Philip Barnes – Blog


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THE WHO AND HOW OF HOUSEBUILDING – LESSONS FROM HISTORY

  1. Lyons, Redfern, Barker, Raynsford, Taylor, and now Letwin. We may have been short of new homes over the last 10 years but no shortage of reviews on how to build than.
  2. But one thing sets the Letwin Review apart from the others – the level of detailed investigation into how private housebuilders build out large sites. Digging deep into all the 17 sites under review, talking to the staff who build and sell the homes. Asking the right questions and getting the right answers.
  3. So it came as no surprise that his interim review was accepted as a solid analysis. I tend with agree with both Civitas who described it as, “a strong diagnosis”, and David Montague the CEO of L&Q who said that, there was a Mexican wave across the sector that someone finally gets it”.
  4. Letwin has pointed to the need for greater diversification to achieve faster build rates on larger sites. Nobody is arguing against that. And despite the protestations in some quarters of disrupting and deconstructing the housebuilding sector there doesn’t seem to be any agency, review body or think-tank suggesting that volume housebuilders are not going to be crucial in achieving the 300,000 per year target.
  5. But even Letwin, like all the other reviews, does not appear to have studied the history of speculative housebuilding and housebuilders. Understanding the people and the businesses who built the homes and the lessons to be learned. With this in mind the post below is intended to assist the current policy debate on the structure of the sector.

1930 – 1955

  1. There is much to be learnt from the 1930’s, setting aside the obvious point that it predated the planning system. Speculative housebuilding, in the sense that the builder speculates that the land purchase and construction cost will be outweighed by future home sale revenues, began here. Prior to the 1930’s builders tended to be fixed price contractors acting for developers and landlords who were taking the land and sales risk. Land was cheap due the absence of planning and the early pioneers included Ideal Homes, Henry Boot, Wimpey, Taylor Woodrow, Costain and Laing. Generally smaller builders, often from a contracting background, selling less than 1500 homes per year. They were all freely buying and developing large landholdings on the edge of cities, in particular London. The driver for was easy funding from building societies, who would also fund the customers mortgages. Prices were set by customer affordability and build rates were fast as the market allowed.
  2. The 1939-45 war and the 1945 election killed off speculative housebuilding until the mid 50s. During the war housebuilders turned to Government contracts, on decent margins, to help the war effort. Henry Boot, Costain, Laing and Taylor Woodrow  helped build Project Mulberry (the floating harbour for the D Day landings) whilst Wimpey, Henry Boot and other housebuilders worked flat out building airfields, military camps and barrage stations.
  3. The new Government in 1945 virtually banned speculative housebuilding by maintaining defence regulations, controlling the supply of steel and timber, requiring a licence for any private housebuilding and introducing a 100% Development Land Tax via the 1947 Planning Act. All new homes were to be Council houses. The remains of the entrepreneurial 1930’s speculative builders either took on housebuilding contracts for Councils or continued with general contracting work.

1955 -1973

  1. The 1951 Macmillan Government removed the controls and reopened market access for speculative housebuilders. Whilst the reforms took a while, by the late 1960’s the sector was spawning new names such as Barratt, Bellway, Whelmar and Broseley. Longer standing housebuilders such as Wimpey, Bovis, Leech, Bryant, Bellway, Bett and McLean grew rapidly.
  2. Learning lessons from post 1955 means looking at both the conditions which created growth and then the effects of downturns. The new planning system created opportunities for highly skilled entrepreneurs to use land buying and marketing skills to accumulate land and then secure planning consents, via by the 1947 Planning Act. Once achieved, the ‘rationing’ of these consents gave some protection against market saturation by competitors. At the same time customer demand for owner-occupation strengthened through the late 50’s to the early 70’s. Rapidly rising house prices transformed the sector from builders to marketeers – all selling the dream of home ownership, supported by positive policy.
  3. Total housing output rose significantly, from c250,000 completions in 1960 up to c350,000 in 1968. Drivers of private housing growth were economic growth, easier customer access to credit and no Green Belts (other than London). But also, and crucially:
  • High profile entrepreneurs like Godfrey Mitchell at Wimpey, Laurie Barratt, Tom Brown at Whelmar, Danny Horrocks at Broseley and Frank Sanderson at Bovis. They all took risks and they drove their businesses hard, sometimes targeting a flotation;
  • Bigger commercial contractors found the margins in housebuilding eyecatching and moved into the speculative housebuilding sector. Examples included Wates and Galliford.
  • In contrast to the 1930’s, highest growth tended to be in the North and Midlands given that the London Green Belt had diminished the ability to secure large sites on the edge of London – a deliberate policy linked to the development of public sector led new towns.
  1. Speculative housebuilders grew significantly. Either organically, (Eg Wimpey) or through business acquisitions, (Eg Barratt) or by diversifying into other development activity such as commercial property and/or contracting.
  2. The oil price crash in 1973 brought the good times to an end. The subsequent downturn hollowed out the industry. Only a few survived intact including Barratt, Wimpey, Leech, Bellway and McLean, and all with dramatically reduced volumes. Many of those who had diversified into the speculative housebuilding sector from contracting either died or rapidly reversed out.

1974 – 1991

  1. Cash management was the key to surviving the 1973 crash. Those who ‘dashed for cash’ during 1971 and 1972 fared best. They had slowed landbuying land, slowed new home starts and focused on finishing and selling homes in the run up to the crash. They then nursed their war-chest and, when the market started to recover, were able to buy new land at much cheaper prices and hence started building again.
  2. Private volumes continued to decline during the mid/late 1970’s, but the 1980’s brought easier planning outside Green Belts, softer lending conditions and increasing customer confidence. Output soared and house prices rose.
  3. The good times of the 1960’s were back:
  • Contractors ploughed back in, inter alia, Costain, Laing, Lovell, Balfour Beatty, Alfred McAlpine, Mowlem and Amec;
  • Conglomerates entered and/or increased their speculative housebuilding presence including, P&O, Salveson, Trafalgar House and Beazer.
  • The speculative housebuilders grew again and diversified with even greater vigour – by opening offices in Spain, France and USA, by doing more contracting, and by developing commercial properties.
  1. And then Groundhog Day – the 1989 recession followed by Black Monday in 1991.
  2. All the contractors reversed out again, huge numbers of smaller housebuilders died, and those which were big and strong enough to survive, retrenched to core business.

1992 – 2007

  1. As with 1973, the Black Monday recession did huge damage but those able to survive came out the other side stronger by being able to buy land at recessionary prices as the recovery started. Tony Pidgeley set Berkeley up in 1976. By 1989 he was calling the downturn and started his dash for cash. The rest is both Berkeley and housebuilding folklore.
  2. So 1991 created the mindset that the only the big survive. This emphasis on size, strength and recession-resilience helped trigger a period of merger-mania. Inter alia:
  • Wimpey took over Taylor Woodrow, Alfred McAlpine and Bryant;
  • Beazer took over Leech,
  • Persimmon bought Ideal, Beazer and Westbury;
  • Barratt took over David Wilson;
  • Taylor Woodrow took over Wilcon;
  • Morgan Sindall took over Lovell.
  1. But the mergers and acquisitions raised issues. They are expensive and therefore usually reliant on credit. This creates a huge susceptibility if credit gets crunched, even more so if the customers for the new homes are also reliant on credit. And even more so again if the business has weighty land creditors due to land acquisitions made at high prices due to positive market conditions and highly restricted supply.
  2. And so it was as the sector grew significantly from the mid 1990’s up to 2007.

2008 – Today

  1. The GFC was the longest downturn of all. Whilst merger-mania had created some strong large businesses the key issue (other than no mortgages for customers) was balance sheet. Many of the mergers and land acquisitions had left large debt overhangs with limited cash coming in to repay. Therefore, in stark contrast to earlier recessions, some smaller builders, with less debt exposure were perhaps able to weather the storm slightly better. Perhaps Bellway, Redrow and Bloor as examples.
  2. But it was long cold winter for all. Many failed and without the Government support provided by Kickstart and Firstbuy many more would/could have failed.
  3. The good news is that current market conditions and behaviours appear to show, hopefully, much greater resilience looking out to the medium/long term:
  •  Balance sheets are generally good and excessive lending appears curbed;
  •  Planning reforms are creating more land supply and hence moderating land prices. Hopefully this will continue via NPPF2 and ensure that land debts will not be a major problem if/when a downturn comes;
  • Mortgage market regulation has curbed reckless lending and low, or slightly rising, interest rates look the most realistic in the medium/long term;
  • UK banks are are in a resilient position and the global economic outlook is positive;
  • Optimism-biased approaches to land acquisition and future sales prices, previously often driven by high profile individuals, and often debt-backed, have moderated;
  • Homes England are well funded and playing a significant role in supporting sustainable housing delivery. This will help shape outturns across the cycle;

Conclusions and lessons

  1. So what would be they key lessons looking back at the who, and the how, of speculative housebuilding over the last 100 or so years:
  • Strong speculative housebuilders are the bedrock of housing delivery in this country and for those currently working in such businesses there appears grounds for optimism;
  • Its a tough, high-risk sector. History says that those entering from another sector often do not survive the next downturn, especially if raising debt. The profit potential is eye-catching in an upturn but the downturns tend to be deeper and harsher than other sectors;
  • For speculative housebuilders – diversification and excessive debt never appears to end well.
  • Strong recession resilience means knowing when to call the top. Thankfully this appears appear some way off hence why Barratt (and others) retain full commitment to our volume growth plans.
  1. The sector needs to be diversified to drive up delivery. Letwin confirmed that and history, particularly the 1930’s, demonstrates that. But let nobody be under any illusion that housebuilding isn’t a difficult and, at times, brutal, sector. The key lesson is perhaps that those who do it well need supporting. For those with less experience of this intoxicating cocktail of land skills, building skills and selling skills, proceed with eyes wide open. Although much regulated, it is nakedly commercial and unforgiving, whilst playing a crucial role in delivering a basic human need which is in short supply. One thing is sure – got be the most exciting sector of the economy to be working in right now.


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CAPTURED

Land value capture seems to have returned to prominence for those wishing to reform the planning system once again. It dominated the noise around draft NPPF2 and a Parliamentary Select Committee is currently looking at the issue in order to publish its findings……….. After NPPF2 has been finalised!

The responses to draft NPPF2 ranged from proclamations of victory to forecasts of land market collapse.

BUT WHERE DOES THE REALITY LIE?

It’s clearly impossible to tell at this stage and this post simply gives a practioner view in relation to greenfield sites currently in use as agriculture and proposed for housing development. Brownfield sites are a whole different ball game.  Barratt was invited to give evidence to the above Select Committee HERE and this post obviously draws upon that.

Hopefully starting with a few uncontroversial comments on the logic behind the proposed changes:

  1. Any change to land valuation, for planning purposes, must ultimately be defensible for compulsory purchase purposes at land tribunals;
  2. Valuing land via EUV Plus, for planning purposes, requires the state (LAs) to define the ‘Plus’ in EUV Plus;
  3. If the ‘Plus’ is set too low, it would seem likely that landowners will not sell land voluntarily;
  4. If landowners do not sell land voluntarily, then CPO will be required to ensure a supply of housing land for housebuilders to build homes;
  5. Given existing levels of skills, experience and resources, it is inconceivable that LAs, (or any other public bodies) will be able to CPO land, at below market value, from resistant landowners, for 300,000 homes per year;
  6. Under the Housing Delivery Test, if insufficient land and homes are brought forward, then the Presumption in Favour of Sustainable Development will kick-in;
  7. Landowners (and housebuilders) will bring forward land, (separate from the land to be CPO’d by the state), at market value, for the development of new homes via the presumption in favour of sustainable development;
  8. Points 4 – 7 when conflated, will create a two-price land market, namely;
  • Price A : for land to be bought by the state, via compulsory purchase at sub-market prices, and;
  • Price B : the open market value of land which will be brought forward pursuant to the Housing Delivery Test and the presumption in favour of sustainable development;
  1. A ‘two-price’ land market is one where a landowner receives a sub-market land price from the state, compared to his neighbour who has just sold at full market value.  This appears grossly unfair. (Indeed a recent presentation by Richard Harwood QC, to the Compulsory Purchase Association, indicated that this has led to the demise of similar proposals in the past);
  2. Housebuilders would have no objection to housing land being purchased by the state, at sub-market value, and then sold to us, via the open market, fully de-risked in planning and infrastructure terms.

SO WHAT DOES NEW GUIDANCE SAY?

My summary of the new draft guidance would be:

  1. The local plan affordable housing (and infrastructure) requirement, for all housing developments, will be set by the local plan. The public examination will provide the forum to determine that requirement, for different types of site, and for different spatial areas.
  2. In terms of setting the local plan target, the required evidence to (a) set land values, (b) support the affordable housing policy and then (c) ensure that ‘rational’ landowners will release their land for housing, will be based on the ‘EUV Plus’ valuation approach rather than the RICS Residual or ‘Red Book’ approach.
  3. In setting their local plan requirements, Councils will need to ensure that “policies should not make development unviable and should be supported by evidence to demonstrate this”.
  4. After the local plan policy is in place, “it is important that local authorities are sufficiently flexibleto prevent planned development being stalled in the context of significant changes in costs and values over the lifetime of the development”
  5. The EUV Plus approach requires the LA to set a land value, which will incentivise a rational landowner.  The guidance confirms that a key metric for this will be market comparables, stating that “when undertaking any viability assessment, an appropriate minimum premium to the landowner can be established by looking at data from comparable sites” and “the price paid on top of the EUV should then be used to inform a judgement on an appropriate minimum premium to the landowner”.
  6. Developer profit has been set at 20% for OMV units and 6% for social units “in circumstances where this guarantees an end sale at a known value and reduces the risk”. It is presumed that the margin for all units is 20% in the absence of these conditions.
  7. BCIS should be used to define build costs.
  8. If a viability negotiation is required to accompany a planning application, it must be based on the same land appraisal assumptions which the LA used when defining the local plan policy.
  9. In terms of defining the level of landowner receipt, LAs now need to base land values on what a ‘rational’ landowner would accept, rather than what a ‘willing’ landowner would accept – as previously. A subtle but important change that will likely occupy many hours of court time going forward.

WHY HAS THIS CHANGE COME ABOUT GIVEN THAT THE AMOUNT OF PLANNING CONSENTS, NEW HOMES AND PLANNING CONTRIBUTIONS ARE ACTUALLY INCREASING?

  1. The policy change has been driven by concerns over the circularityof the RICS Residual Method of land valuation approach, when applied to affordable housing negotiations. Namely the fact that the RICS method states that the residual land value is produced after the level of planning requirements has been set as a cost. BUT, on some planning applications, there has been a negotiation to vary the policy requirements for affordable housing, on the assumption that the land value has been set as a pre-defined output.
  2. The above circularity has caused frustration for local and national politicians who feel that the local plan policy target should be realistic and deliverable in practice, having been based on a realistic viability assessment which reflects the land value, the build costs and the developer margin.
  3. In response to these concerns NPPF2 proposes to set land values at the local plan stage, via an EUV Plus approach, rather than via the RICS Residual Land Value approach. This will require LAs and developers to debate, at the local plan public examination, what is the reasonable extent of the ‘Plus’ in EUV Plus. Recent land purchases will obviously reflect the actual price paid for sites and good strong evidence on this will be difficult to rebut, provided they relate to policy compliant schemes. The aim is that the recommended use of comparables should ensure that the agreed local land value, (which will then help define the amount of affordable housing), will be deliverable on the ground.
  4. Clearly every site is different but the new approach places the onus firmly on the local plan examination process to produce a robust open debate on the local value of greenfield land which ensures that the scale of affordable housing and other obligations will support:
    • A viable developer margin at a sensible land value assumption; and,
    • Housing land values which will incentivise rational landowners to sell.

LOOKING FORWARD

  1.  In some respects, the position is actually not much changed. Many local plan policies already base their local plan affordable housing targets on a consultancy study using the EUV Plus approach. Having done some of these studies whilst in consultancy I would broadly endorse George Venning HERE when he says that, in relation to land value, it often boils down to simply ensuring a ‘Yes’ to all these 4 questions:
  • Will then the landowner get at least c£200k per net acre or more? In many locations this will need to be higher to incentivise rational landowners and bearing in mind that net acre is different to gross acre and net price per net acre is different than gross price per net acre;
  • Will the landowner get at least half the uplift created by the allocation/consent? (Shinfield decision);
  • Is the uplift at least 20% of EUV? (obviously of no relevance to greenfield sites);
  • Is the resultant land value greater than any other use which is or could be consented?
  1. The problem has been that hitherto, local plan policies, often for political reasons, have then gone on to set unrealistic and/or unclear affordable targets, poorly related to the actual market and costs evidence. This often leads to site-by-site viability negotiations at planning application stage as the target is excessive at Day 1;
  2. The big difference with the proposed new approach is the new aim for local plan affordable housing targets to be expressed as stricter requirements rather than as flexible targets, as currently. Whilst the guidance sensibly urges flexibility to reflect changed circumstances, achieving it meaningfully, within the confines of public examination, may actually be complex and lengthy. Policy requirements with more ‘teeth’ imposes a need for landowners and developers everywhere, to ensure evidenced representations at every public examination.  Otherwise the risk of undeliverable housing allocations is high.
  3. It slightly appears that the Government is aiming for a England-wide system which is more like London where most local plans have targets of 40/50% affordable housing but the Mayor does not require an affordable housing negotiation if 35% or more is being proposed. This approach was supported by Barratt and our current view is that the greater certainty, linked to less planning delay, is welcome. However, whilst in London many sites can support 35% affordable and also incentivise the landowner that will definitely not be the case in most places.  The recent Parkhurst Road Ltd vs SoS High Court decision provides a clear steer that viable local plan policies need to be adhered to.
  4. Affordable housing requirements will generally need to be way less than 35% in order to ensure (a) realistic land values, plus (b) a satisfactory developer margin and (c) a realistic build cost.
  5. Whilst housebuilders always crave cost and policy certainty, the reality is that the new approach must also ensure sufficient flexibility to allow for changing market conditions and build costs. And not to mention changing CIL and other infrastructure requirements. It must also ensure that landowners are incentivised to release their land. History tells us that land supply dries up when land receipts are forced down and there is simply no prospect of being able to CPO land for 300,000 homes per annum.

SUM UP

The five sum-up points would be;

  1. Viability seems likely to dominate the debate over NPPF2 and then will dominate future local plan examinations;
  2. The final outcome may look different from that currently being proposed;
  3. The aspirations of rational landowners need to be understood prior to introducing any changes to the land valuation process. At present land value needs to fund, inter alia, CIL, S106, on-site infrastructure, Capital Gains Tax, and SDLT. It is often an income-generating sole asset. Anyone who thinks the average land sale enables the landowner to make off with over £1m/acre in the hand is, in my experience, much mistaken. Recent hyperbole in this regard is not a sound basis for planning or taxation policy;
  4. Housebuilders hate high land prices. But we hate even more, a threat to the supply of our key raw material – land. A policy outcome which reduces land supply would be disastrous and would cut across the current momentum which has delivered a 74% increase in net housing supply over the last four years. Policy makers need a laser-like focus on this.  A failure to recognise current levels of land value capture does not assist the debate;
  5. It is important to avoid conflating two separate matters. Namely (a) perceived concerns over developers gaming the viability system via ‘price-paid’ and (b) the desire of some to hammer landowners simply because the planning system makes housing land valuable. Neither are good basis for policymaking and housing delivery. Local Plan policies need to ‘right price’ land to ensure great places are delivered with the right infrastructure and affordable housing. Clear and viable local plan policies which landowners and developers accept and understand, is undoubtedly the best means to achieve this. At Barratt we always aim to buy policy-compliant land and hence only c15% of our schemes ever involve a viability negotiation. But if polices change and more landowners are not willing to sell then that likely effect will be a reduction in the number of new homes we build.

 


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GIVE LAND PROMOTERS A BREAK

When it comes to public perceptions it seems that housebuilders sit close to the bottom alongside land promoters, bankers and energy companies. Such negative views of land promoters are generally misplaced and therefore it was great to see Paul Campbell of Richborough Estates give such a reasoned defence of the land promoter sector on BBC’s Countryfile a couple of weeks ago (HERE).

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As we all know land promoters work with landowners to secure control of unconsented land, then achieve planning consent for housing and then bring the land to the market as development land. Barratt is the largest purchaser of such land in the UK, and deals with many of the major land promoters.

That experience has prompted my view that land promoters should actually be celebrated for the following reasons:

  1. They mean that more houses get built. Period. Without land promoters navigating the torrid UK planning system there would be far less consented housing land available for housebuilders and others to build on.
  2. They play by the rules in front of them. Put simply, if a local authority does not have a local plan or a 5YLS there is a good chance that planning permission should and will be granted. Playing by the rules in a highly risky environment should be applauded not criticised.
  3. Land promoters help keep land prices down. Yes they (and their landowner clients) always want the highest value for the particular piece of land they are marketing but the macro effect of more consented land is moderating land prices. This is only good for building up supply.
  4. We need land promoters more than ever. Since the recession some housebuilders are more risk averse and it is inconceivable that housebuilders alone, without landowners and land promoters, can secure enough planning consents to deliver 300,000 homes per year.
  5. Land promoters often don’t compete with housebuilders for land. When Barratt is looking for unconsented sites to control, and secure consent on, we generally aren’t looking for sites under 100 units. It simply doesn’t suit our approach to risk or our fast asset turn business model. Similarly sites for 5/10,000 units are more akin to major civil engineering or new settlement projects than the scale of opportunity which enables Barratt to easily produce great places for our customers. Albeit I can’t comment for other housebuilders.

The initial Letwin Review findings perhaps mark the first signs of a sensible change in attitude to land promoters. Letwin appears to have realised that, for the larger sites described in (5) above, land promoters can play a powerful role in introducing different players onto a site. Maybe mixing up large and small builders, and both market sale with PRS developers. Whilst market absorption rates will always be the key determinant of how quickly a site builds out, it seems that land promoters can and will introduce new approaches to site delivery which can help drive up the build rate on large sites. And it is vital that the planning system produces a full range of both larger and smaller housing sites to drive up delivery.


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LANDBANKING…..AND SPEEDING UP DELIVERY

Accusations of housebuilders ‘landbanking’ regularly feature and now we have another Government review into the issue. This time we understand, and hope, that Mr Letwin is going to focus as much on process delays as on the flawed assumption that housebuilders hold back land for some later ‘pot of gold’.

Whilst every house builder must obviously carry a land pipeline to provide certainty that it has future land to build on, the wrongheaded criticism is that housebuilders try to secure additional profit by deliberately holding onto development-ready land in order to speculate on land price increases.

At Barratt we don’t ‘landbank’ but we did feel we we needed better data on land pipelines and their role in the UK housebuilding process.

Therefore, we commissioned research by Chamberlain Walker Economics to identify the size of the land pipeline needed by a typical house builder. Both to maintain steady state or to grow the amount of homes they build.

In simple terms, the report proved conclusively that whilst all housebuilders require a pipeline, they do not ‘landbank’, in the pejorative sense of the word.

Indeed, due to delays in planning and other parts of the development process, a typical housebuilder needs an operational land pipeline equivalent to nine years’ worth of current completions in order to grow its volume by 10% per year.

To further illustrate the point that Barratt does not ‘landbank’, we operate with a 4.5-year land pipeline, yet have grown our volume by 55% in the past six years. In 2015 we bought 17,092 plots and in 2017 our level of completions was 17,395. Hardly evidence that our fast asset turn business model permits ‘landbanking’.

Rather, as soon as a site is purchased, the pressure is on to deliver a return on that capital outlay.

With prices for consented greenfield housing land being broadly flat for the past five years it makes no commercial sense to carry the costs of holding on to acquired land in the hope of a land value uplift. Furthermore, as house builders build on consented land, rather than sell it, there is no further receipt to be received anyhow.

The research found that achieving detailed planning permission is by no means the end of the planning process.

Typically, it takes 21 months (1.7 years) to go from achieving the detailed consent to a start on site.

Pre-commencement conditions, Section 106 agreements, and a lack of planning department resources are the primary causes of the delay.

The report also looked at the different players in the planning process and found that 87% of outline permissions are held by non-builders. Namely the public and private sector landowners and land promoters, who are important to ensure an increasing supply of land into the market with outline consent.

Additional players can often add an element of process delay given the need for re-plans, site marketing, the transfer of the land to the builder and securing the detailed consent.

This is obviously completely normal, but even so house builders often get unfairly blamed for the additional delays arising.

So what can be done? Well, first house builders need to self-help. We need to ensure our detailed applications are based on rigorous pre-application discussions and can be approved quickly.

The applications must contain robust documentation including all draft conditions and we must ensure we get cracking on discharging the huge numbers of pre-commencement conditions as soon as we get our detailed consent. Also, we need a more persuasive delivery message, so that land can come into the hands of the builders more quickly.

For Government, and the Letwin Review, our message is simple:

  1. Let’s get far more resources into cash-strapped local planning departments but ensure it is tied to improved performance.
  2. Make it far easier and simpler to amend the content (density, mix etc) of outline applications. (They are only outline after all).
  3. Allow us to submit outline and reserved matters applications within the same timeframe for determination. Hybrids have helped but more flexibility is needed.


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Scotland versus England

Three days north of the border confirmed the longstanding perception that, on some issues, Scottish planning policy is perhaps ahead of England.

Albeit one issue, where our Scottish Divisions undoubtedly share our English pain, is the extra delays and costs incurred through liaison with the water industry. Indeed maybe more so, given that allocated sites in Scotland can routinely face huge delays and demands to fund capacity studies which, frankly, ought to have already been completed long ago to inform the development plan allocation.

As a planner the removal of strategic development plans in Scotland brings mixed feelings. Taking away the delays and complexity caused by an extra tier of plan-making obviously sounds attractive. But the reality is that strategic planning is simply better at making the necessarily difficult strategic decisions on the level and location of growth (and no growth).

With strategic planning long gone in England we are actually seeing local plans only providing for 88% of national housing need. The Duty to Cooperate down south has hardly been a huge success in accelerating housing delivery and, as a planner, I do question whether removing strategic planning delivers better planning and growth. Albeit that strategic planning at the national (rather than regional) level may be more feasible in Scotland?

Also mixed feelings towards the huge recent increases in Scottish planning fees. Obviously such increases are accepted if they deliver a better and faster service in delivering growth. But again, evidence of this correlation can be hard to find when looking at England.

The introduction of the new Local Place Plans has strong political backing and appears to have many similarities with English Neighbourhood Plans. As always, the attraction for housebuilders is the opportunity to work with local communities to find out where housing growth is needed and how perceived impacts can be mitigated. English experience points to the necessity of the higher order plan being crystal clear on the level and location of housing need. Local Place Plans will fail in their purpose if they are simply used by anti-development groups as a means to prevent new homes in a locality.

There’s no doubt its exciting times to be a planner and/or a housebuilder in Scotland especially with the recent publication of the new Scottish Planning Bill. That said, I can’t help thinking that a clear equivalent to the English NPPF is needed, making it clear that the presumption in favour of sustainable development kicks in if there is insufficient land supply and no up-to-date local plan. My reading of some recent Scottish appeal decisions only reinforces this view. Albeit perhaps this could be sour grapes from being on the wrong end of several Scottish decisions recently!!

Yet a few weeks ago, we won an appeal decision for new homes in Green Belt because the (entirely sensible IMHO) Green Belt policy allowed the development to come forward given the severe local shortage of housing AND the fact that the new homes would have no adverse impact on coalescence, openness and landscape quality.

PS Final point, on a completely different subject, is to mention the greatest living Scotsman. Albeit a biased from a Newcastle Falcons season ticket holder. Namely Doddie Weir who is currently doing fantastic work supporting MND via his Doddie’5 Trust. (@DW5Trust). Please join me in donating at https://t.co/QuQMfz2Rql


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Budget 2017. Well just the land value capture bit actually

So the Chancellor resisted the pressure to introduce land value value taxation. (LVT) and instead chose to review CIL. This despite the avalanche of recent documents and research urging him to introduce LVT

Whilst some of the LVT contributions have been a little shallow for such a complex area, the Civitas report a couple of weeks ago thankfully delivered some great research and analysis on LVT and shone much light on the issue.

However, Civitas underplayed the role of the local plan process (see later) and therefore the LVT recommendations would be difficult to implement within the confines of the UK planning system. But overall the quality of the research the lifted the spirits.

Its a very complex area but for those who choose NOT to get into the detail it seems a no-brainer. Especially if you have never bought land, never built homes, never applied for planning permission, never prepared a local plan, and never sat in Government taking difficult decisions which actually affect real people.

The potential advantages are seductive. The state can tax tax anyone who owns land. It can buy land at agricultural prices, secure planning permission for housing, and then sell it back to housebuilders at higher prices. Thus creating a huge financial warchest to be spent on infrastructure and affordable housing.

So what’s not to like?

Unfortunately, for those who will actually be directly affected we have no choice to get into the weeds of this new tax. And that’s where the questions start.

Resources

A true and comprehensive LVT will require an accurate value of every plot of land in the UK, with the valuation splitting out the value of the land as opposed to the buildings on the land. The valuation will also need to differentiate between the existing use value and any other other potential use value.

Only then can the state accurately tax both the existing value and the hope value which, under current rules, needs to be factored into the valuation. In other words an assessment of planning and market prospects of the full range of uses the land can, and cannot, be put to. For every field, garden, factory, car park, office building etc etc.

Such an undertaking is clearly impossible and impractical in austerity Britain.

LVT Lite

But what about the plethora of ‘LVT lite’ options? In the interests of brevity this blog will focus on just one of those. Namely the idea that the state can CPO housing land at agricultural value.

Again, as we enter the weeds a few issues emerge:

1. Where would the Human Rights Act (HRA) fit in? It could be relatively easy to repeal 1961 Land Compensation Act, but I suspect the HRA could be a tougher nut to crack given recent assurances on EU legislation. I base that on expert witness experience in a number of CPO inquiries.

2. Where would the local plan process fit in? At Local Plan Public Examinations there are always many more landowners promoting their land for housing than the allocations available. The winner is the site which is the most appropriate, in planning terms. It is a hugely competitive process and the state is the ‘referee’. So what would happen if the state is also a player on the pitch? Would we then need new North Korean style planning rules to guarantee the ‘right’ outcome in planning terms, irrespective of true planning merits?

3. Where would landowners fit in? And what about the need to get new homes built quickly? My day job tells me that landowners prefer high land prices to low ones so they would obviously refuse to sell their land at prices they were not happy with. Thus necessitating a long, complex and hostile CPO process. Other landowners would obviously step up and offer their land to the local plan process. Are we then asking the state, as ‘enabler’, to tell the state as ‘planning authority’, that it must resist the other suitable, deliverable site, in planning terms, because the state wants to buy another plot more cheaply? Hmmmm. Next stop the sale of planning consents???

4. What does history tell us? Firstly that securing land value capture via taxation will be hugely complex, controversial and difficult to implement. No wonder the Daily Mail have already coined it the Garden Tax. The Poll Tax is instructive on the ease of introducing new taxes into modern Britain.

And secondly the concept appears to have more logic in an environment where cities are expanding fast and the state feels frustrated with certain landowners withholding land to support that process. However since 1947 the role of the state has completely reversed with the key task being to stop/restrain city growth via Green Belts, in opposition to the huge numbers of willing landowners and developers. Therefore LVT perhaps appears to have less logic. Particularly in relation to acquiring development land on the edge of cities.

4. Who even is the state in its enabler role? Presumably Homes England, plus Council-owned development companies, plus 100s of new development corporations? But what would happen if the local Council is anti-growth? As some are? And would the state have the capacity to become the dominant land-trader, to the exclusion of private sector participants, across 300-plus local authorities

Sum-Up

In simple terms we now have a buggers-muddle of development rights being nationalised in 1947 but land value still being mostly privatised.

So my vote on doing land value capture better goes to the the 2015/16 CIL Expert Panel Group report. Namely:

– a simple tariff to cover wider infrastructure contributions; and

– negotiated contributions on site specific measures, via S106.

If the right local plan policies are in place early, covering infrastructure and affordable housing, builders will negotiate a land deal which which reflects these obligations. If not……..

It seems that the Chancellor broadly agrees and we look forward to contributing positively to the CIL Review signposted in the Budget last week.

Two final points.

Firstly people create the demand for infrastructure not new homes. Population growth is going to happen anyhow, with or without the new homes. No parent ever told their child that they were created because somebody firstly built a house. No new immigrant ever came to the UK because the OAN and local plan was proposing broadly the right amount of new homes in their target location. New Homes deliver new infrastructure rather than increasing the stress on the existing.

Secondly, in my experience the state is often not good at bringing forward land quickly.

Let’s wish the new Homes England organisation all the best.


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Conference season reflections

The annual tour of the party conference housing fringe events is over for another year.

Annual leave meant only the Conservatives this year. The mood was downbeat, as expected. Housing seemed to have a higher priority than ever before, with a common view that unless the Tories can achieve success in addressing the housing crisis they are unlikely to win the 2022 election.

The higher priority for housing invited more (often less informed) views into the discussion. And it appeared very few people could actually define what would success look like, in 2022? Everyone agreed about the need to build more homes and capture more younger voters, BUT would it be via?
a. Home ownership levels continuing to fall? or,
b. Home ownership stabilising at the current c60%? or,
c. Home ownership starting to start rising again?

No fringe panellist or expert appeared willing or able to give an answer to the above. The announcement on Help to Buy was obviously a major piece of good news for further driving up private sector supply and there were also positive announcements on Council housing. But it seemed difficult to see where the priority lies aside from the obvious desire to build more homes of whatever tenure, social rented, private rented or owner occupation.

This need to build more homes of all tenures was shared by everyone and both Sajid Javid and Alok Sharma both spoke strongly and well on the importance of more supply.

Many seemed vexed by the tension between wanting to support home ownership but recognising that in some Tory heartland areas rented housing is sometimes the only viable option for low and middle income younger households who don’t benefit from financial assistance. It seemed clear that helping the huge amount of people who face difficulties in securing access to a good stable home appeared more important than protecting house prices.

Many spoke about the geography of the problem. Several asserted that the social problems caused by high housing prices are limited to London and parts of the South East and that in most other areas the market is functioning reasonably well.

The Help to Buy (HTB) announcement showed that the commitment to building more homes for sale remains. In relation to H2B there seemed little consensus in the fringe events. Some were opposed due to the perceived inflationary effects. Others were supportive, citing the 130,000 FTBs who have been helped so far and the 135,000 more households who will benefit in the future. In perhaps the biggest housing fringe at the conference, David Thomas spoke strongly on the value and importance of Help to Buy if recent private sector volume increases are to continue

It was perhaps surprising that nobody mentioned the independent evaluation of Help to Buy for the Government, which showed that HTB has driven 43% increase in additional housing supply that would not have happened otherwise. Similarly nobody considered what the housing supply (and price) levels would be now if HTB had never been introduced. Some felt that more HTB was akin to putting petrol onto a demand fire, whilst others felt that taking it away would be be like pouring water on a supply fire which has seen output rise to 200,000 per annum.

Green Belt was never far from the surface and the perception was that most were willing to see proportionate releases from Green Belt, especially if linked to Green Belt extensions. Alok Sharma, several times, helpfully reiterated that the Green Belt can be reviewed in exceptional circumstances. Tim Montgomery described Green Belt as, “the most pernicious form of regulation in UK history, four times worse than anything from Brussels”

Skills and capacity was also a focus and another interesting tension emerged. Namely the need to attract young bricklayers, carpenters, roofers, etc into the industry now, but, at the same time, promoting the modern methods of construction which could potentially see lower demand for such skills in the future. The sector obviously needs to manage the messaging strategy here. It is going to need bricklayers and carpenters for a very long time yet and messages that such skills are short-term and dying would be misleading and unhelpful.

So there was more interest on the importance of building more housing than hitherto. But the gap between party conference rhetoric and local decisions remains. During the conference itself:
– we heard that a major City Council have decided to delay the publication of their Site Allocations Plan in order to review their proposed Green Belt figures in light of the new, reduced, OAN figures from DCLG.
– Barratt passed the one year mark on a planning application for housing on an allocated site which also delivers a much needed brand new rugby club