Please please please Letwin get what I want

It would be the first time. So, are we all enjoying the post-budget lull? It is quite possible that Philip Hammond will be off our TV screens for a little while (at least on things relating to his brief) as the world returns to worrying about Brexit.

In my previous post about the budget I tried to outline why I would be concerned about any policies announced that would have a long lead in time. Frankly, I’m worried the government, in its current iteration, won’t last long enough to bring in the longer term policies it announces.

So the news that a major part of the “housing budget” will be another review into turning planning permissions into homes, this time chaired by Sir Oliver Letwin, is a particular worry. It has been given a short period to assemble and write up its conclusions, with the demand that it should have published the results by the Spring Statement (March 2018).

Even then, it looks like a tall order for the government to stay in its current guise. Who knows what might happen in the next few months and, as experience has taught me, I won’t be celebrating any positive policy changes until they are enacted or implemented.

Of course Sir Oliver won’t have to necessarily commission new bits of research, he could just look into what has already been proposed and choose some options. He could look at the Barker Review, the Calcutt Review, the Lyons Review, the most recent Parliamentary briefings on housing supply, their own white paper and the Farmer Review, looking into skills shortages and demographic change. Plus plenty of others (feel free to tell me your favourite!).

Indeed, Sir Oliver has a veritable smorgasboard of options available to him. What needs to happen is for the government to actually take some of them and implement them. Which is where the problem lies.

For the government seems very keen to offer further demand measures whilst not really combatting the need for supply. Put simply the government’s approach since at least Eric Pickles’s days has been to force councils to release more sites whilst posturing and taking tough to housebuilders whilst doing very little to change the market to strongly incentivise or directly create steel toe capped boots on the ground. This has led to the situation where developers have lots of options on which site to choose, but no time or incentive to actually build much faster than they are already.

This approach was evident once again in the budget, with limited support for council building (£1bn seems like a lot of money but it spreads very thinly over the country) and lots of loan underwriting and guarantees. As if all housebuilders need is the final push to get them over the line on individual sites. If only they had share issues or assets they could borrow against.
It’s actually been a common point of my last few posts- political will is required to move beyond this and that means deciding to directly impact some negatively in order to help others. It’s as true with unrepentant city centre drivers as it is with housebuilders.

Trying to capture and reinvest land value uplifts (which is rather popular at the moment) would stop those who have land to sell from receiving the full market price. Robust compulsory purchase order powers (or use it or lose it), joint partnerships or new homes corporations will take business and/or profits away from existing housebuilders. Reducing house prices (however that is achieved) or reducing the rate of growth of house prices would impact people who already own homes.

Indeed, what the government seems incredibly shy of is actually using an arm of the state to directly build homes at scale. Yes, local authorities have been very adept at setting up joint ventures and yes, the government has some small scale schemes like the accelerated construction scheme. But at present these don’t add up enough to a significant market intervention. More funding, especially to cover start-up costs (you’d hope building would be self-funding quite quickly) are required in order to allow one bit or another to build at scale in a way that competes with existing developers.

There’s a word for this kind of decision making. That word is politics. Politicians are accountable to us as voters, but that isn’t the same thing as them needing to please each individual person by each individual decision.

So Sir Oliver, and by extension the government, don’t have to venture very far to solve the particular puzzle of increasing housing supply. Indeed, they have everything they need.

What they want to do, and what they are struggling to find is a way is to achieve, is creating supply without upsetting anyone else, particularly existing homeowners, landowners, landlords or those whose supposed purpose is to build houses on land. But in the real world that is very often simply necessary. It’s a puzzle of their own making, in their own heads and if they could see beyond it they would be able to deliver positive changes.

We’ve come full circle in a way. The government need to make a decision; they have the policy options laid out infront of them. But choosing not to choose is about the worst thing they can do. More delays and half measures make building the right homes in the right places at the right prices significantly more difficult.

The choke chain

It is a provocative title, but give me a few minutes and I’ll try and explain why I think there is a worrying trend in policy making.

Why am I comparing a government policy to to a particularly nasty type of canine control? Well, a choke chain gives a dog the sense of freedom, but the owner can at any time pull the chain and bring them to heel.

In the policy version of the choke chain, one part of government gives power to create a policy to another bit of government, but retains a power of oversight and strict, almost self-defeating, conditions. This allows them to argue that they have also passed responsibility to the other party, but I’m going to try and show that this isn’t really the case.

It is probably best to give you some examples early in this one, as without them it can sound pretty theoretical.

As part of their long-ranging (and failing) attempts to reduce the overall benefits bill, one of the measures put forward by DWP was the localisation of Council Tax Benefit. Under the old Council Tax Benefit scheme any household could receive a discount on their Council Tax up to 100% of the bill.  Under the replacement, each individual local authority has been given the ability to design its own Council Tax Support scheme.

Now, councils are often asking for powers to do things. The LGA’s unofficial motto is “Council’s could do this better, just give us the money”. And herein lies the rub, because the government didn’t fund Council Tax Support at the same rate as Council Tax Benefit. In the first year they took a 10% cut.

This meant local authorities had to not only design their own scheme, but that scheme had to cost less than the previous one. What’s more, central government insisted pensioners had to be protected and couldn’t lose one penny compared to the previous scheme.

This was a challenge every local authority had to grapple with. Who is the cut passed on to? Those looking for work? Those in work but on low incomes? Those unable to work due to an illness or disability? Councils could have chosen to put extra resources into Council Tax Support, but where would that money have come from?

At the end of it central government could step back, see the mess and pain the policies had caused and criticise local government for what they themselves have created. They stated they had given away policy making power, but the conditions that they set doomed it to failure (or at least increased hardship for somebody) from the start.

In the second example, I’ll need you to cast your mind all the way back to early 2017. The government at the time, in between Brexit court cases, was compiling a housing White Paper. Every so often there was a flutter of suggestion that policy on the green belt might change. Indeed, in November 2016 Sajid Javid –in front of assembled housebuilders– announced that the Birmingham local plan had been released from department imposed purgatory, even though it used a small amount of green belt land.

The government could have chosen to undertake a review of the greenbelt. It could have issued clear guidance that it would accept greenbelt reductions or replacement across the board, effectively (prepare yourself for the metaphor) unbuttoning the belt one notch. It could have set a clear test for the quality of greenbelt land, removing some of the lower quality scrubland and replacing it with decent land that is worth saving. The rumours persisted, and therefore we must presume so did the discussions in central government, right up until the white paper was published.

Now, I’ve tweeted recently on the green belt and I can understand it isn’t the topic where the most rational and reasonable debates take place. I can only imagine what it is like in central government, particularly between Conservative ministers who represent rural, semi-rural and suburban areas. Actually making a decision on changing the green belt would be brave, but those were the rumours.

The final answer in the white paper was boring and unhelpful: only councils can set their green belt boundaries and they can only change this if they have considered everything else. In essence this was a clarification of the existing policy.

But they added something else: woe betide any council that is considering even Birmingham-style green belt changes, they are unlikely to get the support they require from the Inspector and the Secretary of State unless they can show a lot of their working, catch them on a good day, have support of the local MPs and local planning groups, etc.

So councils have a duty to assess the housing need in their area and set what land should be used to meet it. But with only a very limited power to change greenbelt boundaries all they can do is push harder and harder on every other area (including land that is green field but not green belt), intensifying proposed development and increasing density until something pops. It can look like rearranging the deckchairs.

What central government has retained is the ability to sit in judgement of plans, perhaps occasionally letting the odd very hard case through, but can argue that failures to meet housing need are council’s fault, denying them one thing (a thorough, national review of the green belt) that could make a difference. They can play one council off against another whilst maintaining a holier than thou attitude to green belt use. Local authorities have to make the hard decisions and central government is there to chime in with any criticism for a scheme they have effectively implemented. When councils don’t have enough land for development, this will allow the planning inspectors and Secretary of State to open the floodgates for all “sustainable” development short of green belt use.

That said, and as a postscript to this example, with so many councils now looking at a higher housing need, we could see this issue re-emerging on a national scale, even in conservative areas.

The final example is the most up to date and one of the most fundamental failures of central government to live up to their responsibility. Court after court after court have told the government it needs a clear plan on improving the air we breathe.

With a self imposed election looming central government tried to get out of publishing their detailed plans but eventually had to give something.

Why is this so hard? Well, the only policy many people think will make a difference on congested roads is limiting or charging for vehicle use in the worst areas. So it may be the only option in policy terms, but it is ironically toxic to political popularity. Telling people they cannot drive their cars where they want (or, more accurately cannot drive their cars without being charged for it) is understood politically to be almost anathema to a wide variety of voters.

So what did central government do? Instead of biting the bullet itself it demanded councils come up with a plan, but made it clear that banning or charging for private cars (in particular diesel cars) are the very last thing they want to see. They’ve said they will only accept that if they can be convinced there are no other solutions.

In essence, the government is trying to both insist on the only practicable policy but also prevent it from taking place. They certainly want to be able to criticise anyone brave enough to make a decision that could make a difference. All because they don’t want to be the people to upset car users. This is, I predict, going to lead to more court cases (which even the government will expect to lose), more time wasted playing pass the parcel and more damage to the environment.

Each of these policies on their own are interesting. But as a whole they add up to something concerning. Setting other people up to fail is one thing, and should probably be expected in politics, but the consequences of these policies are, respectively, increased poverty, inadequate housing and environmental destruction.

Pretending to give away power but setting significant and insurmountable conditions, and retaining oversight to stop those brave enough to try and call their bluff, means the most likely outcome is failure. Benefit cuts will be passed on to hard pressed residents, who will then rely on handouts (because reality is complicated), councils will shy away from changes to the green belt , meaning homes either won’t be built or already densely packed areas will become more so, more time will be wasted going backwards and forwards trying to get decent environmental policies that may make a difference.

Right now I would be highly cautious of government ministers bearing gifts. This even goes so far as to be a little cautious of devolution, which to be fair doesn’t usually come with such significant constraints as the policies I have been talking about.

If government is serious about passing policy making power to other groups it also has to be serious about giving them the free hand to make the changes that are required. If it only wants people to implement its decisions (benefit cuts, maintenance of the green belt, limited action on climate change) then it should be honest and open about it.

You break it, you OAN it

It’s almost as if someone in DCLG was reading my blog. No sooner had I written on how the government made planning significantly more complicated by “simplifying” the regulations and guidance on objectively assessed housing need (OAN), do they turn around and announce they are proposing to change the way housing need is calculated.

There are effectively two problems I am going to look at in this post. The first is societal- not enough homes being built, in the places where people want to live in them, for a price they can afford to buy, or in many cases even rent. One of the positive things to have happened in politics in the last couple of years (and this is through significant campaigning from organisations and journalists) is that this is no longer any serious political disagreement on this point.

The second problem, as I mentioned in my previous post, is that the assessment of housing need is currently mired in ambiguity and complexity and can lead to bitter and acrimonious disputes lasting years and taking millions of pounds of public money to resolve, and then only temporarily.

I’m going to argue that resolving the second problem is a step in the right direction, but without other significant changes it will not go far enough to relieve the real-world problems caused by a lack of housing supply.

To properly understand this issue, we need to understand what roles councils currently play in creating new housing. Sometimes media reporting on this issue suggests that councils are going to be “forced to build more homes”. For Local Authorities demanding to be given the powers to actually build a decent amount of council homes that’s a pretty hackle raising misunderstanding!

Local planning authorities (for the most part local authorities, but there are some National Parks and the Council of the Isles of Scilly thrown in for good measure) have, as part of the local plan process, to objectively assess the amount of housing need required in their area. As I’ve already spoken about, they weren’t given clear direction on how to do this, so many went off and did the best they could with limited information from central government. What they were given was a thorough inspection by the independent Planning Inspectorate and then the Secretary of State at the end of the process. Councils who had picked a number out of the air or used a dodgy methodology were sent away to have another go, at considerable expense.

This open ended process meant that any Thomas, Richard or Harold could, with the help of the back of an envelope, come up with what they believed to be a convincing methodology and assessment of need. On the other hand, many community groups go to significant lengths to come out with something just as detailed and intricate as the local authorities, just with a different end result. The housebuilders, unsurprisingly, often had their own ideas about how many homes were needed in an area and the resources to employ both demographers and legal representation at the Inspection. Inspectors were therefore having to consider, reflect upon and decide whether the Local Authorities version was sound, or whether someone else had come up with something better.

The system (or lack thereof) didn’t work, it created acrimony wherever it went. A large number of authorities, particularly in rural areas, simply played for time to avoid getting round to making a decision.

Councils also had to make sure that there was enough land available (effectively set aside for housing) to build the proposed new homes. But this wasn’t just their own land and indeed there are lots of landowners who would be happy to see a significant increase in the price of their land if it was designated for housing. Community groups were, by and large, less happy with development in their area and generally wanted development limited to only the most obvious places, such as brownfield land.

But planning decisions haven’t been on hold through this period and developers, as is in line with their economic interest, have been using the uncertainty and disagreements to push forward on planning permissions for sites that aren’t currently designated for housing. In actual fact, the ambiguity in methodologies and vulnerability of authorities when they don’t have a plan means precisely that developers have had more power than they would have otherwise. I’ll leave a question here for later- if that’s the case why doesn’t that mean more homes are being built?

The new proposals replace the process of each planning authority setting its own methodology with one unified way of setting the objectively assessed need. It’s still complex, but you need GCSE level algebra to understand it, rather than the highly specific postgraduate education required to understand some of the methodologies under the old scheme. It only requires statistical information that is publicly available, so anyone can double check a council’s working out.

It matters that the government have used affordability (the ratio between house prices and average full time earnings) in the area as one of the key determinators of the new numbers. In all honesty, I don’t think this is a methodology that would have passed muster with the inspectors under the current scheme. It is very definitely a very different calculation and comparisons between these and the current figures aren’t really possible. This means it’s not that the old figures were “wrong” and these are “right”, they have just been calculated differently.

The government’s proposal flat out states that this is to boost overall homebuilding across England to over 266,000 new homes a year. They’ve worked backwards from this, using household growth statistics and the affordability ratio to come to the figures they have announced. They’ve effectively distributed the 226,000 around the country based on household creation and a proxy for housing affordability.

What this way of doing it means is that the government can publish (and indeed have published) their own estimations of what this means for each local authority. It makes for interesting reading.

(I’ve had a little play with some of the information. There is a little bit of complexity with the data in that some of the authorities current needs are ranges. In these cases I have taken the higher amount, as I somewhat cynically believe this is what developers would be arguing for at appeal.)

Because of the way the government have compiled the statistics, local authority areas that have relatively low house prices and/or higher relative incomes end up needing to provide fewer houses than they may have thought. This is particularly clear where authorities have previously used employment growth as part of their methodology, as it plays no part in the new proposed calculations. Big decreases in compared to the previous plans are seen in the outer London Boroughs of Hillingdon  (2,846 a year lower) and Croydon (1,036 a year lower). Large towns and cities with growing economies and people commuting in such as Birmingham (Council- not the whole city, 837 a year lower), Oxford (854 a year lower, halving their housing need) and Leeds (1,011 lower a year) also have big reductions as employment growth is no longer a direct consideration.

The areas with major increases are mostly in London and the South East. The top 11 authorities for increases are in London, from Brent (an extra 1,029 homes a year) to Greenwich (a whopping 2,967 more homes required a year). As you’d expect, high house prices and mixed incomes seems to be the order of the day as you look at the areas with large extra allowance. It’s a quirk of the methodology that Croydon is in the areas with the biggest reductions, but neighbouring Bromley has one of the highest gains.

It’s also worth stating that there are a fair few authorities that don’t see a significant change. Around 130 authorities (out of the just over 300 that are countable) have a change that is less than a hundred homes per year, either as an increase or decrease.

Overall, there’s a mixed picture, with approaching half of the authorities actually seeing a decrease. More Northern areas are seeing an decrease and those in the South East particularly are looking at an increase. This isn’t hard and fast, but it is noticeable enough when you look through the list. So we have to ask if trying to push more and more homes into a limited space in the South is a sound policy, especially when compared to working harder to rebalance the economy so demand is more spread through the country.

But what does this mean for housebuilding? Well, local authorities will still have to allocate sites to meet this new housing need. This is still going to lead to upset amongst local communities and it may fracture joint working between community groups. Under the proposals there would be no way they could work together to claim the OAN is wrong. It’ll be a case of which land should be allocated. The residents of Petertown and nearby Paulville will be in competition to avoid housebuilding in their patch, not working together.

But even then, if land allocations and planning permissions go through the roof, does that mean we’ll see new housing?

My short answer is no. Planning permission in England is a right, not a responsibility. Buying a book doesn’t mean you have to read it. Gaining planning permission doesn’t mean you’ll build homes immediately on a site. Other countries do it differently and I wonder if we should be more willing to look at what has evolved elsewhere, rather than tinkering at the edges of our own system.

Back in the bookshop, you might find there’s an offer on and buy quite a few of the larger tomes. You won’t worry that you can’t read them all at once, they can sit on the shelf until a time of your choosing. Similarly, get the principle of development agreed for a site and you can sit on it for as long as you like, until one day, when the time is right, you can cash it in.

Indeed, there’s plenty of reasons housebuilders don’t build at the rate the country needs. Some of them are wholly justified- land remediation, skills shortages, capacity of the individual company and whole sector.  Anyone looking to develop the site would have these issues.

Some of the reasons are totally logical and rational from the point of view of the company- they want to maximise their profits, they want a long term pipeline of developments so they can plan ahead, they bought when there was a sale to be had and will build when the price is right.

To put it another way, land supply is a factor of housing supply, but it isn’t the only one. With relatively few very large housebuilders the housing market looks nothing like the “perfect” competition found only in economics textbooks. This means an increase in a factor of production won’t necessarily mean anything to the amount of new homes actually brought to market. Housebuilders control the supply and housebuilders have a significant incentive to keep prices high in order to maximise their profits. What about this change is going to affect that?

What’s more, because house prices are part of the proposed calculation, by building slowly and keeping prices high they will be able to keep the floodgates of planning permission open. I’m not saying this will make a massive difference, but this change tips the balance even further towards the developers.

The need to actually build homes discussed, at length, in the government’s White Paper from earlier this year.  The White Paper sketched some minimal ways of trying to do something about the issue, including using applicant’s track record on similar sites to make a decision and some compulsory purchase powers for councils to use when sites are stalled. These ideas, as minimal as they are, are not included in the current consultation and it will be interesting to see if they think they can bring them forward at the current time. The consultation does ask for ideas for what they can do to achieve this, so feel free to tell them!

These are still proposals and up and down the country there are going to be some elected members, community groups and individuals, many of them Conservatives who won’t be happy about it. Pressure, both formally through the consultation process and informally at constituency meetings and in Westminster will add up. How likely you think this is actually going to happen depends on how likely you think the current government can push through changes that alienate their own base. If it falls and we are back to square one, we are back with the messy, frustrating and endlessly complex system of competing methodologies. It seems to be risking a lot on a low chance of success.

So, for me, it’s the sound of one hand clapping. Sorting out objectively assessed need is important and it is right for the government to resolve this. But trying to link it directly with new housebuilding is making the same old mistake of linking land supply and housing supply. It isn’t that simple and no-one should think it is.

It looks like they have been simultaneously too ambitious for what can be achieved by amending the OAN and not ambitious enough when it comes to other measures to actually build the homes we need. I’ll be happy if they prove me wrong.