Category: Market Insight

The housing white paper and how it might challenge developers and housebuilders

The White Paper includes a heavy focus on housebuilders with new measures including ‘more active use of compulsory purchase powers to promote development on stalled sites for housing’. This is aimed at speeding up housebuilding and would see land taken away from developers considered under-performing – ‘use it or lose it’ as the headlines describe it.
Confirmed proposals include cutting from three to two years the time that developers have to start the building process, once permission has been granted but only when the viability of a site isn’t put in jeopardy. The plans promise a planning framework that does more to support higher levels of development. This would include quicker and more effective processing and determination of planning applications as well as ‘an improved approach to developer contributions’. The paper also includes promises to encourage ‘modern methods of construction in house building’, ‘greater diversity of homebuilders by partnering with smaller and medium-sized builders and contractors in the Accelerated Construction programme, and helping small and medium-sized builders access the loan finance they need.
In return, the government says it expects developers to build more homes, to engage with communities to promote the benefits of development, to focus on design and quality, and to build homes swiftly where permission is granted.
Not just that, but developers will also need to take responsibility for investing in their research and skills base to create more sustainable career paths and create thousands of new skilled roles.
The government’s 2015 manifesto pledge to build 200,000 starter homes (those sold at a 20 per cent discount) this parliament and the requirement for 20% of the homes on all new developments to be starter homes has been dropped.
Instead, 10% of all sites will be required to be for affordable homeownership with the percentage of starter homes set locally by councils.Additionally, the length of time before the starter home could be sold at full market value will be increased to 15 years, in a reversal of previous government policy.
Finally, the government says it is considering whether to tell councils to take a developer’s track record into account when deciding planning permission for large sites and that councils should only change green belt boundaries “when they can demonstrate that they have examined fully all other reasonable options”. Where land is removed from the green belt a council should “offset” this with “compensatory improvements” to remaining green belt land. The government will also look at whether higher fees can be paid by developers who build on green belt land.

Specific recommendations that affect developers, as outlined in the white paper, include:

  1. Making sure every part of the country has an up-to-date, sufficiently ambitious plan so that local communities decide where development should go;
    Simplifying plan-making and making it more transparent, so it’s easier for communities to produce plans and easier for developers to follow them;
  2. Ensuring that plans start from an honest assessment of the need for new homes, and that local authorities work with their neighbours, so that difficult decisions are not ducked;
  3. Clarifying what land is available for new housing, through greater transparency over who owns land and the options held on it;
  4. Making more land available for homes in the right places, by maximising the contribution from brownfield and surplus public land, regenerating estates, releasing more small and medium-sized sites, allowing rural communities to grow and making it easier to build new settlements;
  5. Maintaining existing strong protections for the Green Belt, and clarifying that Green Belt boundaries should be amended only in exceptional circumstances when local authorities can demonstrate that they have fully examined all other reasonable options for meeting their identi ed housing requirements;
  6. Giving communities a stronger voice in the design of new housing to drive up the quality and character of new development, building on the success of neighbourhood planning
  7. Making better use of land for housing by encouraging higher densities, where appropriate, such as in urban locations where there is high housing demand; and by reviewing space standards
  8. Supporting developers to build out more quickly by tackling unnecessary delays caused by planning conditions, facilitating the strategic licensing of protected species and exploring a new approach to how developers contribute to infrastructure;
  9. Backing small and medium-sized builders to grow, including through the Home Building Fund;
  10. Supporting custom-build homes with greater access to land, giving more people more choice over the design of their home;
  11. Bringing in new contractors through our Accelerated Construction programme that can build homes more quickly than traditional builders;
  12. Encouraging more institutional investors into housing, including for building more homes for private rent, and encouraging family- friendly tenancies;
  13. Holding developers to account for the delivery of new homes through better and more transparent data and sharper tools to drive up delivery;
  14. Boosting productivity and innovation by encouraging modern methods of construction in house building;

Government announcements are routinely described as ‘radical’ and this white paper was no exception. Sadly, beyond community secretary Sajid Javid’s rousing calls-to-arms to the housebuilding and housing sectors to provide more places for people to live, was a distinct lack of detail. This has led to commentators labelling the White Paper a damp squib. While this may be a little unfair – in parts there are bold moves – in many ways it is by no means clear that ‘Fixing our broken housing market’ is anything like the promised silver bullet to get the UK building more homes. The government has at least acknowledged that the ‘home ownership for all’ ideal is looking further away than ever and has put its weight behind the build-to-rent industry. For instance, there are measures in the paper which promote the building of apartment blocks managed by professional companies and backed by institutional lenders. The rise in stamp duty last April badly hit this sector and it needs help to become established. In addition the emphasis on modern methods of construction is a welcome boost which may help open the market to new – possibly quicker, possibly cheaper – ways of building and therefore selling homes. But it is developers, housebuilders and councils who will be feeling the effect of the proposals the most. Forcing councils to provide comprehensive local plans which calculate their housing needs and which will need to be revisited every five years could put significant pressure on those that do not submit or stick to them. The rises in fees by 20 per cent will help soften the blow and some will say that central government holding local authorities to account more readily is a welcome move.
But what are developers to make of the announcement? Is the spectre of compulsory purchase orders on those developers which retain land for future development enough to scare them into altering their entire approach to creating a pipeline of development land? Some in the industry fear this will actually have the reverse effect of that intended and lead to fewer planning applications. Land is, in effect, the industry’s raw material and needs to be carefully managed if developers’ business models are to work properly. Forcing an increase in the rate of building once work has begun could also be counter-productive and cause developers to only apply for planning permission for smaller sites. If landbanking does exist in real life to the same extent and in the same way as it does in the febrile imaginations of newspaper editors then the government’s plans to beef up the powers of the Land Registry – not so long ago planned for privatisation – could make the ownership of land that much clearer. Ministers hope to have comprehensive land registration complete by 2030.

All in all, the fear lingers that, rather than providing a radical solution to a notoriously intractable public policy problem, ‘Fixing our broken housing market’ just slaps some go-faster stripes on previous white paper policies and calls itself a Ferrari.

How will the new housing white paper affect housing associations?

Social housing providers have a pile of new initiatives in their in-trays. For housing associations and other not-for-profit developers, the paper stresses that ministers have already promised £7.1 billion in funding through the Affordable Homes Programme and have pledged to ‘provide clarity over future rent levels’. But it adds that in return for this, the government expects them to build ‘significantly more’ affordable homes during the current Parliament.
The government is offering local authorities higher fees and new capacity funding to develop planning departments, simplified plan-making, and more funding for infrastructure. They have promised to make it easier for local authorities to take action against those who do not build out once planning permission has been granted. The paper also alludes to the government being ‘interested in the scope for bespoke housing deals to make the most of local innovation’ but offers no further detail.
The request from government is for local authorities to be ‘as ambitious and innovative as possible’ to get homes built in their area and insists all local authorities should develop an up-to-date housing plan, to decide applications for development promptly and ensure the homes they have planned are built out on time.If local authorities do not fulfil this deal, the white paper promises that the Government will intervene and take action.
For housing associations and social landlords, the government has promised to set out a new rent standard for social landlords for the period after 2020 “in due course” to help housing associations build.
The government’s controversial 1% rent cut will continue but pledged measures to help them borrow against future income thereafter. The document also urged housing associations to become more efficient and develop more housing, and said it was developing proposals to set up ways of measuring the sector’s efficiency.

Specific measures in the white paper aimed at social housing providers and local authorities include:

  1. Providing greater certainty for authorities that have planned for new homes and reducing the scope for local and neighbourhood plans to be undermined by changing the way that land supply for housing is assessed;
  2. Boosting local authority capacity and capability to deliver, improving the speed and quality with which planning cases are handled, while deterring unnecessary appeals;
    Supporting housing associations and local authorities to build more homes
  3. Holding local authorities to account through a new housing delivery test.
  4. Encouraging the development of housing that meets the needs of our future population and helping the most vulnerable who need support with their housing, developing a sustainable and workable approach to funding supported housing in the future;

Government announcements are routinely described as ‘radical’ and this white paper was no exception. Sadly, beyond community secretary Sajid Javid’s rousing calls-to-arms to the housebuilding and housing sectors to provide more places for people to live, was a distinct lack of detail. This has led to commentators labelling the White Paper a damp squib. While this may be a little unfair – in parts there are bold moves – in many ways it is by no means clear that ‘Fixing our broken housing market’ is anything like the promised silver bullet to get the UK building more homes. The government has at least acknowledged that the ‘home ownership for all’ ideal is looking further away than ever and has put its weight behind the build-to-rent industry. For instance, there are measures in the paper which promote the building of apartment blocks managed by professional companies and backed by institutional lenders. The rise in stamp duty last April badly hit this sector and it needs help to become established. In addition the emphasis on modern methods of construction is a welcome boost which may help open the market to new – possibly quicker, possibly cheaper – ways of building and therefore selling homes. But it is developers, housebuilders and councils who will be feeling the effect of the proposals the most. Forcing councils to provide comprehensive local plans which calculate their housing needs and which will need to be revisited every five years could put significant pressure on those that do not submit or stick to them. The rises in fees by 20 per cent will help soften the blow and some will say that central government holding local authorities to account more readily is a welcome move.
But what are developers to make of the announcement? Is the spectre of compulsory purchase orders on those developers which retain land for future development enough to scare them into altering their entire approach to creating a pipeline of development land? Some in the industry fear this will actually have the reverse effect of that intended and lead to fewer planning applications. Land is, in effect, the industry’s raw material and needs to be carefully managed if developers’ business models are to work properly. Forcing an increase in the rate of building once work has begun could also be counter-productive and cause developers to only apply for planning permission for smaller sites. If landbanking does exist in real life to the same extent and in the same way as it does in the febrile imaginations of newspaper editors then the government’s plans to beef up the powers of the Land Registry – not so long ago planned for privatisation – could make the ownership of land that much clearer. Ministers hope to have comprehensive land registration complete by 2030.

All in all, the fear lingers that, rather than providing a radical solution to a notoriously intractable public policy problem, ‘Fixing our broken housing market’ just slaps some go-faster stripes on previous white paper policies and calls itself a Ferrari.

Garden Villages and Starter Homes – when will the tinkering end and the concentrated, focused housebuilding programme begin?

new-houses

It comes round like clockwork – barely had Big Ben bonged us into 2017, than the government sent out glad tidings of new housing policy announcements; and not just one but two.
First out of the traps was a promise to make good on the ministerial pledge – made back in 2014 and badged as the Starter Homes Land Fund – to help first-time buyers get a foot on the housing ladder.  When they are built, these homes will be available for anyone between the ages of 23 and 40 buying their first home and represent a 20 percent discount on properties worth up to £250,000 outside London or £450,000 in the capital.
Then came the announcement to build 48,000 homes in 14 garden towns and villages. Anyone who is connected – or for that matter not connected – to the property market will know how short of housing the UK is. Over the years, there have been various attempts by the government in one guise or another, to increase the numbers of new homes being built and this is the latest welcome attempt. More details are expected in the White Paper due to be published shortly about how exactly these schemes will work. This is vital as the ‘how’ in terms of housing schemes is usually as, if not more, important, than the ‘where, what, why and who’. Garden cities have had a mixed success rate since Letchworth and Welwyn Garden City were built as part of the wave of 27 new towns following the second world war. One of the key elements of success behind these schemes was the principle of ‘land value capture’, allowing public infrastructure to benefit from the rise in value they created in their neighbours – thus preventing it from disappearing into private hands. Not only that but the first wave of 14 new towns was imposed from central government, often in the face of strong local objections comparing the then Labour government with the Stalinist USSR. It may have been unpopular with those directly affected, but there’s no doubting the success in terms of housebuilding – for example, new home completions in Milton Keynes alone averaged 5,000 a year from 1967 to 1991.
New towns as a policy died a political death until Gordon Brown dug out and reheated the idea, promising in party conference speeches to build first five and then, ten eco towns. Unfortunately, despite the rhetoric, these resulted in a grand total of zero new homes being built due in part to vociferous protest against them. Next up was the garden city at Ebbsfleet, north Kent, promised by the last government but even there, progress has been slow – and that is with the benefit of top notch transport links nationally and internationally on its doorstep.
So far, this government has fought shy of mandating housebuilding from the centre, preferring instead to rely on the market with a few inducements around the edges.
This week’s announcements reflect the government’s reliance on localism – communities being empowered, at the expense of the national centre, to take care of their own housing needs. This runs through the entire public policy agenda and planning/housebuilding is no different – scrapping top-down targets and allowing local communities to plan for their own needs to cite just two initiatives.
The White Paper is a chance to take account of instances in which previous policies have not worked and to think through how to put those right. A number of lessons are clear – local plans must include demand for housing coming in from outside the area; new communities need to be carefully located and not just dumped on a spare patch of ground; media coverage of housing policies is good……but new homes are better.
Some questions will have to be answered in this month’s anticipated White Paper. Is the country willing to accept the pragmatism that something is better than nothing – i.e., have we given up on recreating successful new towns such as Welwyn and Letchworth? Are local communities and central government willing and able to build communities as well as huge housing estates? Will central government break the habit of a lifetime and decide to invest directly to build the homes the country needs?
When will the tinkering end and the concentrated, focused housebuilding programme begin?

How are Housing Associations tackling the rent reductions?

Sweyn Close

What to do when the Chancellor of the Exchequer lops millions off your annual turnover in the space of a short announcement at the House of Commons despatch box?
When George Osborne, the former tenant of 11 Downing Street, announced in July 2015 that he was cutting social housing rents by one per cent per year, for the next four years, to reduce the country’s benefit bill, housing associations had to think and act fast.
Headlines at the time predicted a fall in the numbers of affordable homes being built. These fears may have stemmed, at least in part, from the shock the sector felt that the previous government settlement that rents could rise in line with the consumer price index (CPI) of inflation plus one percent until 2026 was no more. Since that deal was only agreed with Whitehall two years earlier, in 2013, the reaction at the planned-in growth quickly turning into a significant cut was understandable and genuine.
Housing associations, however, had to think on their feet if they were to be able to continue to meet the ongoing need for affordable housing.
One such organisation was Flagship Group, the housing association with developments across East Anglia and into Cambridgeshire and Essex. In common with many similar sized, regional HAs but in contrast to some of the larger London concerns, Flagship was not at the time fully geared up to move into a position of acting as a quasi-property developer.
Fortunately, according to Tony Tann, managing director of Flagship Homes – Development, Flagship had already been making plans to build some homes for sale.
Residentially asked Tony what the organisation did to react to the rent reduction; how it is faring now, 17 months on from the announcement, and what lessons have been learned along the way. ‘The rent reduction forced the business to think differently about how they could carry on with an affordable housing programme that suited the stature that Flagship has,’ he says.
‘The way the business works is that each individual scheme has to stand up and be viable and the rent reduction meant that all those schemes that were viable suddenly weren’t. So we had to have a root and branch review of everything we were doing.
‘There was already a desire to look at housing for sale and generate additional money into the business because, notwithstanding the rent reduction, the grant money for rented housing was virtually non-existent in new schemes going forward.
‘The strategy that we settled on from March 2016 was a three pronged one – we had a number of affordable housing sites that had stuck primarily as a result of the rent reduction and as a team we needed to find ways to get those sites unstuck. That was priority number one.’
‘Priority number two was to generate development schemes on land that Flagship already owned that had previously been identified as having development potential, together with land that Flagship had purchased specifically for development. These schemes covered all tenures and are scheduled to be the first to provide homes for sale’
‘Stage number three was to look at a mid to long term strategy – land option agreements with landowners, development land purchase from the open market, joint ventures with developers and contractors all of which are on sites that are slightly bigger so we can get some scale into the business.’
As this strategy has moved into reality and with the focus now moving to stage three what has been the outcome for Flagship? The most obvious is now the scale at which the business is now operating with funds from the sale of their homes eventually being ploughed back into supporting the provision of affordable housing. In 2017/18 they are planning to generate 300 homes; in years 2018/19 and 2019/20, 400 homes and subsequent years 500 homes. Looking at the years in which Flagship intends to generate 500 homes, the split will be around 150 for market sale; 100 for shared ownership; 200 for general needs rent and 50 for private market rent. And what lessons have been learnt? Tony says setting the right strategy and pulling together as a company are all important. He adds: ‘The important bit was putting the strategy into bite sized chunks and putting resources into the part that mattered most at the time. The business had come to the conclusion that they needed to do a housing for sale programme and they’ve found ways to help and be available when sites need appraising, do some really important critical questioning, have an open mind and listen to the answers. That has helped massively. ‘Our programme in three years’ time will have increased considerably from where we were, if we carry on as we forecast’
Given this experience in adapting the focus of the organisation, how would Tony advise housing associations considering a similar move and who may be casting around for partner companies to work with? He says: ‘The principal advice I would give is choose wisely and the business you choose as a partner has to be a similar type of business. For instance, you need to have similar funding arrangements. ‘The other good partner to choose is one that can do the things that you can’t. So for instance, we can pick up the affordable housing and a developer in partnership can do the construction. Where we join in the middle is how we market and develop the site and do the selling. Picking a partner that complements what you do is massively important.’
What of the future – does this government intervention, and subsequent reaction by the affordable housing sector, herald a new more difficult trading environment for large and medium-sized property developers? Tony thinks not. ‘Flagship have built for a while but mainly affordable homes and not homes for sale,’ he says. ‘So despite our aspirations for a varied and growing programme the national developers will not be worried about our growth because the sites we are looking at will typically be smaller than their target market. ‘We will compete with the mid-size developers who will do sites of a similar size to us but generally, I think there’s enough of this type of site to go around and more coming through the planning system.’

Starter homes: the problems

new-houses

As admirable as attempts by policymakers to open up the housing market to those on lower incomes are, confusion and muddle are often the hallmarks of policies in this area. So how likely are the latest proposals to fare better?
The big idea is starter homes. These new homes must be sold at 80 percent of market value capped at £450,000 in London and £250,000 elsewhere, sold only to buyers aged under 40 who are not eligible for affordable housing and they cannot be sold for five years after purchase. Furthermore, a fifth of all new homes should fit this category.
Next week – 18 May – sees the closure of a second round of consultation on how these starter home measures, contained in the Housing and Planning Bill will work. Having passed through the House of Lords, the next phase sees the secretary of state lay down the rules and regulations. The government’s aim is that 200,000 will be built by 2020 – leaving around three and a half years to complete the job after the relevant legislation is passed – an ambitious target given the UK’s recent housebuilding and planning history.
Much of the practical detail is yet to be worked out and it can only be hoped that this second phase of consultation will see answers begin to emerge. Some of the issues to be worked out are obvious.
The relevant regulatory body for a start – will it be left to local authorities or will there be a bespoke regulator? Would the regulatory body be responsible for checking homeowners do not sell within five years? Will that threshold even remain at five years – the government may extend that to eight years but the House of Lords asked for it to be raised to 20. Housing does not spring up overnight with the wave of a George Osborne wand. Prices could easily rise by 20 per cent between the first and last house on an estate being completed, so when would the 20 percent discount be applied? Will these starter homes be in addition to the existing affordable housing or will we see battles emerging between developers wanting to make projects viable and local authorities wanting as much low-cost housing as possible? If starter homes are so much cheaper, will there still be a market for other the parts of housing developments? This could have a real adverse impact on housebuilders’ cash flow and the value of land.
And last but certainly not least, who is going to benefit from the imposition of starter homes? Even with the 20 percent discount, most people in London, for instance, will still find buying their home a distant pipedream. This may be less true of other parts of the country where housing is significantly cheaper which may mean that the starter home initiative is needed less – although of course this is offset by lower wages.
Will this latest attempt to help people buy their first home have the desired effect? It may partly depend on the contributions to this current phase of consultation. At the risk of sounding like a government information campaign, you could do worse than tell them what you think will work.

Give your views here www.gov.uk/government/consultations/starter-homes-regulations-technical-consultation