HELP TO BUY OR HELP TO BUST?

Town planning is all about balance. Scales can easily tip either too far towards economic growth or too far towards environmental protection. I hesitate to think about shades of grey but I am certainly struck by the binary nature of the town planning discussion at the moment? For one side new greenfield housing is neither necessary nor wanted whilst on the other the failure to build is simply generational theft.

Whilst frustrating twas ever thus. It used to be CPRE vs HBF. Now it seems to be Sir Simon Jenkins vs CBI. The Governments Help to Buy scheme, launched in the budget, seems to be the most recent manifestation of the polarised nature of the debate. The responses seem to fall into two camps. Firstly that it  will cause an unwelcome house price bubble or secondly that it will bring a much welcome boost to supply.  No one seems to be occupying the middle ground namely whether this is a policy which brings real prospects of increased housebuilding activity but also brings demand side risks which need to be carefully monitored and managed.

For the first few weeks after the budget we saw an avalanche of hostile criticism – much of it derived from the view that it would artificially inflate demand thus giving rise to a sub prime lending crisis. Conversely the HBF were delighted, sensing the opportunity of increased volumes and,  potentially,  margin.

What is the real position? I am certainly not going to claim to know –  rather my aim is simply to give some perspectives on the issues at play.

Firstly it seems irrefutable to me that H2B will increase supply. All the evidence I see is that there is a group of potential buyers in the marketplace who can service a mortgage but cannot raise 20% deposit. H2B will enable those people to secure a new build property and the house builders will respond.

At a macro level increased supply will ease the supply demand imbalance and therefore, potentially, cool prices. However the structural market imbalance is so great that the relatively limited impact on supply will be outweighed by the demand stimulus described above. Therefore prices seem likely to rise in the short term.  In terms of whether this could cause a price bubble or another sub prime crisis those fears seem unfounded for 5 reasons.

 Firstly the scheme is only available on capital repayment mortgages. The glut of easily serviceable interest only mortgages, lacking cover,  was a key factor in the last crisis. Secondly borrowers will need to be able to demonstrate that their earnings can service their debt. This contrasts sharply with some lending practices during the boom. Thirdly borrowers will still need a 5% deposit – there won’t be any 125% mortgage options this time around. Fourthly whilst it will stimulate demand it will also create a positive supply side response as, an albeit limited, counterbalance. Finally it must be remembered it is a time limited policy lasting only for 3 years. If the externalities are demonstrably negative then clearly it will be withdrawn whereas if we do see significant benefits from the the supply boost it could perhaps be extended.

As a planner I can’t help but welcome the initiative as it will undoubtedly help create better conditions to get more homes built. The lack of supply over the last 2 or 3 decades is, in my opinion, the root cause of the crisis. However I am very conscious of the concerns of some economists and housing professionals about an artificial demand boost which will likely lead to housing becoming even further out of the reach of first time or second time buyers.

All in all H2B shines more light on the huge political paradox surrounding housing policy. Namely that the Government MUST get housing supply up to address the housing crisis but it does not want to see price falls – no matter how much the economics of housing policy indicate that price falls are necessary to address the crisis. Re-election in 2015 relies on a feel good factor in Middle England. For existing homeowners (c15m people) rising house prices is a key barometer of how well a government is doing and the political reality is that if this Government wants to win another term it needs stable or rising house prices. Politically, H2B will help achieve this.

In my view rising supply, price stability and measures to increase housing access for lower income households needs to be the policy focus. Whether it be a wave of Council housebuilding,  measures to build more private rented homes or further measures to boost owner occupation, one thing is clear – Britain needs to get building to give younger families a better future.

THE GREAT COUNCIL HOUSE GIVEAWAY!

As the dust settles on the death and legacy of Mrs Thatcher the polarisation of opinion left me questioning whether attitudes towards her should be so binary – good or evil? I was a teenager at the time she came to power and like many have slightly changed my mind over the years.

During her first term of office when I was at university I spent perhaps too much time shaking Help the Miners buckets and pinning Coal Not Dole stickers on people. I was in a crowd that landed eggs on Heseltine’s blond locks and got up at 4am to get the bus to picket lines in darkest Lancashire. As a proud North Easterner I felt it was my duty.

But watching The Likely Lads on BBC4 last week reminded me what a miserable place UK was in the mid-70s. Our paltry tally of 3 gold medals at the 76 Olympics was a cause of embarrassment rather than pride. Somewhat different to London 2012, and economically we really were the sick man of Europe.

So with the benefit of middle-aged hindsight I think I can now accept that something significant had to change. As far as the North East is concerned the debate rages as to the pace and effect of that change. Despite the justified anger about pit and shipyard closures the wholesale give away of council housing remains, in my view, one of the most unattractive of Thatcherite policies.

At the time the policy seemed completely victim free. The government would actually sell you your council house at massive market subsidy. It helped address the aspiration for home ownership, it allowed lower income families to get a rung on the housing ladder and it helped create a house price boost which made everyone feel good and made more people want to buy. Everyone was a winner it seemed.

How wrong we were. No one seemed to make the connection between the sell offs and the cutbacks in Government spending which meant no more council houses would be built again. A source of new housing supply which had yielded around 4 million family houses between 1946 and 1978. So with new social housing supply being cut and the existing stock haemorrhaging into the owner occupied sector there was little left to satiate the demand for social housing from lower income households.

Add in population growth and the growth of nimbyism (making it far more difficult to build private homes) the effect was obvious – huge increases in prices and a crisis for those in social housing need. For those currently in nice homes who don’t believe there is a housing crisis it’s worth remembering that in the North East alone we now have 2,000 homeless people, 90,000 on a waiting list and the population is growing by 5,500 people per year.

The newly formed housing associations have done their best since the 70s to increase supply but what right-to-buy did was help to create a structural shift in the housing market which directly contributed the current housing crisis. Many did well out of it at the time but the younger households of today struggling to get a home of any sort have clearly not been so lucky.

So what needs to be done? Firstly we could think about a new wave of Council housebuilding to replace the losses. Such investment would create jobs, lift confidence and address the housing crisis. Importantly it would generate rents which would soon pay back the costs of construction.

From a North East perspective policy makers need to give a far higher priority to accelerating the amount of private housebuilding, exactly as the national Government wants.

Lord Adonis’ Economic Review of the North East was published last month. It is a hugely positive start. It makes clear the need to address years of housing under provision and sends a clear message to both local authorities and to the forthcoming Combined Authority which will become operational in 2014.

In Newcastle where housing output last year was minus 100 compared to a target of plus 800 the need for change is particularly acute. The new chief executive Pat Ritchie and changes in senior officers offer real hope in this regard, and there’s certainly no time to lose.

1,175 YEARS TO CONCRETE OVER GREEN BELT

“YOU’RE concreting over the countryside” is a familiar refrain whenever a scheme for housing on urban edge farmland is put forward. An apocalyptic vision of unrelenting roads and tower blocks from Leeds to Edinburgh is conjured up. The reality is that Newcastle is luckily one of the few major European cities which has space to grow without raising major environmental concerns. That was the clear conclusion of the Organisation for Economic Cooperation and Development when it looked at Newcastle’s economic future in 2010.

Nevertheless I thought it would be interesting to see how long it would actually take to concrete over just the Newcastle sector of the Green Belt at current rates of city development. The answer was 1,175 years – Year 3188 to be precise. No need to bin my walking boots just yet. Let me put it another way. If the Tyne and Wear Green Belt were a tennis court then the Callerton Park Scheme for 7000 houses would measure 30 inches by 30 inches.

Which begs the question why is it proving so difficult to achieve the new homes and jobs which the OECD recognised as so important. It’s certainly not the Government. We have pro-development national policies and, in my humble opinion, the best planning minister in decades.

It also isn’t a lack of need – there are currently 90,000 on housing waiting lists in the North East and in Northumberland alone the need for social rented housing alone stands at 655 per year. Despite this only 558 homes, in total, were delivered in the county last year. Neither it is a lack of demand. The population of the region is forecast to grow by 127,500 people by 2021 whilst 13 families currently leave Newcastle every week searching for better cheaper housing. Many would prefer to stay in the city if new homes were being built. Recent trading statements from all the major housebuilders confirm they want to invest and build homes.

The demand is there but often securing permission is difficult. In the meantime the region suffers from the oldest and worst housing stock in the country. The key reason why development is not happening is due to house values. Many NIMBYs fear that new development near them will reduce the value of their own house.

As a result they quite naturally object and often local politicians sometimes confuse a large number of private financial interests with the public interest. After all the NIMBY generation is usually aged 50-60 plus – precisely the type of people who vote in local elections – as opposed to the younger families in need of housing but often don’t vote due to work and family commitments.

So what needs to be done to get the new homes we need and want to be actually delivered in the region? Firstly developers need to work harder to educate communities of the benefits of new development and allay fears that new homes will necessarily reduce the value of the surrounding houses which local people have worked so hard to secure.
It is their primary asset and developers should recognise and address this concern.

The evidence is clearly available to show that new homes often increase market confidence and local house prices. This is unsurprising given that the level of new community gains such as sports facilities, new infrastructure, social housing and new parkland which accompanies new development. Some argue that the landowners and developers cream off huge profits from the uplift in land value. The reality of course is that local authorities, quite rightly, negotiate hard on the basis of the financial figures to ensure that much of the uplift is ploughed back into new community facilities.

Secondly the planning and regeneration agencies need to set out a pro-growth vision for the North East region. The Adonis Review and a new chief executive at Newcastle City Council offer huge hope in this regard.

Finally, and perhaps controversially, politicians must try harder to focus on the overriding need to build more homes. No one should underestimate just how unpopular housebuilding is but 25 years of weak planning decisions in the region has contributed hugely to the current housing crisis.

A crisis, which the planning minister recently described as the biggest threat to social justice in this country. Now is time for a change.

NORTH EAST ECONOMIC REVIEW APPROACHES COMPLETION

February and March 2013 may go down as two of the most important months in the economic history of the North East.

Having witnessed Lord Adonis and his team present the initial findings of the Independent North East Economic Review last Friday at The Baltic I’ve got to say the pace of work has been phenomenal – over 1,000 pages of submissions from over 50 organisations all read and analysed within four weeks.Last Friday (February 15) was the opportunity for stakeholders or partners (or whatever the term is now) to hear the key messages and give feedback. There was a strange atmosphere in the room – even though the audience was nearly all from the public sector and the expert speakers were all from out of the region – it really felt as if we were all working together with one objective – to create more and better jobs.

The Review will be published around Easter but judging from the presentations what can we expect?

Firstly we will have a clear set of recommendations on education and skills. It seems clear we have lessons to learn from Scotland and other areas. In particular we need to simplify the system and get more businesses into schools to inspire the next generation about the opportunities here.

Secondly, expect a recognition of our strengths in manufacturing alongside recommendations to help NE businesses gain easier access to complex global supply chains. In this regard it was amazing to hear that we will soon be producing half of all cars made in the UK and we currently have a third of UK pharmaceutical manufacturing here – a huge platform for success.

The transport outcomes will be interesting. The external speakers clearly felt our infrastructure is not a major brake on growth. Indeed some cautioned against new linkages which may actually make it easier for stronger regions to take productive activity out of the region. Nevertheless all recognised that the right improvements will help drive economic success.

A clever professor from the University of Groningen explained how complex supply chains actually work and how NE businesses can and should compete. He also made clear that the City Region is the most successful spatial economic area but beneath and above that are complex patterns of relationships and linkages.

As expected leadership, governance and branding were discussed at length and will likely be centre stage in the Review. Aside from a couple of parochial comments at the event my sense is that the Review is helping to galvanise a common purpose which recognises the need for tough decisions on priorities, which includes pruning back activities that aren’t working.

Planning was also debated, picking up on the themes from an earlier Land and Property workshop in Durham. The expert paper by Professor Overman of the London School of Economics was pretty hard hitting. Namely that in an economically weak region with no shortage of space the planning system must produce more market facing outcomes.

This requires closer working between councils and businesses to bring forward greenfield land which will be developed quickly to create jobs, homes and infrastructure. Prof Overman was clear in separating the great work of the planners in the region from a planning system and policy framework which is currently not set up to support the market in the way it should. Everyone at the workshop agreed that the quick production of growth-focussed local plans and a more positive approach to planning applications was needed.

The last discussion was about monitoring and measuring. When the Review is done there needs to be a clear process for implementing its recommendations and then closely monitoring how it succeeds against its targets. The last thing we need is to start another Review in 10 years’ time addressing the same issues we have now. Only time will tell but one thing is certain – the better we work together the better our prospects are.

ECONOMIC PROSPECTS FOR 2013/14

Here are the 10 key summary points (as I saw them) from Rhys Herbert’s superb Economic Update presentation to the RICS conference in Newcastle yesterday. 

 Rhys is the Chief Economist for Lloyds TSB Commercial. 

 Overall grounds for cautious optimism – especially in relation to construction. Let’s face it – it couldn’t get any worse for our sector!!

1.  Global economic conditions are improving – driven by US and China improvements. Plus Euro area looks like slightly better than it has been – stabilising or reduced decline is predicted.

2.  This recession is  longest ever. 2nd deepest behind Great Depression. LLoyds predicting 7 years to get back to 2008 levels. (2015/16)

3.  Lloyds don’t see  the base  interest rate rising significantly for a couple of years. Predict base rate at 0.5% for next 2 years.

 4.  Government’s recent scheme to lend to banks (at base rate on condition they will lend to business at low rates) is showing signs of success. This scheme came in last year and good signs  it is easing money supply to business. Last quarter lending figures highest since recession started. Still way lower than pre 2008 levels though.

5.  GDP flat last year. Lloyds forecast 1.3% growth for 2013 and 2% for 2014.

6.  Sector performance through  in recession – Services broadly fine, manufacturing slightly down, construction hit by far the hardest.

7.  Key GDP problem has been fall in consumer spending. Double hit on this. First people want to pay down debt PLUS fall in net income due to wage inflation not matching price inflation.  Consumer spending should increase in 2013/14 as debt burdens reduce.

8. Corporate sector is sitting on unprecedented amounts of cash – overall 5% of surplus. LLoyds expect some of this cash pile to be released into business investment in late 2013/2014

9. Big threat to growth is cuts to public spending. Hit NE harder as more businesses who rely on selling to public sector. However Lloyds believe the effect on public sector spending cuts on the overall economy is being overplayed by politicians. It’s an important but not as important as key structural factors such as consumer spending, business investment, Euro economy and global growth.

10. Construction – in a nutshell:

a) Private sector construction activity fell sharply but now stable

b) infrastructure – rose in early recession then fell badly now rising again.

c) Public sector construction fell slowly and now falling fast.

d) Overall construction activity forecast to rise due to infrastructure and modest private sector growth. Still tough times ahead.

 

RICS NE CONFERENCE – HOUSING SUMMED UP IN 20 POINTS

Yesterday I presented a paper on Viability in Planning to the RICS North East CPD day. A number of the sessions touched on housing and below is my short and slightly random 20 Point sum up.

Please note they are the views of various others who also spoke at the event.

1. Without a “shadow of doubt” housing delivery is top of political agenda.
2. Systemic regional variations in the market – north / south divide. Regional variations are projected to increase in next 10 years.
3. Home ownership is out of reach for FTBs and PM determined to address.
4. Raft of recent Government market interventions but none have had a structural impact on either mortgage availability or housing delivery.
5. Net lending has “drastically” reduced since 2007. No current prospect of structural upward change. Although some recent green shoots – new products at 4%rate/90% deposit. Outcome from recent Government lending initiatives.
6. Price falls everywhere except prime central London. Current prices at 2003 levels.
7. Transactions halved since 07 and currently 35% below 50 year average.
8. Barratt Fulham scheme – 60 sold in a week. Battersea scheme 80 sold in 2 weeks. London is a bubble market – divorced from UK normal market.
9. Rental growth outside London is very slow. But solid investment for landlords due to strength of demand.
10. Renting is now more accepted amongst younger households especially as home ownership levels are falling like a stone.
11. Private rented sector is a key Government focus. Volume builders are entering the sector strongly. Why? – because people are staying in renting accommodation longer. Average tenure lengths increasing. Also quality is better although recognising huge qualitative variations. PRS is heavily focused in SE. Now a bigger sector than social sector in UK.
12. Big questions about whether rental control will be introduced. Many feel it will kill the PRS sector if introduced.
13. Problem is that PRS is growing by taking units from other sectors rather than building new. Should ease as new players (e.g. Grainger) focus on building new product.
14. Huge homelessness problem which can only be addressed by more supply. Massive social issue for UK
15. Chronic under supply has caused the housing crisis – not economic or market factors.
16. Housebuilders will not/can not build without an exit or viable funding. At present 13, 14, 15% senior debt is killing viability other than where land is purchased cheaply – rare.
17. Social Sector is desperate to get into PRS. e.g. Places for People (?) have just bought portfolio of 000s of houses in West Midlands. Currently German and Swedish investors have targeted major investments in UK housing. Agents have been brief to buy 000s of houses usually within M25.
18. Supply issue – completions recently increased but starts have recently decreased dampening optimism for 2013.
19. Average housing planning application takes 38 weeks – x3 the Government target. Redrow spend more on planning than bricks.
20. Simple reason why UK institutions not entering the PRS market – yields not good enough and fear of management. Big progress on both elements though. Ongoing Government support essential.
21. Huge problems (and opportunities) for social sector. PWC forecast 1.0 million shortfall info social units in 10 years. With lack of grant and S106 fall off they need to do things differently – particularly in securing finance, buying land and risk management.
22. Huge investment opportunities in the North going forward due to shrinking yields in South. Both for BTL and new development.
23. There is now an All Property Index which compares residential sector to other commercial sectors. It very clearly shows returns from residential sector have outstripped all other sectors whether looking short term or long term. This is a good time to invest in the delivery of either PRS, owner occupied or social housing – if capital can be secured.

 

As always comments welcome.

HOUSING AND PLANNING – THE COUNCILLORS PERSPECTIVE

When it comes to the blame game over who is responsible for the housing crisis local politicians are often top of the list. “Pandering to locals” or “avoiding necessary decisions” are some of the common accusations.

The reality of course, is that in a localism world where the local electorate feels much more empowered, the politics of planning is hugely difficult. It is also the reality that when housing applications get recommended by Planning Officers for approval, they usually get granted. Councillors do a fantastic job, working long unsocial hours to help the communities they represent.

Nevertheless, it is clear that not everything is perfect in local politics and it is an area I am keen to cast light on. With this in mind many thanks must go to Greg Stone, a Lib Dem Councillor in Newcastle who agreed to give his personal perspective on some of the key planning issues facing local politicians involved in the planning process. In particular he addresses some of the key questions like:

a. do Councillors really look beyond the next election?

b. are they truly representative of all groups?

c. are they up to such an important role?

d. why do people become Councillors?

e. is planning regarded as important in local politics?

f. how can we change things for the better?

Greg’s views are presented in italics below:

“Undoubtedly a difficult issue for planning committee members is to have the courage to see beyond the next election. Housing proposals in particular, create potential difficulties because they often generate hundreds of objections. For a Councillor wishing to remain elected (in order to make a long term impact) this can be tricky. If more people get involved in promoting the benefits of new housing, this will undoubtedly make Councillors jobs easier.

Housing is generally not a problem for urban councillors where there is no greenfield land to build on. The issue is more for suburban or rural areas where the key concerns are always traffic and, to a lesser extent, perceived loss of views and open land. In the UK housing is closely attached to social status. Proposals which are perceived to adversely affect the existing value of homes or to bring in new/different types of people to an area do create alarm. Councillors respond to this.

It is clear that there is an issue in terms of the (rising) average age of Councillors. In urban areas there are more younger Councillors but in other areas the political dominance of the older, richer, white male is an issue. Most Councillors are acutely aware of the issue but, irrespective of age and status, Councillors are generally reluctant to vote for unpopular things – they sometimes play back community nervousness about change.

There are often three types of Councillors. Firstly the retired person looking to put something back. Secondly, “political types” who see local politics as a stepping stone, perhaps to a more senior local position or even a career in national politics. And finally, the driven individuals who are simply passionate about their area and have a huge appetite to secure positive changes there. Proportions of these vary from area to area. In urban areas the influence of party politics is obviously far greater.

Planning committee is never a “whipped” committee but it is inevitable that local party leaders will have influence. There are never formal or informal instructions. Similarly, politicians never exert influence over planning officers. That said it is only right and proper for any politician to make their views known, publicly or privately, on a proposal prior to determination. There will often be a pre-meeting between the Officers and the key members prior to an upcoming planning committee. This will help tease out issues and sensitivities.

Prior to Committee, members are instinctively nervous about talking to developers, even with the new rules enabling this. Whilst members undoubtedly feel that dialogue would be useful this is generally overridden by concerns about defending hostile accusations about having been “influenced” by the applicant.

At the committee itself, Members generally don’t seek to undermine Planning Officers. However, “close scrutiny” can often come across as hostility and there is sometimes an element of showboating.

Issues where members feel more emboldened to go against the Officer recommendation tend to be design, prematurity, traffic, tree loss, student housing and wind turbines. Areas where members may be less bold include proposals which are allocated in a plan, brownfield proposals, or where jobs are created or where there is clearly no 5-year land supply.

Councillors are much improving their understanding of viability issues. However, some still consider that once a site is allocated it should be capable of coming forward with the original affordable housing and eco-credentials intact. Most Members also place limited weight on the New Homes Bonus. In terms of improvements, 2 key things are recommended:

1. Set up “formal” pre-committee meetings with developer, officer and members to allow concerns to be aired.
2. Set up a small “working group” on key controversial applications comprising developer, ward member(s), community representative, planning officer and planning committee member.

Many thanks to Greg for his time, assistance and perspectives. As the quote goes “democracy is a crap system but it’s the best there is”.

As always, comments welcome.