Housing need, a fudge sandwich?

I like fudge. Gooey, sweet, caramel fudge. Some people don’t and that’s fine; it pulls out fillings, it gets caught in your teeth, some say it is just too sweet. But just like blu tack is the best thing to remove blu tack, fudge might be the best thing to deal with fudge.

What am I talking about? Well, we’re back to the perennial issue of identifying housing need, something I’ve been writing about from almost the start of this blog. Here I am calling for a more clear-cut way of calculating need, on the consultation to do exactly that based on a new methodology and here I am taking those to task who try and conflate the draft methodology with anything in the real world. My conclusion- yes it is a fudge but a fudge that provides a much higher level of certainty. With the fudge councils can go off and set local plans that can be enforceable and create plan led development rather than the alternative, which is untrammeled development.

Today the government has announced a new consultation because things haven’t exactly gone to plan. The methodology used by the government relied on two numbers. Firstly the household formation projections- which are made by the office for national statistics based on past trends. Secondly and more importantly the outcome they wanted to see, which had been created by a range of different papers and political debate.

It is important to understand this second number isn’t exactly scientifically derived, just what we as a country have in effect agreed upon as the need for new housebuilding. It went from “between 225,000 to 275,000 or more new homes a year” to the snappier “300,000 homes a year” last year.

So the equation created by civil servants sought to use the household formation figures to get to the conclusion they wanted to see. They achieved that last year by multiplying the household formation projections by another number worked out from housing affordability in the area. Oh, plus some coefficients to make it come out with around the right number. Seriously, here’s the text:

I didn’t mind this, I still don’t. I like fudge. Why? Because it gave certainty and clarity; planners could get on with planning. Really, without getting too maths-y what it meant was that the household projections and housing affordability became a way to divvy up the nearly 300,000 homes a year the government had somewhat arbitrarily decided were needed between different areas. The real politics was how that divvying up affected different areas, as I spent much of the first blog on the methodology looking at.

But now the household projections have altered, with a significant reduction compared to the last lot. There’s a couple of reasons for this, one is because people haven’t been forming new households as much in the last couple of years (the real change) and secondly because the ONS have changed the way they calculate bits of the statistic.

The equation cannot handle this change; it wasn’t designed to. It worked because it came out with the right answer in the first iteration, not because it was describing reality. This meant many areas would have seen massively different (and massively reduced) housing targets, something that isn’t in keeping with the general consensus (with some very vocal dissent) that an increase in housebuilding rates is required.

So here we are, with the news that there is a new consultation saying two important things:

For now, the most recent household projections should be ignored, in favour of the previous ones. Anyone using the most up to date figures will be in serious trouble (ie. not able to adopt their preferred local plan).
The government will, within roughly the next 18 months, come back with a different methodology to replace the current one, because to be honest there are lots of red faces trying to avoid the glare of ministers.

This is embarrassing and for anyone who thinks objectively assessed need should be um, objective. But I don’t, I think it should be a good enough guess that provides enough certainty for the real business of planning to get going. To put that another way, I don’t think every authoritiy will exactly hit their target, so we should probably stop worrying quite so much what the target is and work out how to try and accelerate appropriate housebuilding if that is what we agree should be hapenning. Worrying about numbers on a spreadsheet to the detriment of well planned communities is foolish. So let’s try to not get too worried about our fillings and enjoy our fudge whilst we can.

In time (before the 2018 household formation statistics come out) the government will have to consider a new way to fudge the figures. It would probably be best if they came up with something a little bit more robust. Until then, keep chewing…

Balance, imbalance and the politics of planning

I’m back at home but it is still August. Unless you take an unhealthy interest in Brexit (and, let’s face it, nothing about Brexit is healthy) there isn’t much else going on in domestic politics. But don’t worry, because here come Lichfields to brighten our week!

In their new report Refused for good reason? the planning consultants look at where planning committees have overruled planning officer advice to refuse an application and this has subsequently been appealed to the Secretary of State. To do this they’ve looked at every instance where this happened for middle to large size housing sites (>50 dwellings) in 2017.

This approach, it has to be said, leads to some major caveats. To their credit, each of these is covered in the text of the report. There are only 78 results, meaning all the subsets are also small-ish numbers and meaning we shouldn’t get too hung up on differences between outcomes in case it is just a statistical blip. It excludes appeals where councils haven’t made a decision in a set time and developers (as is their right) have chosen to go above their heads. Canny councils can do this to avoid such censure -although there is a financial penalty- and it can just happen as time and a developer’s patience runs out. The focus on 2017 is a snapshot, most of the original decisions will be from around the same time (2015/16) so there may be some underlying issues or similar conditions that come from that particular moment in planning- most notably this is before the government started talking seriously about forcing councils to have local plans at all.

There are some headlines they pull out from the numbers- firstly that where councillors have overruled planning officer’s recommendations they are more likely to be overturned at appeal. 65% of the 78 cases where councillors did their own thing against officer advice lost on appeal, compared to 40% when the advice was to refuse and councillors dutifully refused. In 71% of the cases at least part of the appeal was about a 5 year housing land supply, either because there was disagreement about whether the council had it or agreement that they didn’t. Decisions concentrating on technical matters like landscaping were more likely (although still less than even odds) to be successfully defended than highways (74% overturned). Councils without a post-NPPF local plan did just about as well as those with one- what seems to matter more is the 5 year housing land supply position- a requirement of the NPPF which means local plans can be seen as ‘out of date’.

All of that is helpful to know, but for me the report gets a little bit harder to understand when it starts trying to bring in an idea that this relates necessarily to the quality of decision making. Maybe it is worth taking a step back or two here and thinking about planning applications and the process they currently go through.

Let’s say a developer puts in a planning application for a large site. It might be on land designated for housing in the local plan or they might be chancing their arm and trying to get permission for the site outside of the plan. Or there might not even be a plan, certainly not one made since the NPPF came out in 2012 (do we call it NPPF1 now?) . A planning officer will sit down with the developer most likely a number of times, to bash out the scheme and see if it will fit with the local and national policies, including the infrastructure requirements that they think should be in place to facilitate it. Things like roads, medical services, school places or indeed a school. And if we’re really lucky, affordable housing.

The officer bundles all this up in a report and takes it to the planning committee composed of councillors. There are delegated decisions as well but we’re thinking a big scheme here, so let’s assume it is made by the committee. The committee is meant to look at all the issues, balance them against each other and come to a decision on the merits of the application. Key factors will include whether the council is seen to have a 5 year housing land supply and whether other policies in the local plan have been met. Inevitably design and infrastructure matters will be part of that discussion. The committee will then vote on the application.

If the application is refused the applicant has the chance to appeal. At it stands, no similar right exists in reverse- granting planning permission cannot be appealed (although it can go through judicial review). A planning inspector (eventually) swoops in and hears all the evidence again, takes all the factors and balances them on their own merits. They make a decision and then the secretary of state ambles by and decides whether to change that decision or leave it alone. Past this point only judicial review can change a decision.

So, first things first, there aren’t three distinct layers of public decision making. There are four. The secretary of state can and does overrule their own planning experts in much the same way planning committees do. This somehow gets shuffled out of the report, which makes it sound like the answer given on appeal is not only the final answer (which is true) but is also the right answer (which is debatable).

If planning committees are occasionally subject to whims, odd (but not necessarily unreasonable) balancing of factors, deciding an answer first and then writing a report to justify the conclusion and bringing electoral factors into something that should be free of them, then secretaries of state are also right there alongside them. This not only means we should be careful about giving reverence to appeal decisions, it also means we have to try and consider what planning committees were doing when they refused a decision against officer advice. Perhaps they thought the Secretary of State might somehow come to their aid? Perhaps they thought they had a good decision, even against officer advice- perhaps even the planning inspector agreed with them, but the Secretary of State used their power to make the very final decision.

It is also true that planning officers are likely to be more in tune with the financial costs of losing an appeal and less aware or interested in the political costs. I’ll reverse that- politicians (especially backbench politicians from non-majority parties) may not be overly interested in how much an appeal costs but hugely, massively interested in how voting for or against an application makes them look. That’s politics, it is the nature of the beast that members have constituencies that they need to either placate or impress in order to stay in their job. Spending money on a hopeless appeal is money well spent if it means that they don’t look like the bad guy.

There’s also an issue when it comes to the interaction of the local plan and individual planning decisions. The local plan is adopted by all the council members on a majority vote, but in reality it is put in front of them by the executive (whether this is a cabinet or committee system). So the local plan, through all of the consultations and discussions around it, up to an including the examination in public, is a document that the executive has signed up to and, in the final analysis, is the one that they can rally enough support to see it through the full council. Let’s be clear, majorities have waned, council leaders have fallen and all heck has broken loose trying to get local plans through to adoption. But when they achieve that it doesn’t mean that hell is back in its box. Members of a planning committee who didn’t like something in the plan, the housing targets (and therefore 5 year supply) most obviously, but anything else in reality, might choose to ignore the officer advice which is predicated on the plan. Again, this may be a way of making a specific development ‘someone else’s fault’- in this case the executive, the planning inspectorate and possibly the secretary of state.

I suppose the last two paragraphs come to the same conclusion. Perhaps appeal overturns of this kind are more about politicians being politicians than politicians being ignorant or untrained? Politicians manage risk and responsibility, they reflect, moderate (sometimes) and amplify community views. If planning is a political system, and our current system is deeply political, then this is one outcome.

Another point mentioned, but slightly glossed over in the report is that the types of applications may be very different in different areas. I’ve talked before about the principle of development and how in essence once this is confirmed it is very hard to lose it. You can achieve this for an individual site by getting it included in the local plan or by getting planning permission for it. You are more likely to get planning permission for an unpopular site when areas don’t have a 5 year housing supply. Take a developer or land speculator who has options on a number of sites in an area, some included in a local plan, some not. Which do they make an application for? They can bring the local plan site forward whenever they want and make a profit on it. But the site not in the local plan gives them an opportunity. This goes before the planning committee and the officer making a recommendation ruefully says it is probably acceptable given the 5 year housing supply position. The committee may refuse this and off it goes on appeal- where it will more than likely be overturned given the local housing supply position.

In an area with a 5 year housing land supply this is unlikely to happen, so the developer will bring forward a more acceptable site. Those going to appeal are likely to be where the developer is, in one sense or another, extracting the Michael so it is more than possible the appeal will support the committee’s view.

Nothing about these two outcomes can be solved by members undergoing additional training or by publishing outcomes. A more structural change is required, either to step back from the “5 year housing supply is the only important matter” ethos (which now combines with the housing delivery test) or to double down on it and make clear that when a 5 year housing supply isn’t shown there is simply no point refusing applications on anything but the most obvious grounds.

Maybe there’s a better way to put that- planning committee members feel that they can make individual decisions on individual applications, even when they don;t have a 5 year housing land supply. That is, at least theoretically, a lynchpin of our planning system. But the focus on 5 year housing land supply and now the housing delivery test effectively overrides almost all of the individual decision making. If that’s honestly the case then is it worth saying this outright in the NPPF or is there some merit in still being able to take out the worst applications? If it is the latter then we are going to keep seeing this outcome- planning committees not following officer recommendations and this being overturned at appeal.

Almost all the changes outlined by the report: better reasoning by committees, cooling off periods, better statistics and training are all fine, but don’t change the key issues I’ve outlined. Politicians and officers are in different roles and have different incentives, they will come to different views. The 5 year housing land supply and housing delivery test are tools of the government’s making specifically to increase housing supply. Some comeback on that is required and, if so, might be an unfortunate but necessary part of the system as it stands.

Two proposals are a little bit fractious. Firstly, Lichfields the independent planning consultant suggest that councils should use independent planning consultants to help them in hard cases. Well, they’ve got to pay for the report somehow! I’m not convinced, given what I have said above, that another view is going to make a huge difference in a large number of these cases. It could in some, but if an officer is already advising approval then another person coming along to check their working isn’t necessarily going to sway a committee.

Secondly, they suggest changing when a council can be in a form of special measures. That means the secretary of state can make decisions directly themselves without worrying about the whole rest of the planning system, local democracy or so forth. There’s a reason this is barely used in practice, it is cumbersome, undemocratic and time consuming and (coming back to politicians managing responsibility) means that they are the bad guy rather than the local planning authority. 7 years after the NPPF first came out and we are only just getting to the point where the secretary of state is intervening for a few authorities that don’t have a local plan. Changing the definition of what is an isn’t failure won’t change that political calculus.

Having a system reliant on individual applications, seeking to decide each case on its own merits against local and national policies sounds positive. But what Lichfields have done is tease out one of the messier bits of it. Local politicians, national politicians and officers at both national and local level are going to disagree. Once you lose the pretense that there is a “right” answer it gets even messier. My view is we need to either embrace the mess (knocking off sharp corners where possible) or change the system fundamentally.

A fundamental change will either mean shifting the balance towards democratic decision making (with all its foibles) or towards technical, policy based decision making. The former has the potential for exacerbating the housing crisis, the latter removing democratic controls. It is our choice.

Po-tay-to Po-taa-to, Letwin’s latest

Housing reports coming from all angles- how can a naptime blogger cope? Well, if you’ll let me, I think I will concentrate on the recent update from the Letwin review (or “build out review” as it is now apparently named). This is because it is the one commissioned by government and so the one with the highest potential for serious reflection from them.

If you’ve read my previous post on the launch of the review, you’ll know that my main concern was that we already had a welter of reports, reviews and recommendations from industry insiders, academics and politicians. What I would argue we haven’t had is the political will to redress the balance of power and financial flows between the different groups of people who are involved in the process, whether that is landowners, developers, housebuilders, prospective owners, prospective tenants, local communities or so on. This doesn’t mean that the state is being neutral, merely that it was not yet willing to actively change the existing rules; benefitting those who are already benefitting at the cost of those who were not.

So what is the latest from the review and what policies does it mean he might be coming out with in the budget? Is there a sea-change on the horizon or am I mixing my metaphors?

Sir Oliver has been to see some larger sites, including spending a trip visiting three locations in Cherwell. Indeed, outside the Ledsham Garden Village in Cheshire and a statistically fruitless trip to Solihull, the furthest north he went was Cambridge. I’m not one for drawing a random north south divide on a map, but that is pretty stark, justified by the draft report on the notion that the south east has the highest demand for housing.

There is a growing argument that different areas have different issues with regard to housing. What happens in London or South Oxfordshire might be different from what happens in Manchester, Bradford, Oldham or Gateshead- and they might even be different from each other.

Even with the same planning system issues relating to housing and land supply, skilled labour, incomes, access to financing (both for builders and prospective buyers) and so on will make a difference. The local planning system, especially as it is dependent upon supply (even more so if the housing delivery test comes in) makes this even more difficult to unpick. So staying almost wholly within spitting distance of London may make his statistical findings a little specific and mean he may have missed something going on elsewhere. A big elsewhere, like almost all of the midlands and north.

Indeed, Sir Oliver is now fixed on the idea of looking almost wholly at improving delivery speeds larger sites. He’s been engaged in some pretty strong mythbusting- deciding that issues like utilities, most skilled trades and finances may make some difference, but they are not fundamental to slow build out rates. He has also batted away the suggestion that developers sit on sites with planning permission without building- holding sites as an asset to be sold rather than where they will build in the fullness of time.

Whether that means Sir Oliver has disproven (not at last, but once again) land-banking is taking place something else entirely. Indeed, he tries to unpick this, but it is understandably difficult because what people call “land-banking” is so flexible and fudgey that it can mean everything and nothing. I’ve had a quick check and I haven’t used it on this blog before now, despite writing quite a few times on housing supply issues and strongly on the actions of developers. It simply isn’t a helpful term because it is used so loosely. There’s a strong argument to be made that titles are swapped around before planning permission is given, but Sir Oliver feels that this is outside of his remit.

What Sir Oliver is convinced upon is that developers drip feed homes into the market in order to hold the price of properties level. This, he argues, is because they have paid for the site based on the current market rates for selling the eventual properties and need to recoup their money and expected profit levels. Call that land-banking or don’t, it is developers using the tools at their disposals to make a profit.

Without getting overly-detailed Sir Oliver is arguing that the current method of site valuation leads to the outcome of slow build out rates. If developers increased supply they would decrease prices, make less money and perhaps fail to break even. He also argues that a lack of diversity of both design and tenure means that builders are only working in one market (broadly: high value, repetitively designed, large-ish homes for sale) which means their actions affect this one small part of the wider economy.

I can happily agree with almost all of that. I’m not wholly convinced that increasing supply necessarily reduces price in the current housing market- it is a lot more complicated than a couple of intersecting curves in a perfectly competitive market. There’s a lot of pent up demand to get through first and people tend to borrow what they can (based on their deposit and lending rates) and bid based on what they can borrow. But here’s the thing, one person who is convinced of this is Dominic Raab, the Minister of State for Housing. He keeps referring to housing affordability and the panacea of increasing supply of housing for sale to resolve this. So is Sir Oliver advocating to change the method of valuation? Er, no.

Here we cut back to my concern from the earlier post– there seems to be an explicit worry that impacting on developer’s business cases (at least for their current homes) will send huge shockwaves through the economy. We have to accept this is possible, but we also have to consider if proposing to pay £110 million bonus to a single person is a sign of a well functioning economy? Is rebalancing away from a system with so much stacked in one direction so bad? I’ll put that another way, Sir Oliver seems intent on -at least in the short run- trying to improve build out rates whilst not significantly changing the existing relationships and hierarchies between those involved.

How likely is this to be successful? Well, that will depend on the policies he comes out with for the budget. The focus seems to now be on diversifying large sites. Not splitting them up, but making them able to attract a range of tenures and making more attractive, less cookie-cutter developments.

This weeks Onward report seems to be opening the door to much wider collective work- with councils taking a strong role in joining up the dots in large scale development. There is a sense I get from Sir Oliver’s report and the interviews he gave over the weekend that he may be minded to suggest something more collective in the long run- at least for very large sites. What that might be remains to be seen. It would most likely be welcome, but trying to square the circle of increasing delivery whilst defending builders margins may be impossible. On what side he falls could make the difference between a change and none.

It very positive to see Sir Oliver talking so openly about the role of social housing and the very high demand for this across the country. Clearly, somehow separating the speed of delivery of social homes from the slow delivery of market housing would be of huge benefit, both for society and general house building. How this is achieved is quite another matter, in particular if there is a wish not to see enclaves of social housing separate from the rest of a site. Local plans (or indeed government guidance) could have set percentages of different tenure types, with design matters being even more strongly part of local authority decision making. (Yay more long planning committees about brick finishes!) How likely this is to make any positive change will actually come about in appeal decisions. If the quantum of new homes outweighs any design or tenure issues -which is often how appeals decisions can be perceived- then it is more words for little effect.

One way to try and achieve additional quickly built social homes could be allowing the part payment of the Community Infrastructure Levy (or indeed a similar development tax) to be in land (valued at existing use) or completed properties (valued at affordable rates). Developers could pass over a section of the site to be built by the authority- or indeed sold to fund housebuilding elsewhere.

And finally, how much of this actually coming about is wholly dependent on quite a few different political processes. Will the current government still be here for the Autumn budget? Will legislative changes be passed given the amount of parliamentary time needed for Brexit? Will developers see whatever proposals coming forward as a threat to their margins, even if Sir Oliver has specifically designed them not to be? How in favour are developers right now? Will there be the focus and drive for accelerating delivery when it comes to the crunch? How will any changes to social housebuilding dovetail with the social housing green paper?

I have at least one comforting thought- land is the one thing that cannot really be taken off shore.

Inviolable viability

Right, are we all enthused and ready to go? Viability is dead: long live, um, something that looks a lot like it.

Before I am accused (again) of cynicism approaching apocalyptic levels, let me first say, the fact that the government are trying to do something about viability is positive. I’ll try and get into what I think it means in a bit, but given the amount of bluster about the policies I think it is worth actually trying to get down on paper what the government are proposing.

Under the current system, many local plans include a brief sketch on what requirements a site might have for affordable housing, education facilities, green space and other bits of infrastructure. Nowadays this is split between in section 106 agreement (which is negotiable) and in many areas Community Infrastructure Levy (which isn’t). But the real tooth and nail side of what is required for a site comes during the planning application, where the need for infrastructure, followed closely by the developer’s ability to pay for it out of the eventual sale of homes is bashed out.

The developer gets to use the price they paid for the land (however inflated that is by the prospect of planning permission) and lots of other bits and bobs go into their very detailed spreadsheet to prove their point. The local authority then makes a decision based on the agreement. If agreement can’t be reached within a set timescale, or if the application is refused because the developer’s won’t budge then it can go to an appeal where an inspector and, eventually, the secretary of state can decide upon the merits of the application. Parties who feel (legally) hard done by can apply for judicial review, which can and does quash decisions and demand a rehearing.

In the new system, first proposed last year and now laid out in slightly more detail, the major discussions about the viability of sites will take place during the plan making process. I’ve written before about this process; one of the positive things about centrally suggested targets is that the massively long-winded process of establishing housing need can be removed, which would have made the local plan process quicker. But reaching an assessment of infrastructure need and viability for every site included during the process and coming to an agreement of this with developers, is going to be a huge and time consuming ask. Developers will no doubt (and quite understandably, from a business point of view) use the local plan process to try and extract the best deal for themselves at this point, rather than further down the track.

Yes, in the end it is the local authority that draws up the local plan, but developers will go into the local plan examination (where a planning inspector in effect decides whether it is “thumbs up” or “thumbs down”) with all of their legal arguments, expensive lawyers and fabby dabby spreadsheets ready to prove their point. Those spreadsheets will now be public and use something approaching a set methodology, which is a huge victory for transparency campaigners. But it doesn’t necessarily mean that a small band of local campaigners doing this in their spare time will be able to outwit a company whose profit levels are at least partly based on extracting just this kind of victory. Many council planning departments, often stung by large costs if they lose judicial reviews or appeal cases, will be very cautious of pushing hard if they know they may not win.

Another good(ish) thing is that the land value being proposed for viability assessments is not the price paid for the land, but some inbetween figure. As Shelter have commented, given recent land sales have possibly been inflated by the current market, the new assessments might be higher than you might hope. It is a step in the right direction, but the wording- particularly that the land value should be set at “the minimum price at which it is considered a rational landowner would be willing to sell their land” means this could all fall down rather quickly. If that’s the case there is nothing to stop landowners working collectively to ensure prices remain high.

This all means that the local plan process becomes longer than it would have been and there is no guarantee this will lead to additional affordable accommodation. The government may be hoping land prices will fall as a result of this change, which seems hopeful and best and naive at worst.

The government are stating that once the local plan process is complete (however long that takes) that will be that. But of course, they have to (and to their credit, have) considered the other situations, for example when a site outside of the local plan comes forward. Or, indeed, the economic world changes significantly and developers are suddenly significantly more or less able to pay. In that situation local authorities will have to work with developers to assess or reassess these agreements.

There will be disagreements, claims will be lodged and eventually a set of precedents will be made about what counts as a change and what doesn’t. Unless there has been a big change in developer’s business plans this will then become the new normal. They will use the precedent to turn the drip into a flood. That’s not a criticism of developers- they are acting rationally. It is a criticism of the proposed system. It gives them an inch of wiggle room and expects they won’t take a mile. As with my previous post, I confidently predict we’ll be back in the same situation with viability and affordable housing within a few years.

BUT! The government have added a backstop- with a not very discreet threat for a system where “contributions to affordable housing and infrastructure to be set nationally, and to be non-negotiable”. Given my previous comments you’ll not be surprised that I like the second part of that. I would much prefer a system where the connection between overall viability, developer’s expectations of tidy profits and affordable housing is broken. I don’t see why it would make sense for this to be set nationally, when practically everything else in local plan making is, um, local. Neither Theresa May or Sajid Javid mentioned it in detail in their speeches, so I think this was only planned for certain eyes only. It’s a threat to developers of what could happen if the system doesn’t work and in my opinion a pretty idle one, much like the threat to end help to buy.

The proposals I sketched out in my previous post would be stronger than those being threatened by government and they should feel free to use them if they would like. But given I don’t think they have much intention to actually do this I won’t hold my breath.

So we have been promised another revolution only to see some generally positive but not exactly world-shattering reforms. Before too long we have to ask ourselves why this is? Do ministers over-sell proposals that they know are milquetoast? Are they convinced that one more set of changes will push the housebuilders over the edge to become the sort of civil minded operators the government want them to be? Are they making comments based on what they hope newspapers will report rather than what will actually make a difference?

The key issue, in a way, is that government is stuck. Changes since the late 1970s mean that the major housebuilders are the only people who can deliver at scale. The government seems willing to pay lip service to other forms of building, but know that these can only take off with either significant government investment, underwriting loans and subsidy (for small builders, community housing, housing associations, etc) or local government debt (for council housing).

Another option would be development corporations, often used for new towns but theoretically usable anywhere. This would involve local authorities, builders, landowners and trades coming together to create new homes. The corporation could be structured to prevent perverse incentives (including a risk of chummy contract-giving between the partners) and provide incentives for actual building. The builders wouldn’t like this as it threatens their ownership of large parts of the process, but it is something more akin to a revolution than some (admittedly positive) tinkering with viability.

The government are right that there is no silver bullet to ending the housing affordability crisis, but I do wish they would put away the rubber ones.

As a final note, is it worth remembering that the government has consistently said that the first report from the Letwin review will be coming with the Spring Statement next week. This wasn’t mentioned in either speech (Sajid Javid referred to the publication of the full report at the (Autumn) Budget), so I will be very interested to know whether something will be released and what it says.

Build to rent or build to build?

Build to rent, is it a way to get some top quality new rental housing or just another brick in the wall? There’s plenty of chatter about this new type of development coming forward, but what is it, what does it mean for the planning system and affordable housing and what will happen as the market matures?

Build to rent is in many ways something new. Large scale investors like pensions schemes are seeking ways to find returns and have hit upon the idea of having their own property portfolios. These aren’t mom and pop landlords with a property here and there, but organisations who have the ability to buy and sell entire buildings and blocks on a whim. But there is part of the problem- they like the idea of rental income from assets that grow in value over time but don’t want to have to deal with the issues relating to having leaseholders or other owners to get in their way.

What they’d prefer is a nice clean, wholly owned asset that can be theirs outright, traded easily and the rental returns known. This kind of housing doesn’t exactly exist in the UK (or in many places in the world) and the most obvious way to create it is to build it. So yes, there is hundred of millions of pounds floating around right now looking for investment in housing- hooray!

But that money doesn’t particularly care where it is investing, as long as it can get the best return for the investors. Where the best deal is might relate to the rents that can be expected, the land cost, the costs associated with planning and who will let them build exactly the kind of block they’d like to see. Manchester of Salford, Leeds or Bradford, London or Colchester, Milan or Barcelona- what matters to them, quite reasonably, is where the net return is highest.

Of course all housebuilders are like this to an extent, but whereas traditional builders are looking for a pipeline of land across a range of sites, from city centre to the surrounding countryside, to buy develop and then sell, build to rent developers are looking for inner city properties where the principle of development has been agreed since Victoria was on the throne where they can buy the land, build the asset and then hold it as such, selling on the whole unit at the appropriate time.

With traditional housebuilders the key issue fought in the planning system is where homes will be built. With build to rent the key issue is what homes will be built. As I mentioned above, the need for a nicely packaged up unit precludes anything quite as messy as sales of flats to a housing association or even something as messy as shared ownership or even, shock horror, someone else owning a property in their building! It would be bad for the portfolio to have a couple of appendages and provisos thrown in with any sale and therefore reduce the market value of the asset.

Many authorities in the UK, including big cities need significant amounts of new housing. This is both due to a genuine requirement to meet the needs of their residents and because they have more or less objectively assessed needs that are required to keep their planning system ticking over. A developer, whoever they are, turning up and stating that they are interesting in building a few thousand homes on underused or unused city centre sites is a godsend.

So let’s say you work for the planning department and a developer comes in saying just that- they want to build thousands of properties to rent. But there is a catch. Firstly, they are also talking to a few other cities and can only really decide on one or two locations to build at the scale they want. Secondly, their business model doesn’t really allow them to have affordable housing on site, so could they pretty please just pay cash instead? Thirdly, like all other developers, costs are high and profits are low, so they might not be able to pay all that much towards affordable housing anyhow. Fourthly, they operate in a cut-throat market where information is king, so please could any negotiations and agreements be held in secret?

Now, generals are always fighting the last war, but you’d hope planning departments are a bit quicker off the bat than that. Because let’s be clear, the opportunities for significant new developments are enough for authorities to have to consider changing their rules to keep ahead.

Earlier this week I praised Jennifer Williams’s recent article on affordable housing in Manchester. One of the key things behind the continued growth of city centre housing in Manchester -but also the complete lack of on-site affordable housing- is the willingness to get in front of the curve for build to rent. You can’t apply planning rules just for certain types of investments though, so every developer gets to play the same game- offsite contributions for affordable housing (sometimes called commuted sums), confidential viability reports, excellent but private shared spaces without significant contributions to public spaces.

Perhaps “race to the bottom” is too strong a term, but I think we need to see that Manchester is the outrider for city centre housing outside of London and look at the impact build to rent is having there.

As I’ve mentioned before, commuted sums as opposed to affordable housing onsite isn’t necessarily a bad thing, although there is a need to prevent areas from becoming ghettos of either rich or poor households. Councils or housing associations can use that money to invest in their own large scale schemes rather than a smattering of housing here and there and the smart ones could create their own mixed schemes with market and affordable homes side by side.

But no payments, or money that disappears into the ether through a viability process or into an “affordable housing saving fund” that never gets spent is never a positive thing. Development after development in or near a city centre without public space is also not great.

As with my previous comments on viability, I’m coming round to the view that no process framed around negotiation will actually be able to put the genie back in the bottle. The changes to the national planning policy framework may make some temporary difference, but I am going to firmly predict that a small army of lawyers and consultants will put us back to where we are now within 5 years. Amending viability simply isn’t enough for affordable housing, the goal must be to remove the connection between the two.

What might be better is putting affordable housing into some form of tax like the existing Community Infrastructure Levy. An amount could be worked out from the average square footage of a proposed development (or sale price of properties if you’d rather) and this could be paid to the council for them to build affordable housing (either directly or by housing association grant), with clear accounting to show this is done. A developer who wants to reduce this bill could offer a number of homes in payment for their charge, but this would be at affordable house prices rather than the full purchase price of the property.

Another change would be for local authorities to work together to set clear boundaries on what they will and won’t accept. Hopefully I’ve shown that there is an oblique strategy, perhaps even an unintentional one, to change the planning system in order to fit it around build to rent. If larger local authorities, for example the metro mayoral cities and the English core cities came together to set out what they would like their planning system to look like, they could seek to insist on published viability statements and set affordable housing quotas. This could stop developers trying to play one city off against another, but it of course comes with a healthy reward for cities going back on the agreement.

It remains to be seen how this new market will mature. As I mentioned at the start of the piece, one of the reasons investors are looking to build is because there aren’t currently the type of properties available for them to invest in. Of course there are other benefits to putting value into a bare bit of earth, particularly the one shared by more traditional housebuilders that this will appreciate the value significantly.

But once there are a raft of new build to rent properties available, will investors keep on building, or will they be happy trading the buildings that exist between each other? I’ll put that another way- there are plenty of shares that come onto the stock exchange, but the vast majority of the role of the exchange is to trade existing shares. Buy low, sell high, or at least buy for a lower price than you sell for! It is fair to say pension schemes dabble in the markets, usually in long term investments, so they are likely to be quite happy to think this way about property as well.

Sure there will be property managers who actually do things like sort out repairs and they won’t be affected by these shenanigans. The average tenant won’t notice ownership changing, perhaps the brass plaque outside the door will occasionally morph overnight into something new. But from a housing supply issue, we have to consider whether build to rent will be a major builder for many years to come or -once there are enough properties to play the asset appreciation game- whether it will be a niche portfolio for certain schemes to hold and trade between themselves.

If it is to be a major source of new housing then the issues seen in Manchester might be heading to a town near you on a large scale. If it is the former, then are the changes (or resistance to changes, such as publishing viability reports) being made to local planning systems (for all developments, remember) worth accepting for a limited local reward?

The long tail of affordable housing and how it can wag again

How fast do you have to run to stand still? And do you really have to run twice as fast as that to get somewhere else?

It’s a question we’ve been grappling with ever since the Red Queen posed it and none more so than with affordable housing.

Well, that was a question I was going to try and look at in this post. But then I found out that not only are they susceptible to a bit of genial name-calling, Shelter also have access to a time machine and have gone back to 2014 to write essentially the same post.

What’s a naptime blogger to do then? Well, it would be helpful to see what has changed since then and maybe have a think about the current trends in net affordable house building.

But first we have to draw a pretty big distinction between affordable housing and “affordable housing”. You see, in most areas when you think about affordable you consider whether someone’s income can cover the cost of the item. Not so in housing, where the government’s definition of “affordable” relates to the market price- the definition of affordable rent is 80% of the market rent in the same area.

This might not seem like a terrible thing and in some areas it just so happens that 80% of the market price is within an affordable range for a relatively low income family. But in reality that’s more of a happy accident than an outcome of wise policy making.

It didn’t used to be wholly this way. Most social housing rents were traditionally set based on the actual costs of paying for the property and its upkeep, with landlords (local authorities and housing associations, in the main) given very broad parameters to set rents. Whilst in power Labour argued that this led to wildly different rents for what was in effect the same house and, through controlled increases in rent, tried to get all social providers to roughly the same rent for the same property- called a “formula rent”. This equation looked at the price of the house and also the median earnings in the area. But it was only a proxy to allow for equalisation in the medium-run.

And it didn’t get there, because Labour slowed down the process and then the Conservatives came in and chose to increase and then reduce social rents at the same rate for everybody. Only now are they looking to allow authorities to increase rents again. This means rents are still quite divergent between providers and between areas.

So, and I can’t be clear enough about this, neither social rent on older stock nor affordable rent really have any direct connection with affordability built in. Social rents are by and large lower (in many areas far lower) than affordable rents and are therefore more affordable. But there is no real mechanism to ensure that stays the case. New social rented homes (those few that are built) often have rent set at the formula rate, but then affordability is only one consideration among others.

When the new “80% of market” definition came along most providers didn’t immediately switch all of their properties to it when a new tenant moved in. What many did was make newly built homes (usually by developers as part of s106 agreements) available for affordable rent as a way to cross subsidise other, more affordable housing. Indeed, until recently building for affordable rent was required through the government’s affordable homes programme, meaning councils who couldn’t borrow (because of central government limits) had no other choice than to build homes for “affordable rent”. Collectively, although mostly for the legacy reasons, this means that the vast majority of affordable homes available today are at a social rent. That’s the good news.

The bad news is the number of new build social rented homes has fallen year on year, from nearly 40,000 in 2010/11 to 6,800 in 2015/16 (with even fewer provisionally accounted for in 2016/17). The number of right to buy completions has been edging up since 2011/12, both when the financial crisis was bottoming out (and when low income households were more able to get mortgages) and when the government significantly increased the amount of discount a household could receive to buy their home. What’s more, as most new affordable homes won’t yet have a right to buy discount, we can safely assume these were almost all social rent homes sold.

So in 2015/16 more than 3 homes at sold under right to buy for every social rent home that was built. Even if you add affordable rent into the mix there are only 1,358 more homes being built than lost. And what’s more, whilst there should be 1 for 1 replacement of homes sold under right to buy, that has never been the case, looks like it will be a very long time until it is the case and if it does happen it will by and large affordable homes replacing social homes, thus adding little to the mix of truly affordable homes.

Put that another way, since 1991/92 there have been 215,000 more homes sold under right to buy than new social rented homes built. That’s more homes than there are in Bradford.

This is also the case with affordable housing in parts of new developments. Where “affordable homes” are agreed as part of s106 agreements, they often either become “affordable rent” or an intermediate option that is most likely shared ownership. More councils are starting to accept payments in cash for off site provision in lieu of affordable accommodation, which at least means councils can build what they want but does lead to worries about the ghettoisation of “rich areas” and “poor areas”.

Of course developers are hit and miss when it comes to actually providing affordable homes as part of their developments. As part of the planning process they are able to argue that they cannot make their scheme viable with the level of affordable accommodation set by the local authority. This means they are able to negotiate, often significantly or to zero, the amount of affordable housing on the site. Of course every single site can be just about viable at the same time as the heads of the developments earn £100 million bonuses.

In fact it is fair to say that there is something more than a cottage industry set-up to help developers argue their case for lowering affordable housing requirements through the viability process. Perhaps we could call it a 6 bedroom, triple garage industry?

The recent government consultation on viability (amongst other things) goes some way to address this, effectively saying that the local plan is the place to be clear about viability of individual sites and once agreed there is little reason to change it. There are however a couple of issues with this. This first is that councils will take time to update their local plans (remember it is a process that is measured in years) so the current system will remain in each area until they have (or are at least approaching) a replacement plan. The second is that there will still be flexibility in the system (for example by judicial review on the reasonableness of individual decisions) for developers to tease open a loophole or two that they can then drive a bus through. Followed inevitably by bus lane markings and an open highway. Perhaps this is the world-weary cynic in me, but I fear the approach laid out there will lead us back to the same situation in 3-5 years.

Given that developers see having lawyers on a retainer as part and parcel of the industry, I would rather something that looks more like a hard to avoid tax than an easy to evade agreement. Yes, that might mess with their business case and yes, that will meant hey might have to change their modus operandi to suit the new circumstances. Given that might have as many positives and negatives it is a risk I’m willing to pay.

So councils are at the limits of what they can build, when they and housing associations do build they often choose (when they have a choice) to go for affordable rent. When developers build they often try to limit their affordable accommodation and when they do build it what is made is usually “affordable rent” or another type of intermediate accommodation. So where does that leave those who genuinely need truly affordable accommodation?

I fear trying to create a new type of rent level will just lead to another competing layer in the market. Removing “affordable rent” from what counts as affordable rented accommodation, especially under s106, would help restore some sense. Whilst councils are free to set terms in their local plan I think it would make sense for discussion on affordable accommodation to be based on what proportion of people in the local area could afford to live in the agreed accommodation. So if “affordable rent” stays, it could be renamed “rent that X% of people locally could afford to pay”.

Local authorities and most housing associations truly do want to build genuinely affordable homes, so giving them the powers to do borrow and build will make a huge difference in building of new affordable homes. Central government continuing the move away from “affordable rent” will allow councils and housing associations to build homes at a rent they think is appropriate and needed in their local area.

Finally, without wanting to sound like a scratched record, the bath will only fill if you put the plug in. Right to buy is leeching away truly affordable housing, giving some households a cash injection (when they sell the homes) and giving a number of private landlords an unearned field day as they swoop in, buy a former council home on the cheap and move in tenants paying market price. In a way, it would be better to give the tenants the discount to buy another house, at least then the landlord wouldn’t have to go through the cost of building a new property, although it wouldn’t help take the steam out of the wider housing market.

It would take many years for the total supply of social housing to dry up, but if we don’t look to do something more about it now then it could still happen. Given the need that clearly exists for affordable accommodation, that would be a huge mistake.

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.

Lattepapa Policy

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Tag Archives: Planning

Housing need, a fudge sandwich?

Balance, imbalance and the politics of planning

Po-tay-to Po-taa-to, Letwin’s latest

Inviolable viability

Build to rent or build to build?

Please please please Letwin get what I want

The choke chain

You break it, you OAN it

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