The real issues for planning new homes in London

The idea of preventing (or limiting) wealthy investors – of any nationality – from acquiring London properties is folly, and a complete diversion from the real issue: we are not building enough houses.  It defies logic to make London a more difficult place to invest, when London is the self-styled home of international commerce.  That is a good thing, and fundamental not only to our economic recovery, but long-term growth.  Frankly, whether a Russian oligarch lives in his £50m pound property or not has little bearing on the average Londoner.

What does count is that we are not building enough ‘£500,000’ family homes.  That is partly a consequence of an over-reliance on flatted developments as the colour of the property owners’ passport, but also, the overall pace of development.  Flatted developments require forward-funding to make them viable.  If we don’t want units snapped up in Hong Kong (or London) property fairs, the free market or the state will need to think more laterally about how a developer is expected to fund a hugely complex, multi-phased scheme and balance the risk-reward.  And even if it is funded without foreign investment it will be substantially skewed towards smaller units.          

With a housing scheme, a developer can ‘build one and sell one’, which means the cash flow is much easier to manage. With a flatted scheme, a developer typically has the full outlay on a block without the sales returns. That is why off-plan sales appeal, as it can finance a scheme. When an entire development can be forward-sold in a single weekend (typically at an oversea property fair), it’s not difficult to see why that is appealing – but crucially, it provides the funding partner with the confidence to put the development finance into a scheme. 

If we genuinely want affordable (in all meanings of the word) family accommodation, we have to stop misleading the public that the likes of Vauxhall-Nine Elms-Battersea will make a material difference.  It won’t.  It will revive an under-utilised area of the Southern banks of the Thames, and it will result in some very smart residential buildings. but it won’t, for example, be any cheaper than existing properties in what has already become a gentrified area. 

The existing use value of any brownfield site in zone 1 or 2, coupled with the planning costs of development (s106 contributions and community infrastructure levy) create a high hurdle rate for viable development. That necessitates building to high densities, which means going upwards, and with a disposition towards smaller units. The inevitable consequence is a housing product attractive to investors, but financially prohibitive, and largely unsuitable, for families. It partly explains the sustained interest in London’s Victorian housing stock; it may be narrow cold and rickety, but it has four bedrooms and a back garden. How many of London’s next generation of flagship redevelopments will be able to make that claim?

The real opportunity lies in a managed release of employment land in ‘mid’ London, and appropriately sited new build schemes on the periphery of the City, close to existing rail and tube stations and existing facilities.  That will not be universally popular.  But If the planning system coordinates the release of these sites through development plan allocations, they can throttle the uplift in land value, and dictate the make-up of sites.  Additionally, property investors are less interested in houses, and there is equally less demand for developments that are not perceived to be in the shadow of Big Ben and Tower Bridge.

A final point.  The availability – or otherwise – of 50,000 homes in London is a great sound bight.  It represents roughly what we need to build every year to keep up with demand.  We are building roughly 20,000 homes.  That is the real madness.  

The myth of “concreting over the countryside”

The Campaign to Protect Rural England (CPRE) has good intentions – there is no doubt about that – but often they directly contradict themselves. While the CPRE often calls for affordable housing in rural areas, it has this week objected to new Government proposals that would make it easier to convert farm buildings into housing.

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All this used to be fields… ( Some rights reserved by ☺ Lee J Haywood)

A spokesman says the plans “will mean housing popping up in unsuitable locations in the remote countryside. And it’s not just the housing but the garages, sheds, lighting and fences that will come with them that will destroy the character of rural areas.” It appears wrong-headed to oppose the use of existing (and I am sure often derelict) barns, workshops and other outbuildings for housing, while asking for rural affordable housing to be delivered…where? On Greenfield sites? There are few Brownfield sites in rural areas that can be used for housing. Surely converting dilapidated farm buildings into new homes would only enhance the character of rural areas?

But this feeds into a much wider issue that has held back the delivery of new homes for decades. Every time a new development is proposed on a Greenfield / Green Belt site in the countryside, the cries of “greedy developers, concreting over the countryside” or causing endless “urban sprawl” quickly drown out the calls for new homes and affordable housing. While the younger generation find themselves unable to get on the housing ladder, the campaigners write their objection letters from spacious family homes with large gardens, many of which were built by “greedy developers” on Greenfield / Green Belt sites prior the boom in house prices that began in the 1990s.

The reality of course is this: the British countryside has not been concreted over, it is not being concreted over, and it will not be concreted over – even if the Government embarks on a house building program to rival the post-war effort (unlikely of course). In the UK, around 80% of us live in towns and cities. In terms of what has actually been built on, the statistics issued by the UK National Ecosystem Assessment reveal some clear facts:

  • 93% of the UK has not been built on.
  • Of the 7% which is classified as urban, over 50% is green space – parks, playing fields, allotments.
  • Almost a fifth of the 7% functions as domestic gardens.
  • Nearly 7% of the urban 7% is made up of rivers, lakes, canals and reservoirs.
  • Overall, almost 80% of urban areas are actually non-developed, whether that is preserved natural environments or man made.
  • Therefore, the proportion of the UK’s landscape that is actually “concreted over” is approximately 2.3%.

Of course, one can say lies, damned lies and statistics, but this does illuminate the misrepresentation at the heart of the campaigns against new homes that strangle the debate and have contributed to the housing crisis that we now face. This is without exploring the reality of rural Britain – that it is an industrial landscape formed by intensive farming and food production. There are few completely natural and undeveloped areas of the UK.

Those who are lucky enough to own homes in rural and suburban areas in the South East of England may complain that development is focused on their area of the country, but the simple fact is that London is the economic powerhouse of the UK and a magnet for talent, entrepreneurship and prosperity – our economy is not dispersed across different cities and regions as it is in France, Italy or Germany, and no Government can address this imbalance without upsetting the free market economy that all of the mainstream political parties are signed up to. Therefore, those who live in the South East of England benefit disproportionately from this economic success, and logically should accept a fair share of new development for homes, industry and requisite infrastructure.

Unfortunately, the debate over planning and development in the UK rarely touches on logic. The CPRE may have good intentions, but they have to accept that development on Green Belt / Greenfield was not and is not always a bad thing. The same needs and motivations that prompted development in the countryside back in 1953, 1963, 1973 and 1983 still exist in 2013 – and these are not going to go away.

Only 2.3% of the UK has been “concreted over”. A tiny increase in this could make a significant dent in our housing crisis, stimulate the economy, and create a more sensible planning framework based on need and evidence. However, local and national government is not delivering a consensual approach to accommodating development, and so for the foreseeable future, it will fall on the development industry to take the strain.

Only the development industry can solve the housing crisis

The main party conferences are over, and the latest Government reshuffle has quickly faded from the headlines.  Housing is a serious issue in need of attention but ministers do not appear to have a clear strategy for solving the problem.
 
Sadly, the situation in 2013 is like any other year. It has been about a quarter of a century since the UK was building anywhere near enough homes to meet its needs.  We are currently at around 100,000 per annum, while the estimate of need stands at 230,000 – not including the severe backlog.

This graph from the FT shows the huge decline in housebuilding since the 1950s, 60s and 70s:

http://blogs.ft.com/ftdata/2013/02/22/about-those-housebuilding-stats/housing-completions-england/
 
Mark Prisk, the outgoing housing minister, was very effective at making things happen according to many in the sector. But he’s been moved to make way for a more media savvy operator, which appears to be unnecessary disruption for a policy which is driven by No 10 and the Treasury in any case. It is the Government’s role to create the right environment for new homes to be delivered but locally and nationally, it is failing.
 
Despite the Localism agenda and more supposed freedom for local authorities, councils are unlikely to get heavily involved in housebuilding ever again due to financial and capacity issues.  Conversely, our councils in their role as local planning authorities are sometimes actively obstructing new development. This happens through short term political decisions to reject schemes in the face of local objections or by not getting their local plans in order and allocating housing land in the right places. Meanwhile, housing associations do good work, but are generally reliant on others for funding and represent a small proportion of the new homes that are built.
 
Therefore, the only people who can really solve the national housing crisis are the private sector. It is up to developers to push the case for new homes and infrastructure – corporately and locally.

We cannot wait another quarter century for local and national government to get their house in order.

 

Brownfield sites are the icing on the cake. They are not the cake.

This is an amended version of a letter that appeared in the Evening Standard on 21st August 2013: http://www.iceniprojects.com/wp-content/uploads/2013/08/We-need-more-than-Help-to-Buy.pdf

Help to Buy is a means to an end; but it is further exposing underlying problems in our ability to deliver the right homes, in the right locations, expeditiously and cost-effectively.

A contractor client of mine recently remarked that the residential side of the construction industry has gone through the roof post-Help to Buy. However, since the credit crunch, not only has the industry lost skilled labour, it has lost the factories and production lines to deliver raw material.  As a consequence, not only is is extremely difficult to acquire what might be regarded as elementary products (facing bricks, breeze blocks etc), basic supply and demand economics is pushing the price up.  Another client was lamenting the fact that the cost of paint required to complete an executive residence has increased since 2008 by 30%.  These pressures will be felt across the housing spectrum, and not simply the top end.

So this tells us that we are not presently geared up to deliver the homes we need.  But this is not a conspiracy set by volume housebuilders.  They are commodity based like any other industry; it’s in their interest to build and sell as many homes as possible – they become bigger, more profitable, more resilient, more capable of driving economies of scale.  Equally, the supply chain wants to make and sell more products.  

In my opinion, the problem lies in the continuing uncertainty created by the planning system, and the myth and hypocrisy that is allowed to fester by politicians and social commentators that we can build our way out of our housing crisis – and it is a crisis – by relying on brownfield sites. Especially in London, brownfield sites are the icing (and in the majority of zone 1 and 2 areas the cherry) on the cake.  They are not the cake. 

To make a marked difference in the delivery of housing, we need to show the ambition and foresight last seen directly after the Second World War.  I find it remarkable (but equally depressing) that the Mayor has been able to openly (and to an extent credibly) promote the possibility of building a Thames Gateway airport (and effectively closing Heathrow), but presumably considers it too politically incendiary to make a case for greenfield housing development on the edge of London and the hinterland of the South East.  

Ultimately, there is only one answer, but I’m not expecting to see it written in a party manifesto any time soon.  

House building is more complicated than “Use it or Lose it”

Ed Miliband’s Party Conference key note speech, in which he challenged developers to ‘use or lose’ their land holdings, only serves to demonstrate that the complexities of house building continue to be misunderstood.

Related articles

There are two types of site; those with planning permission, and those without.  In respect of the latter, if a site doesn’t have planning permission it is plainly misleading to regard it as forming part of a ‘land bank’.  Sites without planning permission can take years to promote, at considerable cost, and always against an uncertain backdrop that planning and politics can seemingly scupper it at any moment.  If a site does have planning permission, it will invariably be developed – provided it is financially viable.  That places a duty on the planning system not to tie sites up in knots of planning conditions and legal agreements, and a responsibility on developers to purchase sites at a realistic price.  However, and as an example, the ‘best value’ approach to the sale of public owned land places an unhealthy bias on securing the highest price above other objectives, such as developing a greater level of affordable housing.  Equally, some of the most puzzling land acquisitions leading up to the economic downturn were undertaken by quangos acting in the public interest.  Most developers are canny enough to know what the correct price point is, and don’t pay above it.  They then seek to secure a return on their investment as soon as possible – which means getting on with building sites that have planning permission.  Is it really credible to believe that the public sector can do a better job, when cashed-strapped local authorities have been cut to the bone, and already rely on external consultants for more specialist services?

The development industry probably poked a collective finger at the TV screen when Ed Miliband was in full flow, but it remains the case that the industry has got to get better at explaining the complexities of its business so that off-key political pledges have less chance to manifest.  Its misleading to the public, and ultimately detrimental to addressing the housing crisis.

Fight to Save England’s Beauty?

It is ironic that The Sunday Times chose to print and report a letter of endorsement of the CPRE’s ‘charter to save our countryside’ from a collection of the Country’s literati in the same week that it also highlighted the MoD’s intent to sell the Household Cavalry Barracks in Hyde Park. The publication of both serves as a magnifying glass on the difficulties facing planners and developers in meeting our national housing requirements.

The basic premise of the CPRE’s argument is not new.  The Government is giving preferential treatment to ‘virgin’ (it’s always evocative) greenfield sites over brownfield options (factually not correct); there are numerous empty homes up and down the country waiting to be put to use (ditto), and; planners and developers have no imagination (quite a generalisation).  The typical claim is that much better use should be made of ‘derelict urban sites crying out for investment’, and that we should be building affordable homes in the right places, rather than executive homes.

Which brings me nicely to the Cavalry Barracks.  The Sunday Times speculate that the six acre site will probably have a market value of circa £500M, which (as ridiculous as it is to say) doesn’t seem unlikely based on comparable land values in prime Central London.  Taking a rudimentary rule of thumb, the Barracks might deliver in the order of 800 homes.  That equates to a pro rata land value of £625,000 per unit – and that’s before a single unit has been designed or built.  It’s also before a single penny has been contributed to the Mayor or Westminster City Council through financial contributions (obligatory).  So even if an altruistic developer were to purchase the site and to provide them all as ‘affordable’ dwellings, there wouldn’t be a single unit available for less than seven figures.  A much more likely scenario is that any development will look to outdo the performance of One Hyde Park, which has seen price per sq. ft. levels exceeding £7,000.  So a 700,000sq.ft. two-bedroom flat could cost about £5 million. And that’s before anyone questions the social cost of one of the Capital’s favourite landmarks being permanently lost to redevelopment.

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I have never disputed the strength of the CPRE’s conviction, and I continue to maintain that they are the best organised, and most effective property pressure group bar none.  But the picture depicted in the Sunday Times article is just plain lazy.  For example, we are told that the Country is about to embark on an unprecedented, and excessive, construction programme.  Firstly, it is not unprecedented.  We managed it after the Second World War when the Country had come through a much greater crisis, and the housing stock delivered during the 1950’s continues to be recycled to provide much needed accommodation for hard working families up and down the country.  Secondly, it is not excessive: the homes we need to build are the homes we need.  What a luxury for some of our fabled writers and artists to complain about their changing landscape when at least three generations (the last, the current and the next) cannot get on the housing ladder.  How many of the signatories to the CPRE’s campaign cannot afford to buy their own home?

The likes of the Cavalry Barracks are clearly exceptional instances, but I have yet to see a brownfield site deliver a combination of more family units, more affordable accommodation, provide more investment in infrastructure, including health and education, than a greenfield alternative.  They are very rarely executive enclaves, whereas many brownfield sites becomes just that; that is often the price of regeneration.  The country urgently needs the property industry to put forward as powerful a case for development as the CPRE makes for preservation.