Philip Barnes – Blog


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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


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Winning people over

In the last 50 years arguing in the case favour of new homes has felt like warfare. And asymetric warfare at that.

Firstly we know our politicians consistently argue passionately for more homes in Parliament and at party conferences. But locally, MPs, Mayors, and Councillors routinely run for election on a ticket of stopping housing development. The most recent edition of Northumberland News proclaims successes in stopping housing development and removing cycle lanes.

And secondly local and national media traditionally find it easy to find column inches and airtime for the press releases produced by local housing objectors. But its much harder to find the local people who will speak up in favour of new housing in order to present a balanced story. No wonder much needed new homes, in line with local and national policy, are often presented as local people being the victims of a harmful pollution imposed from above.

Classic ‘good’ vs evil’ territory.

But things are changing and the reason is social media.

Nobody in the pub had heard of Priced Out three years ago. Now some people have. Priced Out consistently present strong and persuasive messages on the importance of more housing and any journalist worth their salt can easily find them to balance up an anti-housing story.

Yimby groups are popping up across the UK. Usually where they are most needed. London Yimby, Oxford Yimby, Cambridge Yimby, even Yorkshire YIMBY are on Twitter and Facebook.

Pubgoers still don’t know about the Yimby groups yet. But they will do in two/three years time. These grass roots groups are local and do fantastic work in promoting the harms of housing undersupply, the benefits of new affordable housing, and countering objections.

Social media is their weapon of choice because its popular with the demographic hardest hit by the housing crisis. And importantly, they often provide an easy-to-find voice for mainstream media looking for a counterweight to the anti-development voices.

Changes in social media now mean that even housebuilders can use social media positively. We can broaden our messaging to include local people who are more likely to support our proposals rather than just those who happen to live right next to the site. We can elicit views from recent customers who have recently experienced the positive life-change of moving into their new home.

And we can more easily notify potential customers who we know are looking for a new modern home and may be willing to support our scheme. Whilst social media is still a risky game, long gone are the days when housebuilders considered it as something to be avoided at all costs.

One thing is for sure. Unless communities and politicians feel that that there is a local democratic case in favour of new homes we will struggle. We need to step up.

Mark my words – Yimby will be widely understand in the pubs of the UK soon.


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ITS THE ECONOMIC POLICY STUPID

Last week I spoke at the New Politics of Housing event organised by Policy Exchange.

The introduction confirmed that the housing crisis is the most important social justice issue facing the UK and the speakers came with different ideas for solutions.

Terrie Alafat (CEO at the Chartered Institute of Housing) and John Godfrey (Former Head of Policy at Number 10), argued for more investment in social housing with Terrie also focussing on the need to focus on, and quantify, the social value of social housing.

I focused on the importance on addressing the rapid decline in home ownership, pointing out that France now has higher home ownership than the UK. France has grown home ownership from 60% to 64% over recent years whilst the UK has presided over a fall from 71% to 63%. I deployed the quote from Nick Boles that, “no aspiration is more deeply embedded in the British psyche than the desire to own ones own home” and noted that French housing supply is now c350,000 per year.

Fraser Nelson’s speech was particularly interesting in arguing that Quantative Easing has been a key cause of high housing price rises in London. Indeed Fraser argued that outside London there was no housing affordability crisis due to the affordability created by low interest rates and lower house prices.

The QE arguments were persuasive, and John Godfrey agreed. Put simply, UK Government has now spent over $600bn buying gilts and bonds with the aim of encouraging spending in the economy. It did.

The ‘extra money’ and spending naturally pushed up gilt prices and drove more investment away from gilts into other parts of the economy. As intended. With interest rates so low the property market was obviously a natural home for such extra money. Especially as the extra liquidity encouraged more lenders to re-enter the housing and property market.

We at Barratt know, as well as anyone, that mortgage availability is thankfully good at present.

We all know that QE started in 2009, stopped in 2012, and was resurrected in 2016. Experts appear less sure of the extent to which it has boosted property as an asset class and if/when the effects on the London housing market will unwind.


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HOUSING CRISIS – WATER PALAVA?

A lot of organisations get blamed for the housing crisis. Inter alia, housebuilders, planners, housing associations, landowners, land promoters, politicians etc. One group tends to emerge unscathed but, sometimes causes huge frustrations to housebuilders and local councils wanting to deliver new homes. Namely the privatised water companies.

But having said that I must immediately narrow the scope down to just 3 or 4 businesses who, in my opinion, can frustrate housing delivery and damage the reputation of the whole water industry sector.

As we all know water companies have a legal obligation, under the Water Act, to provide water and sewerage to the the population in their areas. Not just the current population but also the new residents as projected by ONS. The privatisation deal in 1989 was predicated on this civic responsibility being transferred, alongside the ability to make profits and pay shareholder dividends.

Adhering to this responsibility sometimes requires investment in system upgrades, especially in areas of lower capacity and higher population growth. Again the requirement to fund this ongoing investment was part of the privatisation deal. At privatisation all debts were written off and Government provided the sector with a £1.5bn dowry.

Unfortunately housebuilders often face difficulties in that water companies assert that there is no local capacity for extra homes and then request funding to prepare a ‘Network Analysis’  to identify whether a system upgrade is required. Housebuilders feel that the Water Company should be funding this having already made projections of local population growth and having already fed into the local plan process. It is not unusual to be faced with a bill to fund a Network Analysis at the pre-application stage with limited ability to go forward until it has been completed.

Even worse the Network Analysis sometimes then shows a need for sewage treatment work upgrades which the water company claim must be funded prior to the development being occupied. It is not unusual to be hit by Grampian Conditions preventing development or S106 requests (on top of CIL) for c£10k/dwelling in order to contribute to system upgrades.

All very frustrating if there is actually no commercial ability to provide the required payments due to other S106, CIL or affordable housing requirements. The poor LA then cannot bring forward an allocated site because of late demands from a private water company, which has previously been consulted on the feasibility of the local plan. Thus opening up the possibility of speculative off-plan smaller proposals which may fly under the water company radar nd hence secure consent.

Since privatisation housebuilders have given these private companies £2.6bn in infrastructure charges. How it is used is not audited and we housebuilders sometimes wonder what has actually happened to the money!

As an old time planner I would much welcome a return to a plan, predict and provide approach to water infrastructure provision rather the what feels, in places, more like a risk management approach to major housing schemes as and when they arise.

Final point is to repeat that most Water Companies are positive and great to deal with. But as in all sectors the actions of a few can sully the whole sector. Same with housebuilding I guess…..


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FIVE RAINY DAYS IN AUCKLAND

So what did a five wet winter days in Auckland say to a UK planner/housebuilder about planning and urban design? In particular the similarities and contrasts with the UK? I was asked by the UK branch of the New Zealand Planning Institute to provide some thoughts so here goes.

The first thing that hits you is the dominance of Auckland’s maritime setting. You are never far from a view of the harbour and and its influence on the character, economy and history of the city. The urban pattern is essentially a grid with Quay Street running parallel with the shoreline and a series of streets running southwards up the hill towards the lovely Albert Park and the University areas.

The second impression, linked to the above, is the fantastic and ongoing regeneration of the obsolete older docks at the western end of the harbour. The scale, grain and quality of new architecture, including the Maritime Museum, is good and even in winter the area throbs with people from morning to late evening. Albeit many of these were Lions fans there for the rugby. I can imagine it is even better on a summer weekend.

Hopes should be high for the the next 20 years as the regeneration moves further west into the ‘Wynyard Quarter’, a huge area of redundant tank farms. The development has been held up due to legal disputes relating to decontamination responsibilities but the masterplan aims to deliver a new park which will deliver a major new landscape and recreational resource for the city. Already some of the anchor buildings such as new ASB Waterfront Theatre are in place.

The third key impression is the Sky Tower, Auckland’s tallest and most striking landmark. Whilst design is subjective I thought it looked fantastic, providing a great example of how a modern building can become a true icon for a city. It is clearly well loved and used by locals and tourists for, inter alia, dining, bungee jumping and skywalking. A true emblem for Auckland.

Perhaps less impressive is the modern architecture along Quay Street and fronting the harbourside. Often boxy and ‘anywhere’ in style, and often with poor detailing. A world class setting and, in my opinion, a bit of a lost opportunity. Especially given the quality of the old Ferry Building on the opposite side of the street.

Similarly, some other modern buildings in the City Centre lacked quality, texture and detail and, perhaps unfairly, I saw little evidence of proactive conservation and heritage-led regeneration schemes.

Moving out into the suburbs I found the Edwardian and inter-war suburbs charming. Generally a mix of lovely older colonial style bungalows and two-storey houses. Virtually all detached and sitting on smallish plots to a grid street pattern. Older properties interspersed with newer modern homes, again of strong design and reflecting the suburban character. Each suburb seemed to be supported a local centre with a range of local and independent traders.

Maybe I was just in the ‘posher’ suburbs but the maintenance of both the public and private realm was of incessant high quality. Two elements stood out. Firstly the good quality enclosures defining the gardens; usually mature hedges, waist high walls or attractive low fences. And secondly the variation in design and materials. There is obviously a far greater emphasis on self-build and smaller builders, although again stressing I only visited 2 or 3 different suburbs.

Moving further out, the more modern suburbs appeared lower density but retaining the grid based street patterns, decent enclosures, low rise and variety in the street scene.

The buildings and urban grain felt different to the UK. However Auckland actually still felt fairly familiar to a Brit. Why? Mainly due to how familiar the landscape felt – presumably as a result of a similarish climate? Plus the street names of course! There are some superb parks and open spaces which all felt fairly familiar in design and texture to those in UK towns and cities. Albeit with a few more exotic species.

Final point is that the character of a city is as much about the people as the buildings and spaces. In this regard Auckland excels. Indeed I would challenge anyone to find a city with friendlier locals or higher quality levels of hospitality. It is culturally diverse and the atmosphere is of a city which (a) really celebrates and promotes its Maori heritage and culture whilst also (b), doesn’t seem to have a huge chip about its colonial background. All in all a city which just felt diverse and confident. We will be back…….

Comments welcome – worth stressing again that the experience was very limited and perhaps more focused on the evening economy than urban design.


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COMPETITION AND CONSOLIDATION

Lost count of the numbers of times the development sector has provided cast-iron (IMHO) evidence to prove housebuilders do not landbank.

But rather than feel satisfied that the issue seems to be going away the anti-builder brigade seem to just come up with more and more unfounded alternative facts about (a) cartel pricing or (b) gobbling up of smaller competitors.

Cartel pricing

Ref (a) nothing could be further than the truth from my perspective. What I see day in day out is fierce competition amongst large builders to secure land. Based on taking a commercial (and risky) view of the selling prices in the market.  Whatever anyone thinks about house prices (and affordability), they set the price of land.  There is nothing in this week’s house price data which reduces our risks in this regard.

And when we start building and selling, housebuilders act as price takers rather than price setters given that our main competition is the second hand market which comprises c90% of transactions. Housebuilding is a highly speculative and competitive environment and when the market is strong, as now, it drives strong profit performance. In contrast when the economy is weak we get hit first, hardest and for the longest.  We couldn’t pay our shareholders a dividend all the way from 2009 to 2013.  We are trying to manage the risks posed by a potential future downturn.  We sense it will come sometime but just don’t know when.

The idea that big housebuilders somehow act in cahoots in regards to either land prices or unit selling prices lacks any evidence (or logic) and will easily be dispelled by a conversation with any landowner, land promoter or land agent. Such a conversation may yield better insights than relying upon Twitter.

Consolidation

In relation to the consolidation of the industry it is perhaps worth making three points.

Firstly the big builders would be happy to see more smaller builders setting up and being successful and have made this point countless times. Smaller builders operate differently, often with lower operating costs but higher materials costs, and produce a different product. They generally compete more with the local second hand market than with us. They generate transactions and train people which is positive to everyone else in the sector.

A small development of 10 or 20 new homes in a town or village, if successful and well received, can often make it easier for the volume builders to follow on with a larger scheme with more affordable housing.

Secondly I would bow to John Tutte, CEO of Redrow in a recent interview HERE where he makes the point that the recent Redrow acquisition of Radleigh Homes will lead to greater housing delivery not less. Redrow will drive far more units out of the Radleigh operation than Radleigh themselves would have done. When builders acquire other builders it is usually to help drive up volume not to squash it.

And thirdly lets remember this isn’t a housing thing. Look at the consolidation in the car making sector, from over 500 British car makers down to 35, mainly very small niche operations plus a handful of global businesses. And the British high street – now dominated by a few big brands rather than the previous mix of nationals and locals. And try getting a coffee in many places if you don’t like Costa, Nero, or Starbucks.

I don’t recall a Coffee White Paper promoting financial and planning measures to support and develop more local cafes to break a mythical cartel. Albeit I would fully support such a proposal!

So in summary lets remember (and address) the real causes of the lack of diversity in the housing sector. Namely:

  • the ridiculously high entry costs and risks caused by the planning system
  • the lack of bank lending since the global financial crisis.

There are plenty of small sites around – the task is now to help the smaller operators gain access to them.  That starts with positively identifying them in a plan or other planning document and then providing low cost risk-free market access based on planning certainty.


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NEW CIVIC HOUSEBUILDING

At Barratt we were pleased to be invited to give a housebuilder response to the launch of Shelter’s recent report on New Civic Housebuilding (NCH). Albeit that upon arrival it didn’t feel like a particularly housebuilder friendly atmosphere. Flicking through the report I could understand why. The headlines in the executive summary were that speculative housebuilding reduces community benefits, doesn’t make homes more affordable, doesn’t build enough homes and squeezes out SME developers.

Luckily Toby Lloyd, who co-wrote the report and gave an excellent presentation on the contents, quickly confirmed that the report makes no criticisms of housebuilders, simply the economic model they work within. Indeed, it was accepted that housebuilders behave rationally given the circumstances we face.

The presentation was persuasive. Essentially NCH would create a new and additional supply of homes whereby land would be purchased by a state owned, “development corporation with powers” at a low land price. The corporation would then grant planning permission to local authorities to build large numbers of high quality new homes with local community support.  Indeed it was particularly good to see our development at Derwenthorpe in York, a partnership with the Joseph Rowntree Housing Trust, highlighted as an exemplar example of NCH.

What’s not to like?

Nothing. Cheap land, abundant planning consents and fast paced delivery of more homes. However, as Barratt is the largest purchaser of residential land and builds more homes than anybody else, I immediately felt drawn to the details and the practicalities.

And a few questions emerged.

Firstly, the notion of cheap land prices? Barratt invests over £1bn on land each year and our experience is that most landowners tend to prefer high land prices rather than low ones. Of course the State can use its powers to buy land, without landowner consent, but a land valuation precedes such an acquisition.

The valuation process is pretty straightforward. As per regulations and case law, the State identifies what the land is to be used for. If the future use is housing then the land is valued as such. Housing is a high value land use, irrespective of whether the landowner wishes to sell and this inevitably poses a challenge to the New Civic Housebuilding Model.

Notions of large scale land assembly at agricultural land value seem unlikely to work  by virtue of the legal position and landowner aspirations. The only way to address this would be if the Government embraced the difficulties of introducing a development land tax or changed the compulsory purchase regulations. On this point Barratt sees little prospect of this. Indeed we perhaps share the view of the Centre for Progressive Capitalism who recently described land value taxation as a ‘theoretical silver bullet, which the UK is not currently set up to implement even if it were politically feasible’.  In this context Barratt will continue to try and drive up the building of new homes given the circumstances we face. In this regard we have increased output by 55% over the last 5 years.

Secondly the notion of a “development corporation with powers” captured the attention. Again the Barratt experience is that localism is now embedded within the UK planning system and many local communities are keen to exercise the power and influence they now have. It is often within the areas of greatest housing need where residents feel most empowered.

It seems counter intuitive to think that the new housing estates that have been successfully resisted by local residents will become acceptable to them if promoted for public housing by the new “development corporation with powers”. One thing is clear. Giving local communities powers via localism is likely to prove far easier than taking those powers away via a new development corporation.

And finally we noted that the presentation made no reference to the skills shortages that NCH will need to overcome. Barratt is in a constant battle to secure the skills and resources both internally and within our supply chain, to support our growth aspirations.  NCH will obviously face similar challenges.

So the New Civic Housebuilding idea is undoubtedly alluring. However, from a housebuilder’s  perspective, when it is tested against some of  the practical planning, legal and market difficulties of building more homes it raises significant questions which need further analysis.

In this regard it is not unusual. A similar path was trod by Tim Leunig’s Community Land Auctions idea, albeit coming from a very different starting position. Even the plan-led system, 27 years after introduction, has not driven up housing delivery despite the unshakeable belief from most practitioners that it will.

At Barratt we hope that the new Housing White Paper survives the election in tact, whoever wins. We we feel it is a positive robust document which should help us and others to increase housing delivery. And despite the criticisms of the speculative housing model Barratt will continue to remind people that in 2016 we built over 17,000 homes (of which over 3000 were affordable), we supported 56,000 jobs, contributed £674m in tax, gave work to 13,000 UK businesses and created 4,382 new school places.