in meetings and during economic discussions. The policy challenge is how best to harness a speeding recovery.

In the North East the challenge remains to stimulate one. Without available jobs in the regions the traditional flight of 28-35 year old teachers, planners, engineers, nurses, lawyers, etc from London simply isn’t happening anymore. Their houses aren’t becoming available.

Throughout the 90′s and 00′s London haemorrhaged these families to the Midlands and North. They helped take up the huge amount of public (and private) sector jobs in the regions being created by a Government spending boom. Those opportunities don’t exist any more as the economy and public sector employment has reduced. Meanwhile there is evidence that public spending and employment in London has actually increased – perhaps understandable as managing growth takes more resource than stagnation or decline.

London’s ever improving cultural attractions, facilities and public transport is also, itself, driving housing market pressure. As arts, transport and sports budgets get slashed in places like Newcastle those relying on such opportunities seek them elsewhere. I know of two, wealthy baby boomer couples who have downsized to two smaller properties – one in the North East and one in London. Why? – firstly to be closer to nest-flown children but also because they want to see good shows, visit great exhibitions and eat at busy restaurants. In areas that are vibrant any night of the week. Plus the capital growth of the last 2 years in London (compared to the North East) means the investment has made obvious financial sense.

SO – in London we have better schools, a successful growing economy, more public sector jobs, ever improving cultural attractions and more investment confidence. Clearly all great news?

EXCEPT that all of this upward housing market pressure means it is becoming virtually impossible for Londoners to gain access to decent housing without baby boomer backing. The average London house price is nearly 10 times annual salary and rents are rising 8 times faster than earnings. Last year the national average salary went up by £261 whilst the average house price went up £16,000.

At the risk of walking well trodden ground the answer must be a dramatic increase in housebuilding including a truly radical appraisal of the role and function of Green Belt in many of the outer London Boroughs. Public and private sectors working together – sharing risk by taking advantage of (hopefully) a relaxation of the local authority lending cap. It means finding underused rail stations and building attractive garden villages and cities there. After the endless rhetoric is it now time for action?

Plus a more positive policy focus on rebalancing the economy of the country. Shifting national public functions and jobs away from the areas of housing shortage and towards areas in need of jobs and investment is a welcome start and would not harm London. This shift could help kick start, an ultimately necessary, private sector resurgence in the North.

Clearly its much more complex than this but, as a dyed in the wool northerner, this seems more sensible than pursuing measures to inhibit the global economic success and attraction of our capital city.


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TIME TO REFLECT ON THE PAST, PRESENT AND FUTURE OF THE PLANNING SYSTEM

The TCPA Annual Conference at The Liberal Club came as blessed relief recently. A time to reflect on the past, present and future of the planning system. An enjoyable and valuable time out from the cycle of meetings, presentations, train journeys and hotel check ins. I still can’t quite believe it’s only been 4 months since I was lucky enough to take on this national role.

The conference also allowed me to reflect on all the various land, housing and planning presentations I have seen since joining Barratt. I came to the conclusion that one of my favourites was by Andrew Carter at a fringe event at the Labour Party conference. Why? Well firstly because he reflected many of my own views (obviously essential) but he also provided interesting new evidence on the subject. In particular Andrew made the point that whilst in his view the land, housing and planning systems are dysfunctional – everyone behaves rationally. No sector or grouping can be described as irrational given what is front of them.

Planners tend to behave rationally in my experience. The problem is that planning departments are massively understaffed and they sometimes get asked by local politicians to take decisions which feel to them (and us) as irrational.

Local politicians behave rationally in a localism world. Their job is to get elected. New housing is unpopular so they are often opposed to it. They get elected by a small community. They reflect what that community wants rather than what is required by the duty to cooperate or some “larger than local” planning issue. They sometimes berate developers, again perfectly rational because many communities don’t want development.

Housebuilders also behave rationally. We have to build houses (clue in title) and we have to do it profitably. No job for me if we don’t. We face an under resourced planning system and a shortage of adopted plans. We also have perhaps too little risk appetite. Why? Because many of us nearly went bust 5 years ago. Again perfectly rational when you consider planning consent costs are roughly £2m per 1000 houses – from pre app to construction. Therefore we are now compete trying to outbid each other to buy land from either the public sector or the land promoters who have taken the risk to secure planning permission. We then try to build and sell in a way which ensures we make a profit – for the reason given above. Again all rational.

Local communities tend to behave rationally. It is a peculiarly British trait that when it comes to retirement planning we often place some reliance on the value of our prime asset – the home. As such when the housebuilder comes along to build houses at the end of the street we think it might adversely affect the value of our home. Especially if we are not too far off retirement age. The thinking is that if planning permission is NOT granted then I can afford gold standard retirement provision. If permission IS granted it might be silver or bronze. Of course the reality is that new homes tend to lift local house prices but the fear and subsequent action cannot be described as irrational without compelling evidence to the contrary.

So what can be done? I don’t think that an overhaul of national planning policy is the answer. Looking back to days of PPG3 and PPS3 you would have to be a monumentally churlish developer to say Nick Boles hasn’t done a great job in delivering NPPF and NPPG in the face of huge opposition. Much of it from his own party! Sure there remain difficult issues at the local and “larger than local” level but in this modern multimedia world I suspect even the most hard-nosed planner and housebuilder accepts that a policy of forcing millions of homes on an unwilling Middle England would be difficult. Between 1947 and 1950 alone the state rocked up at 11 separate communities and told them all they were the now the fortunate recipients of a massive New Town. Personally I can’t see that being replicated going forward without major political difficulties if not civil unrest. Yes we need a more strategic approach but waving a New Town wand will be hard.

In the meantime NPPF tells us that if a Council doesn’t have a plan or a 5 year land supply it may be more difficult to defend a refusal of permission. In my view this way better than what we had 5-10 years ago.

For me the answer is that there is not one single answer. There are many levers to increase housebuilding and they all need to be pulled right now. Thinking about the most important themes at I am again drawn to the one of the key questions in Andrew Carter’s presentation. Namely how do we get more land into the hands of housebuilders earlier and at a price which make it easier for us to build beautiful developments with abundant social, physical and environmental infrastructure? Remember we actually want to do that because it means our homes sell more quickly and nobody should under-estimate the importance of early return on equity in delivering a profitable development. Debt is expensive.

The other theme for me is collaboration. Especially as there are no way we housebuilders can deliver what is needed on our own. I am doing more work in Scotland and they do seem to have cracked this consensus nut better than down here. Perhaps some lessons to learn. Also I am struck by the cross-sector cross party support for the brilliant “Yes to Homes” campaign. Anyone fancy launching a “Yes to Planning” campaign which focuses on how, when planning is done well, it delivers growth and beautiful places.


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HOW DO WE DELIVER MORE SPACIOUS NEW HOUSING

The issue of ‘rabbit hutch’ houses has been in the news recently. Unsurprising given the Governments Housing Standards Consultation Paper which poses the question whether we should introduce either mandatory space standards or introduce a space labelling scheme to make it crystal clear to purchasers what they are purchasing in space terms.

Many of the commentators are rightly focussing on the how the size of UK housing compares with our peers across the world and how larger new homes could benefit future occupiers. In relation to the former there is no doubt that for a country with no lack of space for new housing our new properties do seem smaller than would be expected. As an example the living space in our new homes has fallen by a third since the 1920s and according to RIBA are the smallest in Western Europe.

There has been less focus on (a) the causes of the problem, (b) whether those causes are still in play and (c) what we can do to remove those causes.

The root causes are PPG3, housing undersupply and landowners. At the risk of “he would say that wouldn’t he” housebuilders are not usually the prime cause.

PPG3 brought in zealous brownfield high density approach to housing. The famous phrase “maximise the efficient use of land” unsurprisingly became translated into the planning system as requiring housebuilders to “cram as many on as possible” in order to make land more efficient at producing new homes. Buy to let tower blocks and estates of tiny terraced house delivered the PPG3 policy and the housebuilders and developers responded. As the the housing crisis worsened due to new housing supply massively undershooting population growth the pressure for ever more units and density (in order to avoid the need to build on green fields) grew and grew. The result was ever smaller homes to address the gordian knot of a policy requiring more and more housing from less and less green fields.

And where does the landowner fit in? Often the value of land is dictated by the amount of saleable floorspace that can be accommodated in a site. In the old days it was the planners job to restrain density in the face of landowner pressure for more floorspace. The famous Parker Morris standards were a planning response to avoid unduly high densities. For many landowners PPG3 arrived like manna from heaven – even the planning system now wanted super high density. When selling a site the landowner could always pick the housebuilder with highest density scheme as this would usually generate the highest value AND good planning prospects. 

The result was inevitable – lots and lots of small units.

And the solution? NPPF is a good start. The policy obsession with density is giving way to an emphasis on quality and character. Local planning policies need to give clearer guidance at an early stage. In London high density will remain an objective given the population pressures but clearer policy guidance will nevertheless help landowners and housebuilders understand what type and size of housing is appropriate on a site cognisant of important amenity issues.

Elsewhere, in particular for the new generation of garden suburbs local planning policies and guidance will hopefully give landowners clearer guidance that when selling the site the aim must not be to maximise density to maximise “efficiency” (and site value) but instead focus on good quality spacious family housing on decent plots and set within attractive new landscapes.

For us housebuilders that is what we want to build and sell because that is usually what people want to buy.


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THE FIVE PURPOSES OF GREEN BELT

 Previous posts have set down my views on the need for pragmatism when considering the economic, social or environmental value of some of our provincial green belts. A clear distinction has always been drawn with the London Green Belt – partly reflecting my limited detailed knowledge of it.
A key issue has been whether a “no development” stranglehold around cities like Newcastle/Gateshead best meets economic and social objectives. For example the OECD (presumably unaware of Green Belt policy) concluded in 2010 that “space to grow” is one of Newcastle’s key economic advantages over other competitor cities. To the west it’s about 70 miles to Carlisle and to the north it’s 150 miles to Edinburgh. Little did OECD know that a Green Belt boundary hard up to urban edge currently prevents new development to address population growth and economic ambition.
It will take 1,750 years to concrete the Newcastle segment of the Green Belt at current rates of development. If this segment were a tennis court then the controversial Core Strategy draft proposals for a much needed 6000 new units in the Green Belt extension would measure some 80cms x 80cms if they were all in one place – which they are not. The 2014 Public Examination will determine whether 6000 is anywhere near enough.
Turning to the London Green Belt a few weeks ago I completed the London Revolution cycle ride which circumnavigated London – generally all within the Green Belt. It provided a superb two day snapshot of the Green Belt starting in Docklands then from the Lea Valley across the North Downs then southwards via the Chilterns towards Windsor. The second day involved cycling along the South Downs and then northwards via Box Hill and Crystal Palace back to Peruvian Wharf
The overriding perspective was of the incredible value of the Green Belt. Often it felt like cycling through deep countryside despite being only 10 or so miles from the centre of one of the world’s greatest cities. An amazing contrast to more sprawling cities such as Los Angeles, Tokyo or Cairo.
 A second impression was the quality and attractiveness of the settlements and the landscape. You were never pedalling long before passing through a quintessential English village or beautiful rolling pastures. A real sense of a valued and cared for landscape. That said the M25 and the arterial motorways never seemed to be too far away!
Whilst a two day cycling ride is no substitute for a proper spatial analysis it did seem that many, if not most, of the many settlements we passed through did have the capability of accommodating at least fifty or a hundred or more dwellings without undue conflict with the 5 famous purposes of including land within a Green Belt. Particularly given the topography and landscape enclosure of much of the route. It also seemed that many of the settlements had enjoyed reasonably regular periods of growth until the 1960s or 70s but that more recent development, on the urban edge, was much rarer. Some felt, frankly, as though they had been preserved in aspic and were lacking vibrancy.
I was left with a sense that many settlements do have easy potential to take some limited growth to meet local housing needs but that Green Belt policy appears to have unnecessarily and inflexibly drawn up the drawbridge. I was also left with a sense, in some places, that most people around the place appeared to be over 50 or 60. Perhaps the beneficiaries of earlier episodes of development.
Going back to the 5 purposes of including land within Green Belt my cycle-by site visit left the impression that the London Green Belt has undoubtedly been incredibly valuable in preventing urban sprawl, promoting urban regeneration, protecting the setting of historic towns and safeguarding the countryside from encroachment. It has also clearly been successful in preventing the coalescence of settlements. Indeed in many places some limited further development would appear to neither cause coalescence nor prejudice any of the other 4 Green Belt purposes.
That said I would repeat again that my initial view based on a cycle ride needs to be seen for what it is – a snapshot opinion without detailed research. An opinion based on a pretty comprehensive on the ground look however.


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GOOD DESIGN IN NEW HOUSING – THE ROLE OF THE LANDOWNER

imageThe importance of good design in new residential development has never been so high profile. The strong message from Government is that it wants to see far more homes delivered but beyond that it also needs to see more beautiful places created. But who is actually responsible for delivering such places on the ground?

Of course everyone is familiar with the importance of the design team. The keyword here is integration. Beautiful architecture needs to be integrated with legible permeable urban design, fantastic landscape architecture and multi modal transport planning. No matter the size of the site – any of these design elements can be the weak link which causes a scheme to fall short.
What about the developer? A belief in the commercial value of design and a willingness to commit time to it is crucial. The developers fundamental job though is to deliver the scheme. This task boils down to giving the landowner the land price he requires and then achieving a sale of units which covers all costs.  Without the prospect of sales revenues exceeding costs (including land price) the development doesn’t happen.
Which brings us onto the role of the landowner. Given that costs and sales values are broadly predictable within known parameters the key area of potential financial flex on any scheme is the land value. If the sole objective of the landowner is to maximise land sale price then this clearly places more pressure on the competing bidding developers to be prudent on other costs (perhaps including design) in order to ensure that the (largely predictable) sales values clearly exceed the overall land and construction costs.
In contrast where the landowner has wider objectives (perhaps including the creation of a beautiful place) then costs which might otherwise need to go towards land price can be invested in design. If the landowner has this flexibility and makes clear the design expectations at the outset the process for creating a beautiful place is underway.  Enlightened examples of this approach include New Hall in Harlow,(William and Jon Moen) Derwenthorpe in York (Joseph Rowntree Foundation) (see photo) Bedzed in Sutton (Public Sector/Peabody) and Poundbury in Dorset (Duchy of Cornwall).
 Not all to everyone’s taste but the commitment to deliver a high quality design and a beautiful place is crystal clear. Clear design and planning guidance from the local authority can also help manage landowner value expectations and thereby assist in creating beautiful places.
So next time you think a housing estate looks “pig ugly” think beyond the architect and the housebuilder and ask what role the landowner may have have played in squeezing the pips out of the design budget. In contrast where you see beautiful places remember that the landowner will likely have been just as influential as the architect or developer.
Final plea goes to the public sector. A wave of public sector land is coming forward and surely the landowner should adopt a similar approach to the schemes described above. Simply maximising land price to achieve “best value” would be short termist and wrong headed. Public and private sector landowner commitment to (and investment in) design will pay the country dividends.


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WARD HADAWAY/HCA HOUSEBUILDER SEMINAR

Set down below are some very rough notes from the interesting Ward Hadaway/HCA seminar for housebuilders in Newcastle. There were three presentations. Two from WH (planning matters and legal matters) plus one from the HCA. Apologies in advance if any of the details have been skewed in the drafting

WARD HADAWAY/HOMES AND COMMUNITIES AGENCY SEMINAR

PRESENTATION 1 – PLANNING MATTERS

VILLAGE GREENS
Royal Assent for new provisions – 25 April.
Positive news for developers – ends the 20 year “as of right” usage of private land for village green. The landowner can make a statement that they do not intend to allow public uses to continue before or after 20 years.
If already 20 years of public usage the village green application has to be made within 1 year of the notice to end such uses.
Also a restriction on rights to apply for village green status. If there is a “trigger event” (application or allocation) village green application cannot be made.

STOPPING UP HIGHWAYS
New provisions in Growth and Infrastructure Bill mean that stopping up applications (under S247/257 of the Act) can be made without having to wait for planning permission.

SECTION 106 AGREEMENTS
Developers can now apply to amend S106 Agreements (pre 2013) but only in relation to affordable housing provisions which make a development “economically unviable”. LA has 4 weeks to determine.
Can apply to on site and off site affordable housing provision

COMMUNITY INFRASTRUCTURE LEVY
Developers will not be charged CIL twice via a Section 73 application following payments made pursuant to the original grant of consent. (Had been a worry)
New changes will allow LPAs to set different levels of levy relating to scale of a development.
Developers need to be aware that S106 Agreements will still be needed for affordable housing and on-site facilities.
New restrictions are aimed at ensuring developers are not charged twice for the same highways works – once by CIL and once by S278 Agreement

OFFICE TO RESIDENTIAL
Now legal without permission subject to no external alteration

JUDICIAL REVIEW PERIOD
Proposed to be reduced to 6 weeks.

APPLICATIONS DIRECT TO SECRETARY OF STATE
Developers have option to apply direct to SoS in “poor performing areas” – criteria for identifying such areas yet to be defined

PRESENTATION 2 – LEGAL MATTERS

HEADS OF TERMS GUIDANCE
Heads of Terms should clearly identify the site, together with areas of 3rd party rights.
Timescales for the deal need to be defined.
Security should be defined. Generally 4 alternatives:
1 – Parent company guarantee.
2 – Bank guarantee.
3 – Phased land transfer with requirement for upfront works.
4 – Legal charge – provides comeback rights for the landowner in the event of non completion.
Legal charges need to be formally registered and once the debt has been paid the charge must be released.
Obligations on the developer should be clearly set eg with reference to commercial terms rather than simply “best endeavours” or ” reasonable endeavours”. Timescales for such obligations should be clear.

OVERAGE
Generally 3 types of overage provisions – relating to:
1. Enhanced sales revenue
2. Enhanced planning permission
3. Change of Use to more valuable use
Sometimes there are several types of overage in a single deal. Here it needs be clear there is no double counting
Crucial to specify how overage triggers are to be reported and be clear on timing.
Likely to be phased overage on bigger sites. Developers need to ensure if losses on later phases then any overage paid on early phases is clawed back.
If part exchanges are involved in the development then developers should not pay overage until all part-ex deals are completed.
Need to ensure all costs are offset against overage requirements.
A worked example calculation within the contract is crucial to provide clarity. Helps all parties later.

LAND ACQUISITION STRUCTURES
Generally 5 types of structures in play:
1. Exclusivity Agreement – provides simple lock out to enable a negotiation to take place. Often they come with a fee for the developer.
2. Conditional Agreement – generally for short term deals and usually conditional to “satisfactory” planning permission and/or “satisfactory” site survey. Deposits tend to be returnable. Generally more straightforward than an option. Key issue is where planning permission includes viability condition.
3. Option Agreement – generally for longer term land deal with a “reasonable endeavours” clause to ensure site is promoted properly by the developer. Generally most flexible for developers and best alternative for assembling multi ownership sites. Right of termination is useful for the developer.Deposits are usually non returnable.
4. Promotion Agreement – developer has right to promote site and then get a share of the sale proceeds on open market. Risky for housebuilders as they need to fund promotion but don’t then necessarily have the right to acquire the site. (Although they do get a share of the sale proceeds to another developer which should easily cover promotion costs)
5. Development Agreement – Landowner retains land but there is an agreement whereby the developer develops with a deal to split the revenue proceeds.

PRESENTATION 3 – HOMES AND COMMUNITIES AGENCY

5 KEY AREAS FOR HCA ACTIVITY
1. Affordable Housing – funding RSL schemes
2. Housing market interventions – making private sector schemes happen
3. Public land – bringing public land forward for kore housing more quickly
4. Economic assets Programme – better value from public economic development assets (ex RDA land and assets) and recycling those funds
5. Regulation of social housing – TSA etc. robust regulation to improve performance.

GOVERNMENT INITIATIVES
Budget 2013 was a clear signal of intent for housing. Publicity for H2B has overshadowed the Help to Rent scheme which itself got £800m of funding.
Both Government and LAs understand how important it is to encourage housebuilding to generate jobs and economic growth.
One key issue is the need to finalise the Comprehensive Spending Review so that more funding certainty is in place for the period beyond 2015
Affordable Homes – £4.8bn to build 170000 homes. £2.1bn for Decent Homes.
Greater focus on tackling empty homes and shops which are blighting neighbourhoods and high streets.
Build to Rent is simple gap funding of PRS new build projects. Bidding process.
HCA have a role in mediating affordable housing levels between developers and LAs
With H2B HCA take the 20% equity stake and risk. So the purchase price, for mortgage purposes, is 20% less.
Delivery role in NE – key priorities – Cherry Knowle, St George’s. Both out to procurement. Also sorting out difficult existing sites eg Middlehaven/North Shore
New “build now pay later model” is being pushed by the HCA
HCA is now sorting out its strategy re the ex RDA assets. Big involvement in EZs and bringing forward business and industrial land. Current NE priority is the new facility next to Narec in Blyth.
Building for Business – £50m deal with UK Land which will ensure more jobs created.


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WILL TAXING LAND BANKS SPEED UP HOUSING DELIVERY?

One of the things I love most about Twitter is the speed you get informed opinion, from both sides of the debate, on the key issues relating to the housing crisis. In recent weeks its been Help to Buy with the debate showing a clear split between those concerned about house price increases and those welcoming the boost to supply. The former seem to outnumber the latter.

This week the issue is land banks – more particularly the suggestion by the IMF that developers holding onto development land should be taxed. The twittersphere seems, at first blush, to be generally supportive. As with last weeks post on H2B I wouldn’t pretend to have all the answers but am happy to set down a few observations.

State Intervention in the Market

Firstly it seems that many of the opponents of H2B came from the standpoint of unnecessary Government intervention into a free market. Some of the same commentators seem now to be supporting state market intervention by means of taxing “idle” development land. The reality of course is that the housing market is already state controlled in that the planning process controls the level of units to be sold, cognisant of population growth but largely ignorant of market factors. If demand for cars goes up carmakers make and sell more cars. Not so housebuilders. If demand (or even need) goes up the state’s planning system has shown itself to be consistently unresponsive in allowing more homes to be consented and hence built and sold.

In my view thank goodness for state control. We only have to look at Ireland, Spain or the banking sector to see the folly of an unconstrained housing market. However the balance is now wrong. Housing is recognised as a human right by the Human Rights Act and a positive public and private sector response to the housing crisis is required. Between 1931 and 1934 private sector housing output over doubled. Don’t tell me that such a scale of increase wasn’t the result of both sectors working together to create homes and jobs. Cheap finance, positive planning and willing housebuilders were critical.

Seeking a Normal Market

Everyone seems to want a return to a “normal” market or an efficient anti boom/bust model like in Holland or Germany. There is clearly no “normal” in a state controlled market but surely we should look to the conditions of the 1970′s. Positive planning for growth by all local authorities, 5-10% deposit levels, generally stable prices and significant funding for social housing.

And comparisons with Europe? Population density is greater in Holland yet it does not stop the introduction of positive urban growth strategies which actually deliver the homes and jobs needed.

The Policy Paradox

Everyone is acutely aware of the Gordian knot which means in the short term the Government does not wish to countenance significant price falls yet in the medium term this is necessary to deliver Government objectives to improve housing market access. The IMF was clear that the way to slip this knot must be greater commitment and action to increase supply. Indeed they pointed out the unhelpful role Green Belts play in denying this increase. IMF, in my opinion, did not say H2B was bad policy, simply that it would be bad policy without a supply increase. This is evidently true – without more supply it’s only effect would be to increase prices and, with a rising population and static incomes, worsen market access.

What is a Land Bank?

On land banks it would be interesting to know how much the IMF researched the UK planning system before it talked about taxing unused development land. The first question must be what type of land can be regarded as “land bank” and is therefore theoretically taxable.

Firstly lets consider land with planning permission. This is the only source of land which is capable of being built on. There is only around 400k units of this consented land. This is around 2 years supply. Most of us who work in housing believe this is actually too way too small a land bank and reflects an inefficient planning system.

Many of the 400k units will be under construction and there will also be some sites in the land bank which are not being developed because they are now simply not viable. The proposed mix and product will probably be getting changed by the developer as we speak. Taxing developers as they approach this tough task of trying to make such sites viable seems counter productive to an objective of getting more homes built.

What About Developer Owned Land?

Another potential source of land for the land bank tax might therefore be ANY land owned by a landowner, developer or housebuilder – even if it doesn’t have planning permission? Should all such land be taxed? This also seems illogical for a number of reasons.

Firstly, without planning permission, such land can’t be built on so simply can’t be regarded as “idle” or “land banked” land.
Secondly a definition solely by ownership effectively renders all land in the UK as forming part of a land bank. Whether land is owned by a developer or the National Trust – without planning permission it’s status is the same – namely that it can’t be built on. If developer owned land is to be taxed then all land would similarly need to be taxed.

Of course developer owned land has a purpose – to be developed in the future. However there remain clear logic gaps in assuming that taxing such land will increase new homes delivery.

Firstly such land is usually controlled by means of an option agreement rather than ownership. The price of that option will reflect the location of the land and risk/reward nature of the development process. The land tax may be a greater cost than the speculative option investment thereby further disincentivising developers in securing longer term land interests. In my view this would be a counter productive as developers need to encouraged to take a long term forward facing approach to land acquisition and delivery. Encouraging them to live hand to mouth only buying buying short term sites is not, in my opinion, the way to encourage housebuilders to commit to the long term delivery of the new homes and infrastructure that the country needs.

Secondly not all developer owned land will realise its development potential. Some will secure consent and some won’t – that is the nature of the state controlled planning and development process in this country. It would appear extremely difficult to tax land simply on the possibility it may secure planning permission at some unspecified date in the future.

Lessons

The housing paradox is clear. Prices need to fall to ease market access but it will be extremely difficult to get developers to invest strongly into a falling market. Not to mention the political unacceptability. For me the best recent analysis of a potential route through the paradox came from Frances Coppola arguing for separate short and long term strategies. http://blogs.lse.ac.uk/politicsandpolicy/archives/33684?utm_source=buffer&utm_medium=twitter&utm_campaign=Buffer&utm_content=buffer46274
The only simple thing we do know is that housebuilders, for the first time in 5 years, have an appetite to invest and build. Now, more than ever, is the time for the planning system to respond. In particular we need an a unbuckling of the Green Belt where it is strangling city growth and housing aspiration. Developers need to be incentivised to bring forward land into the planning process now. That can only be achieved via tangible and positive results from the planning system. Which brings us all back to Localism and the power of NIMBYs…….

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