The Government's White Paper on Housing Supply

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The Government's White Paper on Housing Supply Something old, something new, something borrowed, something brown (or green)

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The Government's White Paper on Housing Supply Something old, something new, something borrowed, something brown (or green)

Neil Bucknell Partner | Real Estate neil.bucknell@laytons.com +44 (0)1483 407 000

The Government's White Paper on Housing Supply | March 2017

Four Steps to Where?

The Government’s long awaited White Paper addressing various issues surrounding the continued failure to deliver an adequate supply of new housing in England appeared on 7 February. Reviewing it, it is proverbial curate’s egg. While there is a welcome recognition of some areas where there does seem to be a realistic prospect of boosting housing supply, such as encouraging off-site pre-fabricated construction, encouraging the private sector rented market and institutional investment in housing, there is also a failure to address some of the fundamental problems, misunderstandings as to how the planning system and the market really work, and a number of proposals, which read together, have contradictory results.

There are four “steps” under which the Government has grouped its proposals – “Planning for the Right Homes in the Right Places”, “Building Homes Faster”, “Diversifying the Market” and “Helping People Now”. As always with Government planning announcements, everything is dressed up as apple pie and motherhood, but the devil as they say is in the detail.

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The Government's White Paper on Housing Supply | March 2017

Problems with Plan Making?

The longest list of recommendations comes under the first heading – Planning for the Right Homes in the Right Places. The White Paper (rightly) deplores the fact that there are still 34 local authorities that have not even published a draft local plan, as was required to meet their obligations under the Planning and Compulsory Purchase Act 2004. However many of the local plans made under that act are now out of date, and are failing to provide an adequate housing supply within their area.

recently the amalgamation of many rural authorities into single unitary authorities that exclude their main economic hubs which are in separate unitary authorities. All too frequently, local authority government boundaries reflect historical boundaries, and overlap urban areas and travel to work areas, all of which makes coherent plan making impossible.

At least the Government recognises this now, and specifically proposes to remove the requirement that every local government area has a single local plan, and to give Councils more flexibility to cooperate to produce plans.

That is easily said, but we consider it naïve to expect that neighbouring urban and rural areas will necessarily work together well, especially as they are often under the control of different political parties, and the residents and voters of the surrounding rural areas are usually anxious to ensure that

The problems though are manifold. Firstly, we have had a half

their neighbourhoods are not “swamped” by development

century of unsatisfactory and incoherent local government

generated by their adjoining town or city.

reforms. The first attempt, under the Local Government Act 1972 ended up as a political compromise, largely re-drawing

What the Government has not recognised is that by

local government boundaries outside the Metropolitan

introducing a further tier of plan making (neighbourhood

areas only where the local political sentiment supporting

plans) it has further clouded the picture. We consider that

historic shire county boundaries would permit. It did however

the written ministerial statement made in December, which

have the merit of some clarity – everybody knew on 1 April

sets a different threshold of housing supply in a district

1974 what matters were dealt with by the County and what

when determining whether or not a neighbourhood plan

was dealt with by the District or Borough, which gave us

is up to date, only adds to this confusion. While it might be

a hierarchy under which structure plans and local plans

a noble aim to encourage communities to participate in

could be put in place. Since then, we have had shambolic

the plan making process, there has to be a recognition that

local government reforms. Instead of trying to make our

somebody somewhere has got to look at the larger picture,

local government boundaries match economic areas (such

and potentially make some decisions that will be unpopular

as travelling to work areas), we have ended up with an

at the neighbourhood level in order to deliver the housing we

incoherent patchwork – some shire counties broken up into

need. Furthermore, hard pressed and under-resourced local

a set of unitary authorities, others having their urban centres

planning departments are unlikely to be well placed to deal

removed into unitary authorities, leaving the remainder (often

with cooperation with neighbouring authorities in trying to

its hinterland) under two tier local authorities, and more

put in place their plans against the background of a growing

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The Government's White Paper on Housing Supply | March 2017

Gathering the Information, Assembling the Sites The Government’s stated intention to look again at how housing need is assessed, to try and produce a more transparent and consistent approach is to be welcomed.

However, a declared intent to “make land ownership and interest more transparent” is 20 years too late.

Land ownership details have been open to the public

One issue regarding bringing forward sites for development

since the Land Registration Act 1999 was enacted, and the

that is only peripherally addressed in the document is the

Registry’s own online Land Registry portal system gives

difficulty in assembling sites when there is more than one

anybody who subscribes to the system the ability to obtain

private sector landowner involved. One of the questions

information both as to ownership and interest in the land

raised in the consultation section is how land pooling could

already, most titles having now been registered. We are

make a more effective contribution towards assembling

concerned though that the Government is to consult on

prospective development sites. Clearly, the civil servants at

improving the transparency of contractual arrangements

the Department for Communities and Local Government

used to control land, as it could undermine the genuine

are unware of one of the problems that landowners and

requirement of both landowners and developers to maintain

developers face when assembling sites to promote the

confidentiality as to their own financial affairs. It should be

land for planning. If two private landowners enter into

sufficient that local authorities can verify that an applicant

an agreement between them to share value, so that (for

has a registered interest in the land in question. This is a

example) if one of them is the owner of land that is ultimately

well-developed procedure (the Unilateral Notice) enabling

designated for a school as opposed to private sector housing,

such interest to be registered without the details of the

they do not lose out, they are immediately subject to the

arrangements being made public.

possibility of a charge for Capital Gains Tax for such an arrangement is deemed to be a “disposal” giving rise to a tax charge, even though no money is realised in the hands of the landowner to pay the tax. Addressing this issue would help!

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The Government's White Paper on Housing Supply | March 2017

Where is "The Right Place"

The key problem though is what is “the right place”. Here the same tired old formulas are trotted out. Having suggested that all local authorities have a robust up to date plan in place, we are back to the same tired old clichés about using brown field land, releasing public sector land and supporting “thriving rural communities”.

second homes bring visitors (and much needed money) to these areas. While we fully appreciate the need to maintain the visual amenity of these areas, surely it is time for the Government to recognise this and develop proper policies for such areas, to provide a sustainable level of recreational linked development, and low cost housing for the local population that needs to support it.

Finally, consistent with its support for apple pie and motherhood, the Government has restated its commitment to the “Green Belt”. No doubt this is a reaction to the over-reaction of bodies such as the National Trust and the

Surely those in the department must know that the areas of

circulation chasing Daily Telegraph to the NPPF in 2012. We

highest demand (such as the M11 corridor, or the Thames

would urge the Government to be brave and look again at

Valley) are areas with very little brown field land left. These are

Green Belt policies. While we can understand the need to

not derelict industrial areas ripe for development following

maintain some green space around the largest of our cities,

the decline of our traditional heavy industries. Furthermore,

in practice the Green Belts around (for example) Oxford and

the public sector has been a major supplier of surplus land for

Cambridge have had deleterious effects. These are now cities

development for the last quarter of century. We must soon

which are strangled by tightly drawn Green Belts, served

be running out of redundant hospital sites, which formed a

by satellite towns outside the Green Belt, often without any

large part of the land supply in many parts of England in the

adequate public transport, many of their railway links to the

1990’s and first years of the current century! The problem with

surrounding countryside having been lost in the 1960s. The

“thriving rural communities” is that the nature of the British

traffic jams on the A40 into West Oxford, or the A14 around

countryside changed dramatically during the 20th Century.

North Cambridge are surely the result of encouraging Green

The agricultural labour force largely disappeared, and much

Belts around two cities which are already sat in the middle

of rural Britain is now a dormitory for the better off or the

of a large area of open country with no danger of their

newly retired. As a result most local services (public transport,

amalgamating with any other adjoining urban areas.

schools, retail) have either disappeared or consolidated into a few sites. Furthermore, the economy of some of our most attractive areas, such as the National Parks, is becoming increasingly dependent upon tourism, which unfortunately only generates low waged employment. The policy reaction of restricting development and limiting its availability to local residents has been counter-productive. Holiday homes and

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The Government's White Paper on Housing Supply | March 2017

Speeding Delivery – or missing the point?

In relation to building homes faster, we consider that the Government’s proposals are in many ways unrealistic, and fail to grasp the real issue. One of the fundamental reasons why the planning system moves so slowly is that planning departments are now poorly resourced, a situation exacerbated by the demands made by the policy makers at national level. How are local authorities going to find the resources to ensure that they regularly review their local plan policies every 5 years, if over 30 have not yet produced a 2004 Act compliant plan, and most have not been able to do so since the NPPF came into force in 2012?

Furthermore, the White Paper shows lamentable ignorance of the way the planning system and the land market works, exemplified by the suggestion that there should be a further reduction in the life of planning permissions, requiring implementation within 2 (and not 3) years, or they will be “lost”. The grant of an outline planning permission, especially on a large scheme, is only the first step. From a planning point of view, the detailed design stage has only just started, and sometimes it can take years to obtain the requisite approval of reserved matters before work can actually start on site.

The developers are further discouraged from making an early start where Community Infrastructure Levy applies, for such a start usually triggers substantial payment of levy to the local planning authority.

Most strategic sites are held on market value option agreements. These options only become exercisable once a planning permission has been obtained. At this point the process of negotiating what the price should be begins, and this too can take a long time – if the landowners and the developers fail to agree what the market value is as the first step to fixing the price to exercise the option, the usual course of action is for an independent expert to be appointed, and make a decision on the parties’ behalf. The issues involved are complicated, and again it can take months (occasionally years) to resolve such matters. If you are a small developer, not only do you have to pull together your land interest and obtain your reserved matters approval, but you probably also have to secure a source of funding as well.

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The Government's White Paper on Housing Supply | March 2017

There is also a failure of the authors of the White Paper to

One section of this part of the White Paper immediately

appreciate that planning permissions for a large scheme of

causes concern – when you see a heading “Deterring

several hundred (or even a few thousand) houses do not

Unnecessary Appeals” you know that there is a hidden

immediately mean that the houses spring from the ground

agenda – read down and you will find that it is to start

like mushrooms even when the reserved matters approvals

charging fees for appeal. The appeal system, coupled to the

are obtained and the precise amount of the price has been

NPPF, has actually unlocked quite a lot of land that has been

determined under the option agreement. Housing delivery in

tied up in the planning process since 2012. If fees are now

England is largely driven by the sale of housing on the open

going to be introduced, this is only going to be a further

market, albeit helped in many cases by schemes such as the

discouragement to those smaller and medium sized builders

Government’s Help to Buy Initiative. Capacity constraints and

that the Government said it wants to bring into the market.

market constraints usually mean that a site can only deliver

There is a short section on unlocking infrastructure problems,

economically 50 – 200 houses a year, depending upon the

but we consider that, while the announcement of Government

market in which the site is being offered. It was a failure to

money to provide infrastructure is welcome, the Government

appreciate this basic economic fact that has led (once again)

ought to try and take many infrastructure issues out of the

to allegations of land banking arising. Controlling land under

planning system. In particular, we note the concern the

a strategic option is a long way from delivering completed

commitment to bringing local authorities and their planning

housing, and if developers are going to be penalised for

departments into the provision of digital infrastructure. Leave

taking long term options to assemble substantial sites to bring

this to the market, and government subsidy where digital

forward housing it is going to be counter-productive to the

infrastructure is not being delivered for good economic

government’s declared aim of increasing the supply of new

reason. We do not want planning further delayed by badly

housing.

thought out planning obligations designed to encourage the delivery of digital infrastructure being added to other obligations under negotiation, as happened in the recent past where the issue of improving the energy efficiency and sustainability of houses moved from where it should have been (the Building Regulations) into the sphere of planning obligations.

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The Government's White Paper on Housing Supply | March 2017

Helping Smaller Developers The third part of the White Paper, entitled “Diversifying the Market�, deals with trying to encourage new entrants into the development industry, in particular bringing back small and medium size builders, now to be supported by the Home Building Fund. As the White Paper points out, the last recession has led to a considerable consolidation in the industry. The percentage of homes delivered by builders who produced less than 100 units a year has shrunk from 28% in 2008 to just 12% in 2015, whilst the contribution and volume of house builders, producing more than 2000 units, has gone up from 31% to 59% in the same period.

There is, though, a lack of recognition of the factors that have driven small builders out of the market. Firstly, there has been the problem of obtaining funding in the aftermath of the banking crisis of 2008 and 2009. The increasing demands of the planning system, with the introduction of, and then increase in application fees, the need to engage with the long process of local plan production, ever increasing standards of energy efficiency and sustainability all mitigate against this sector growing. Who wants to go through the pain of investing in making a planning application on a small site, endure the often ill-considered and ill-tempered response of objectors to the proposals, struggle through the process of agreeing a planning agreement to procure the issue of a consent, only then to have to borrow from a bank and put your house at risk by offering it as security?

There are encouraging signs, with housing associations and local authorities now stepping into the market, which is recognised by the White Paper. The Government does though need to recognise that housing is ultimately a consumer product business. Many of the trends that it seeks to encourage, such as an increase in the amount of prefabricated off-site assembled housing can only really work if this is supported by substantial businesses with deep pockets to underwrite the investment that is needed. We do though welcome the Government’s commitment to encouraging the search to help promote such methods of construction.

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The Government's White Paper on Housing Supply | March 2017

... And Buyers & Tenants The final section is entitled “Helping People Out”. This contains a number of proposals, dealing with issues as diverse as preventing homelessness, dealing with abuse by the freeholders and managers of leasehold properties, regenerating run-down housing estates and various schemes to encourage home ownership.

Elsewhere in this Spotlight we comment on the starter home scheme, which is still part of the Government’s proposals, albeit now not such a prominent feature of housing policy as it was a year ago. We would though urge the Government to look at simplifying the system, and taking the planning system out of many aspects of affordability. We only really need three categories of affordable housing for planning purposes – social rent (highly subsidised housing for those at the bottom of the ladder), affordable rent (sub-market housing for those who cannot compete at full market rates), and shared ownership housing (to help those on the housing ladder or indeed moving up the housing ladder to afford units for family housing beyond the means of existing home owners in small starter units).

While we welcome the proposal to encourage private sector renting, and we welcome more innovative thinking (such as freeing up pension funds to invest in private sector housing) we see no reason why institutional investors should not be encouraged to go out into the market to buy housing to manage and let on the open market in competition with owner occupiers, to help provide a good variety of decent quality housing for those unable to cross the threshold of raising the initial deposit to gain access to home ownership. If such provision is to be secured through the planning system, it will cause delay, and any units limited by planning condition or planning agreement to letting only will be less valuable and less attractive to investors.

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The Government's White Paper on Housing Supply | March 2017

Our verdict No Lessons Learnt?

In summary, while there are some things to welcome, there is still a lot of out-dated thinking and repetition of many discredited policies and imagined problems. Surely it is time that the Government acknowledges that the Barker Review demolished the myth of land banking nearly a decade ago, and learnt from the lessons of PPS3 and PPG3 in the early years of the current century, which resulted in many flats being built in unsuitable locations, which were acquired by investors fuelled by cheap money which ultimately lead to many of the problems that afflicted the house building industry in the aftermath of the housing crash, and has failed to deliver the housing that we really want in the areas we really want to live?

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