“Our Number One Domestic Priority”: Taking Stock

I tweeted that yesterday was the 5th anniversary of my first simonicity blog post. 273 posts later and 496,000 words (War and Peace = 587,000 words) and to what effect?

As I also said, it can be deflating to look back. So many posts expressing frustration about the same topics, yes obviously CIL, but also the recurring debates as to how to address the country’s housing crisis and as to what the obstacles are: is it the planning system or are other factors at play? Something Must Be Done. But what?

Unpacking Use It Or Lose It (16 July 2016) was one of my first posts. It referred to that week’s House of Lords Economic Affairs Committee’s report, Building More Homes.

“Paragraphs 129 to 139 of the report’s section on Planning Reform set out the “criticism made of the large house builders…that they hold land suitable and with permission for building, yet build at a slow pace and thus maximise the profit from each development”.

The conclusion is arrived at:

“139.We recommend that local authorities are granted the power to levy council tax on developments that are not completed within a set time period. This time period should be negotiated when planning consent is sought and be varied according to the size and complexity of a development. To ensure that the local authority also has an incentive to accelerate the process, the clock should start to run only when the local authority has signed off all conditions and obligations“.”

The allegation that house builders hold unnecessarily large land banks, going slow to maximise profits, was considered in detail by Oliver Letwin in his 2018 review. Incidentally, a constant theme of my blog posts over the last five years has been reviews commissioned by the Government the recommendations of which it then ignores – my first ever post, on 3 June 2016, was about the recommendations of the CIL independent working group (sensible recommendations, ignored by Government) – and Oliver Letwin’s recommendations in his final report (summarised in my 3 November 2018 blog post Oliver’s Twist: Letwin’s Proposals For Large Housing Sites) were of course similarly ignored, but perhaps the findings in his earlier interim report (June 2018) were more interesting, where he rejects that land banking allegation:

“5.40 It is of course true that, although the land market can be highly volatile, land (unlike most assets) does not depreciate, and has generally tended to increase in value across the cycle, and has a ‘real option’ value. By holding rights over land that benefits from (or is soon likely to benefit from) some form of permission to build houses, the company which holds that land obtains a valuable ability to make profit by building on it at whatever time is thought likely to maximise the profitability of doing so. It would therefore be perfectly possible for financial investors of a certain kind to seek to make a business out of holding land as a purely speculative activity.

5.41 But I cannot find any evidence that the major house builders are financial investors of this kind. Their business models depend on generating profits out of sales of housing, rather than out of the increasing value of land holdings; and it is the profitability of the sale of housing that they are trying to protect by building only at the ‘market absorption rate’ for their products. I have heard anecdotes concerning land owners who seek to speculate in exactly this way by obtaining outline permission many years before allowing the land to have any real development upon it – and I am inclined to believe that this is a serious issue for the planning system. But it is not one that is consistent with the business model of the major house builders.

And yet here comes the allegation again in an 8 May 2021 Local Government Association press statement: Over 1.1 million homes with planning permission waiting to be built – new LGA analysis. “The LGA is calling for councils to be given powers in a Planning Bill in the Queen’s Speech to incentivise developers to build housing more quickly. Latest figures show that 2,782,300 homes have been granted planning permission by councils since 2010/11 but over the same period only 1,627,730 have been built.”

And look at their proposal, which harks back (without reference to it) to the rejected idea in that 2016 House of Lords Economic Affairs Committee Report. They say:

While there will be in some cases legitimate reasons as to why development has stalled, and it is recognised that there is a time lag between permission being granted and homes being built, new build completions have only increased by just over half as much in that time. The LGA, which represents councils, says this shows that planning is not the barrier to house-building and that it is the housing delivery system that needs to be reformed.

To help councils get developers building more quickly, the Queen’s Speech should bring forward legislation that enables councils to charge developers full council tax for every unbuilt development from the point the original planning permission expires.”

Lichfields’ Matthew Spry rebuts the idea again in his 26 May 2021 blog post Use it or lose it: the taxing problem of undelivered homes.

The wider assertions in the Local Government Association press statement that sufficient planning permissions are already being granted to achieve the Government’s target of 300,000 net additional homes a year are tackled in Lichfields subsequent report, “Taking stock: The geography of housing need, permissions and completions”, published on 1 June 2021, commissioned by the Land Promoters and Developers Federation and the Home Builders Federation. Indeed they conclude that the necessary annual figure to achieve that target is 520,000.

The report represents the first stage of their work: “Analysis of how the number of homes with planning permission relates to housing need and delivery in different parts of the country through a comparison of housing need (either as per the standard method or recently adopted local plans), planning permissions and completions at a regional and housing market area level”.

We await stages 2 and 3:

“2. Assessing how the stock of permissions relates to housebuilder pipelines, rates of build out and the number of extra sites required to meet the government’s ambition; and

3. An analysis of what happens to the stock of permissions for a number of local authority case studies. This is a more in-depth ‘deep dive’ exploration on how the stock of permissions granted is linked to the number of homes completed within a given timescale by monitoring the land supply positions across the authorities over a five year period”

It is a great shame that MHCLG has not provided any detailed methodology to support the national target of 300,000 net additional homes a year. If anything it may be an under-estimate (see the 14 January 2021 House of Commons briefing paper Tackling the under-supply of housing in England) but surely it needs underpinning to avoid any assertion that it is too high. The background to the figure is mentioned in my 10 February 2018 blog post Nothing Was Delivered – the immediate context at the time being the first meeting of then prime minister Theresa May’s “housing implementation taskforce” (always good to have a taskforce). You recall Mrs May’s promise that the housing crisis would be her “number one domestic priority”? Roll forward three years: Theresa May leads Tory revolt over push for new housing (The Times, 12 May 2021).

What has got in the way of a sensible debate as to how we might resolve this country’s housing crisis since I started this blog? Politics. What might get us out of it? Action based on robust factual analysis.

Simon Ricketts, 4 June 2021

Personal views, et cetera

This week’s Clubhouse Planning Law, Unplanned discussion examines the Lichfields Taking Stock report. We will be joined by Lichfields’ Matthew Spry , together with the LPDF’s chairman Paul Brocklehurst, Lambert Smith Hampton’s Mary-Jane O’Neill, the BPF’s Sam Bensted, Blackstock Consulting’s Joshua Carson and our brilliant usual panel. Do tune in to join the discussion, or just to listen. This is a free invitation to the app.

Author: simonicity

Partner at boutique planning law firm, Town Legal LLP, but this blog represents my personal views only.

One thought on ““Our Number One Domestic Priority”: Taking Stock”

  1. Congrats Simon on reaching this milestone, and thanks for providing an excellent platform for me and no doubt many others to learn from your expertise!

    Having read Lichfield’s ‘Taking Stock’ report and looking back at Letwin’s interim report, it appears to me that we need to look at the way housing (un)affordability is baked into land valuation calculations. Do we need to ask ourselves (and RICS more importantly) if there should be a ‘house price reduction buffer’ (for lack of a better term) applied to land value calculations in order to deliver lower residual values? Once the land is purchased at this reduced value, could this then allow developers to built out to the absorption rate but with the knowledge that should house prices drop they will still profit?

    Of course, the buffer would need to be set at an appropriate level to avoid landowners withdrawing land from the market.

    Alternatively, should the residential land value multiplier be set as a maximum, in order to avoid huge land value uplift but still provide landowners with a fair return?

    One last question, do we need public sector housebuilding to be upscaled to plug the supply gap if/when developers are restricted by low absorption rate? Or perhaps this would remain an issue for public housebuilding, albeit with potential for CPO use.

    Hopefully my ramblings aren’t completely incoherent, would be great if you get the chance to discuss this at tomorrow’s clubhouse event. Thanks

    Like

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