Philip Barnes – Blog


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ROSY FUTURE FOR SECOND TIER CITIES?

Time to reflect on a year of cities.  I am lucky that work means regular visits to most of the UK’s great cities whilst the need to sully favour with the children shortly to leave home has meant a few overseas city breaks in 2015.

LONDON AND NEW YORK

Perhaps the overriding impression from the year is how similar London and New York now are. And how different they both are to any other city I have visited.  In both cities:

  • the current flow of global immigration is palpable.  The millions of people from hundreds of countries are more predominant than the indigenous population creating an incredible diversity and vibrancy in terms of food, shops and culture
  • such is the resident and tourist demand for food and drink there appears to be a coffee shop or some other eaterie every 50 metres. And usually the same brands in both cities
  • West End and Fifth Avenue sell the same products, to the same customers,  from the same high end stores
  • The City and Wall Street are both increasingly crammed with brand new skyscrapers of similar architectural styles
  • Master-plans for the big regeneration opportunities at Nine Elms and Hudson Yards look suspiciously similar
  • Central Park and Hyde Park both still look and feel like magnificent green lungs but both perhaps struggling to provide the tranquility they once did
  • formerly edgy districts like Harlem and Brixton both now offer multi-million dollar flats, cheek by jowl with council estates/high rise projects
  • public transport is constantly full, 7am to 10pm seems to be the rush hour

Above all else the diversity.  London no longer feels like part of England and perhaps New York never felt like being part of the US.  Both are magnets for some of the most talented and ambitious young people in the world and it shows.

But what about the differences between these two great places.  Firstly the public realm. London is consistently fantastic – outstanding design, superb materials and high quality maintenance. New York simply isn’t like that – in stark contrast to Boston by the way. In New York the general quality of floor materials, street furniture, shop front design control and public spaces is way below par in most areas. The superb public realm being laid down at the World Trade Centre is in sharp relief to many other parts of Manhattan.

Secondly the infrastructure.  I can only imagine what a regular user of Penn Station must think when entering the fantastic Kings Cross/St Pancras or perhaps viewing the transformational plans for Crossrail or Euston. And the snails pace of trains on the “high speed” 215 mile line from New York to Boston. About an hour longer than the 285 miles covered by the 7.04 from Newcastle to London. Plus, having travelled the New York subway for a week I will never again moan about the state of London tube trains again – albeit seems easier to get a seat.

Thirdly the levels of construction.  Cranes everywhere in London but surprisingly few and far between in New York.

PARIS, BOSTON AND MANCHESTER

Thirty years ago on my first trip to Paris I remember being struck by how similar it was to London.  Albeit with the distinctive Parisian style.  The scale, the variety of independent shops and businesses, the grotty streets so close to the richer ones, the mix of busy and quieter neighbourhoods and the endless symbols of imperial greatness.

Today it seems everywhere within Zones 1 and 2 in London is busy, gentrified and dominated by modern global brands.  In contrast, Paris this Autumn felt surprisingly similar to thirty years ago.  Still incredibly beautiful and well planned but lacking the full-on vibrancy and levels of investment evident in London or New York.  More like Barcelona, Boston, Manchester or Glasgow.

Major cities serving millions of people rather than billions.  All with some architectural masterpieces (both older and newer) and downtowns dripping with wealth and splendour whilst some nearby streets still seem shabby and ripe for new investment in businesses or homes. Economies where tourism and sports branding seem to be playing an increasing role in economic development.

SUM UP

So what am I saying here?  I guess that New York and London both seem pretty full.  Both appear to face increasing difficulties in providing an affordable quality of life (beyond work and cultural opportunities) for the world’s most talented young people.  Will such people make different life choices in the future?  Perhaps deciding that location isn’t as crucial as it once was for engaging with the world’s most successful economies. Could this perhaps drive an economic renaissance of these second tier cities (especially where they can fall within the economic ambit of New York and London) over the next 50 years?

Subject, of course, to essential and expensive caveats about infrastructure, culture and public realm.  And recognising that walking through Wall Street or EC1 does make you realise that many of those who simply want to be be rich and powerful will continue to be drawn there for many years to come.

However, go to Manchester and Boston right now – their talent driven renaissance appears already to be well underway.  Who else next?

Final point.  Obviously never been to any of the great cities in the Far East or Africa.  To be continued hopefully….


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CRISIS WHAT CRISIS?

Perhaps the two words I see most in my job are housing crisis.  But by what measure can it be said that we have such a crisis?

The case for justifying the term housing crisis seems pretty clear cut when looking at the statistical measures relating to systemic under supply and lack of affordability.  Not to mention the stripping away of home ownership dreams for a whole generation and the thousands living in poor quality rented accommodation too small for their needs.

But when we compare that statistical position against political or sustainability factors the position seems far less certain.

Lets look first at the three limbs of sustainability – social, economic and environmental.  How does the housing “crisis” relate to these in political importance.

Thinking of an economic crisis most will recall watching the “run” on Northern Rock with horrific foreboding.  The Government response was swift and decisive.  £40bn later most of the UK banking industry was in state hands and the employees of EC1 could breathe again – albeit the rest of us were required to deal with five years of recession.  Again I recall the collective political will act decisively to protect the national economic interest.

Mad cow disease was a genuine social/public health crisis.  A clear risk to health in large parts of the country.  A gigantic Government response costing billions was deployed with military assistance.  It was inconceivable that any politician would have considered arguing against the required response, either locally or nationally.

In environmental terms thoughts turn to the Torrey Canyon disaster.  An oil slick containing 120,000 tons of crude oil caused by a ships master taking a short cut around the Scilly Isles. The Government response involved over 10,000 tons of detergent and a strategy of setting the oil slick alight with the help of RAF bombers dropping 42 incendiary bombs.

So three crises.  All with a swift, decisive and well funded Government response.

But how can the “housing crisis” be called a crisis when some MPs feel able to campaign for election on the basis of stopping new homes being built in their constituency?  How can it be called a crisis when a Member of the Shadow Cabinet campaigned ceaselessly in their constituency against a housing development which the local council was keen to bring forward to meet a clear need?  And how can it be a crisis when local newspapers up and down the land claim victory whenever a contentious housing proposal is refused planning permission?

I guess many people using the words “housing crisis” are those, like me, who have a vested interest in wanting to see more new homes built. Housebuilders, developers, housing associations, housing charities and consultants to the housing sector.  Perhaps out there in the real world most politicians have been happy to talk about a housing crisis in interviews whilst ruling out any “crisis response” actions that may be deemed unpopular to their electorate.

Yet all the while the huge social and economic problems caused by having too few homes pile up and up.

‘Twas ever thus’ – only the use of the term housing crisis is new.  At least now we do seem to have a (second term) Government which seems prepared to introduce some policies which should genuinely increase the supply of new homes.


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THE HOUSING DELIVERY GAP – CAUSES AND SOLUTIONS

One of the big questions for Ministers at the moment is, “why are build rates staying low when consents are increasing?” Or, more importantly, “how can we drive up build rates given the larger stock of consents?”

The evidence is clear.  Consents are currently running at over c250k/year but starts and completions remain stubbornly below 150k/year.

CAUSES

One of the key reasons for this delivery gap is the increasing proportion of larger sites coming out of the planning process.  This gives the illusion of lots more build opportunities but the reality is that a site with a consent for 200 units is not going to yield much more units per year than a site for 100 units.

Another key factor, linked to the site size point, is the lack of competition in the market. Whilst we at Barratt prefer sites over 100 units (to justify our expenditure on sales offices, show-homes and sales teams) smaller builders would be happy with units of say 10 or 20. And again 10 small builders on 10 different sites will likely sell more homes per week than Barratt on our 100 unit site.

Also the larger urban extensions can take longer to get started due to bigger up front infrastructure requirements. Moreover many are located outside the Green Belt around towns where the market may not sustain as fast a build rate as around our major cities. Our current urban extensions are at, inter alia, Aylesbury, Bedford, Didcot and Telford.

We have none around the major cities (where build rates would be higher) because of Green Belt which restricts such schemes.

Most housing consents are secured by land promoters rather than housebuilders.  This means that after outline consent has been granted various stages need to be gone through prior to construction. Namely the site needs to be marketed for sale and a preferred housebuilder chosen.  From there the builder will need to design a scheme and secure Reserved Matters consent.  Then there will be pre-commencement conditions to be discharged and Section 106 requirements to be complied with, followed by getting through the Judicial Review period and preparing the site for build.

This can take two years with everyone working as diligently as possible. Furthermore some land promoters may prefer to dispose of larger sites to housebuilders in smaller parcels in the hope of land values rising as the development gets built out and infrastructure is put in.

SOLUTIONS

So how can we narrow this delivery gap and speed up output?

Undoubtedly the key requirement is for the planning system to release a larger number of sites in a larger number of locations.  Put simply, in one year 10 sites for 100 units will yield around x10 the homes delivered on one site for 1000.  We builders need a greater range and choice of outlets not a few large sites in each district.

There is a need for more competition on the larger sites.  This means more smaller and custom builders building alongside the volume builders.  Given that the smaller builders can’t usually compete effectively on the land market there could be a useful role here for Government to subsidise smaller builders to be able to buy sections of consented sites at market prices. Perhaps such a subsidy could also be used to help PRS operators onto larger sites. PRS is good at creating fast occupancy rates and vibrancy on larger sites.

Meanwhile local plan policies could perhaps play a role in requiring custom builders to play a part in building out major allocations.  Albeit recognising the importance of ensuring that landowners and housebuilders are aware of the requirements at the earliest stage and are able to factor them into the site appraisals.

There could also be a role for public sector landowners to perhaps specify build rates when selling larger sites.  This will likely result in a lower land receipt because requiring builders to sell faster than market demand can only be achieved by reducing sales prices – which will reduce the land value.  However if faster delivery is the primary Government objective this can and should be considered.  For the reason given above this might not be likely to be attractive to private sector landowners.

Another idea would be a more pragmatic approach to phasing of larger sites.  This could perhaps be delivered in two ways:

a. Government subsidies towards the elements which drive faster build and sales rates, in particular on-site primary schools

b. Relaxation of phasing restrictions which often restrict larger sites to one or two outlets in early stages

My final suggestion would be to try and encourage builders to “swap” sites or parts of sites.  This is something that was more common prior to the financial crisis when the industry obviously had a greater risk appetite to grasp opportunities to share and swap sites.  It was often used as a way to drive up volume in a strong market by helping two businesses to secure two new outlets in different market locations.

With the scars of recession still healing there is far more aversion to the inevitable risks relating to site management, marketing and infrastructure delivery associated with multi-builder sites.  Perhaps Government or HCA could work jointly with the industry to both help address these issues and also create greater visibility on sites which are potentially available for swapping.

In summary there does appear to be opportunities for the additional housing funding released in the Autumn Statement to be used to encourage greater and faster levels of delivery.  Although not losing sight of the overriding need – namely to grant more planning consents for a greater range and choice of sites.


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ATTACKING HOUSEBUILDERS – UNDERSTANDABLE BUT ARE WE THE RIGHT TARGET?

The election result was perhaps a surprise to many, both within and outside the housing sector.  Armed with an overall majority the Government appears to be pursuing a radical agenda primarily aimed at getting the private housing market moving for first time buyers.

Understandably there have been strong criticisms from organisations who were perhaps expecting a different election result and policy focus.  Some of these criticisms have landed at the housebuilders door.  Usually focused on excessive profits, landbanking, failing to build the right type of homes and trying to avoid affordable housing delivery.

On the profit point I can only give a Barratt perspective.  Our shareholders have suffered lean times over the last few years. In the years after 2006 we made losses of £853m and did not pay our shareholders a dividend for 4 years.  Even our great results for FY14/15 only show a 15.3% profit on turnover – hardly excessive compared to some of our peers and other sectors in the FTSE100. And what will we do with that profit? Return it to our long-suffering shareholders or reinvest it in our operations – namely buying land and building homes for our customers.

Which brings us onto landbanking.  Barratt do not land bank.  As soon as we have bought land we go as fast as possible to build and sell homes on it.  We are a return-on-capital business and our business model requires us to do that.  We do not buy land which does not have planning consent.

However we do secure control of unconsented land by means of option agreements – namely the right to purchase a piece of land should we manage to secure consent.  This is our strategic land supply.  Again our objective is to secure planning permission and build homes on it as fast as possible.

We do not sit on any land.  If one of our option sites fails to secure an allocation in a local plan we may then have to sit and wait until the next plan review, as there is usually no chance of a planning permission before then.  That is not landbanking – it is the planning system forcing us (and the landowner) to wait, against our wishes, to secure planning permission. Indeed if we ever were to “sit” or “bank” land we would quickly have lawsuits against us from angry landowners quite rightly expecting us to work faster towards the planning consent which will realise their asset.

In terms of the criticisms that we don’t build the right type of homes, all I can say is that we need to build to the market demand.  Why? Because of the residual land valuation (RLV) model which all housebuilders, landowners and land agents use to value land.  We compete hard for land and we can only secure it when we are able to pay the landowner a competitive price compared to our peers.

The RLV model is simple.  Gross Development Value (aggregared sales prices) minus costs, minus profit = the price we are willing and able to pay for a piece of land.  Therefore unless we put strong market based (but realistic) sales prices into the model we will never be able to buy land as we will never beat our competitors in the bidding competition.

If landowners or land promoters were not solely interested in land value that would be a different proposition.  Barratt would obviously be happy as we would pay less for land.  Our RTPI National Award winning scheme at the HCA owned site at Hanham Hall in Bristol or our multi-award winning scheme on JRF owned land at Derwenthorpe in York (see below) both pay testament to what happens when an enlightened landowner works with us to deliver outstanding quality rather than just squeezing out maximum land price.

So how do you persuade other landowners to do the same?  Well that’s a question for others to answer.  But one thing is certain – landowners will not sell their prized asset unless they are incentivised to do so.

In the meantime perhaps it should be remembered that we increased the number of affordable homes we delivered by 26% last year (2,853 in total) and paid £580m in tax – obviously far more than when we made no profit at all.  Also we supported over 53,000 jobs last year appointing 327 new graduates and apprentices in the year.  We planted 555,000 trees and shrubs and paid £392m in Section 106 payments for local facilities.  Some pretty hefty socio-economic contributions from a private business which operates in rational ways to the planning and market circumstances which are put in front of us.

Comments welcome.

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Autumn Housing Bill – A Once in a Generation Opportunity?

Perhaps a touch hyperbolic but having worked in land, planning and housing for over 20 years this Autumn’s Housing Bill feels like a rare opportunity to deliver some truly radical policies to address the housing crisis. The reason is we now have a fresh second term Government with a real commitment to increase housing delivery.

But wasn’t that the case in 2001?  In my view things are slightly different.

Firstly more housing was not seen as quite the priority it is today.  In fact in some circles it was seen as having contributed to the urban decay and abandonment in some northern cities.  Furthermore the Government was placing its faith in the new European style “plan led system” as the means to force recalcitrant local authorities to prepare plans and release sites for housing.  However with no incentives to comply, many authorities either responded slowly or barely at all, especially in the shires where there were some of the greatest housing and population pressures. A plan led system without plans. It became impossible to secure consent if a proposal was not in a plan.  With precious few plans housing output inevitably dried up.

Secondly, urged on by the Urban Task Force and others, the new 2001 Government felt that the housing need could be met on brownfield land alone.  The theory was that there would be a ceaseless supply of back gardens, local pubs and factories available to meet housing needs without the loss of greenfield land.  The National Land Use Database was set up to prove the point.  Unfortunately it couldn’t then find enough available viable brownfield land.  Neither could the local Urban Capacity Studies that became mandatory.  Then even the brownfield apartment blocks in back gardens became outlawed as they proved unpopular with neighbours once built.  Local pubs proved more popular with residents than developers and planners thought. Needle in a haystack.  Brownfield output stayed constant and greenfield output dried up. Housing needs unmet.

Thirdly my sense at the time was that Government perhaps felt it could identify where houses should be built in Regional Spatial Strategies and then development would quickly happen there.  But what about the market?  What about local community views?  What about local politics? Disconnecting with these three factors is never conducive to good policy outcomes and so it proved with housing output remaining stubbornly below need.

So why the optimism that this time radical new measures can hopefully deliver the increase in housing output that the nation needs?
Firstly there seems to be a real commitment to addressing the three key barriers to increased housing delivery.  Namely the complexity and languor of the planning system (not the planners BTW), the absence of plans and the need to plan effectively across local authority boundaries.

Secondly we have a positive pro housing national policy in NPPF.  Like any planning policy document ever written it can of course be read selectively to both support or oppose controversial development as we saw in the run up to the election.  However the underlying intention is clear – to build more homes.  The focus must now be on redesigning the process to deliver the policy objective.

So what can we expect or hope for in the Bill?  Much has been trailed already and sounds positive. Mandatory deadlines for local plans, housing zones where all brownfield applications are deemed acceptable and exception sites to deliver starter homes at a 20% discount.

But what else would be good?

Perhaps some truly radical measures to reduce the complexity of planning applications?  Maybe a return to red line consents for some schemes?  Does any application under the Environmental Statement threshold need to be supported by anything more than a 10 page Design Statement and 10 page Impact Mitigation Statement?  Let’s try and encourage overworked local planning officers to read planning applications rather than weigh them.

Other ideas which might help increase delivery include:

  • clearer recommendations for how Local Authorities must work together to deliver housing needs across boundaries – some great emerging work that can be drawn upon.
  • binding Planning Performance Agreements
  • a 4 week fast track process for simple disputes over planning conditions and the like
  • deemed consent in relation to dilatory statutory consultees, subject of course to safety considerations;
  • removing the need for planning applications on sites in an adopted plan to go to Committee

Finally most importantly is the need to unleash the smaller and custom builders.  Barratt is the first to admit that the loss of many smaller regional building businesses during the recession has had an unwelcome effect on delivery volumes.  Measures to help them by reducing planning costs/uncertainties and increase funding opportunities will hopefully be a focus for the policy makers currently writing the Bill.


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Game Changer

It’s rare that you read something and you immediately realise this is a game changing moment in a long debate.

Absolutely what happened when I read the recent blog post on The London Society (TLS) website in relation to the London Green Belt. Mainly because TLS is not a housing developer or even a commercial organisation. No, they are a body set up in 1912 with the sole intention of trying to ensure London remains both beautiful and a superb place to live, work and visit.

The blog reminded us of what a belt is – namely something linear. The original ideas for a London Green Belt were for a 400 yard wide linear park running around the outer edge of London.  “a healthful zone of pleasure, civic interest and enlightenment….a great communal estate secured for all time for the use and enjoyment of the people of London”  A green accessible girdle available to both existing residents on inside of the belt and to the future residents to be housed yards beyond.

It then recounted the history of Metroland, the politicking and the post war planning to ensure the protection of open land came alongside major plans for new towns further out. The result being that we now don’t have a 600 yard wide accessible linear park, rather 20 – 30 miles of private farmland and golf courses.  New family housing for Londoners therefore gets built over an hour from the City. The Green Belt has served many useful purposes but has also undoubtedly contributed significantly to the chronic housing shortage which Londoners now face.

No sane person wants to abandon Green Belt Policy and no housing professional wants to see more than 2, 3 or 5% of the Green Belt lost. By stopping the sprawl of London for the last 70 years it has been a fantastic success. But with the lack of housing now causing major social problems for Londoners, perhaps the time is now approaching where and how we need to have the mature discussion on where we can make minor changes in order to set new boundaries which we can endure for another 50 – 70 years?

Is it time to move away from the two notions that (a) all of the Green Belt is beautiful and (b) the loss of one square inch means the rest will be quickly concreted over?

Perhaps the reality is that parts of the Green Belt comprise degraded inaccessible land entirely suitable for development without any adverse effect on amenity? Perhaps, a Royal Commission after May 2015 could look at how we could set new fit-for-purpose Green Belt boundaries which can serve two or three generations to come.

Given the political sensitivity this is clearly the wrong time to be shouting from the roof tops, indeed only in the last few weeks we have seen two separate statements from the Government emphasising the commitment to protecting the Green Belt from new homes. But after the election, perhaps there are signs that a conversation is appropriate? David Lammy is standing for election as London Mayor in 2016 and is promoting the idea of a mature debate about how the Green Belt could alleviate the housing shortage without compromising its purpose. Perhaps this is a time for the housing sector to build up evidence ready to contribute to that debate?

Twas ever thus? In 1532 building was not allowed beyond the London City Walls and this was only repealed in 1666 when the Great Fire created a housing issue which policymakers felt they needed to respond to. Food for thought…..


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Crisis Over

After 6 months worrying, it finally happened last Sunday. Yes with housing consents and starts rapidly rising we heard the first arguments that the housing crisis is now solving itself, therefore no need for any nasty spending increases or unpopular tweaks to planning policy.

It came on BBC Sunday Politics when Andrew Neill quizzed Emma Reynolds (Shadow Housing Minister) in relation to the recently published Lyons Review. If you look at the chart below you can see why.

Crisis

The Lyons Review has a target of 200k new homes a year, c40K less than the generally accepted need of 240K. If current trends continue we should hit 240K consents a year in 2017. If the trend line for starts continues we should be at 200K new homes a year by 2019; 1 year earlier than The Lyons Review target of 2020.

Luckily for all of us who see the scale of the crisis close up, Emma Reynolds gave a stout and skilful defence of both the need for change and the recommendations in Sir Michael’s report.

As a planner I know that consents data is hugely misleading. To illustrate, in Q2 of 2012 there were c24,000 consents on c800 sites. In Q2 of 2014 there were c62,000 consents, also on c800 sites. The current trend is for bigger sites not more sites. And those of us that actually deliver homes know a site for 50 units does not necessarily sell more homes in a week than a site for 150 units. Housebuilders call a site an outlet, and what the industry needs is more outlets to sell more homes. Extra units but with no increase in outlets can assist security of supply but doesn’t, in itself, guarantee increased new homes output

With affordability worsening, and homelessness increasing in most areas this is absolutely the wrong time to think that the crisis is easing or solving itself. Prioritising housing delivery in both funding and policy terms is needed more than ever. The Lyons Review is a very good way to start that conversation.

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