Philip Barnes – Blog


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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.