“For every home built 2014/5 £60,000 went to landowner”

Thomas Aubrey of the Centre for Progressive Policy:

“Our system favours landlords over communities. The PM must side with the many, not the few.

Theresa May is right. Britain’s housing market is broken and needs fixing. Homelessness and rough sleeping are rising and owner-occupation levels for the young have collapsed because homes have become unaffordable.

The average private rent in London accounts for more than a third of household income. The bill for housing benefit has risen eight-fold since the early 1980s after inflation is taken into account. House building has risen since the lows reached during the financial crisis of a decade ago but needs to almost double to hit the government’s target of 300,000 new homes a year by the middle of the next decade.

Yes, the housing market is broken all right and for the Conservatives, a party that sees itself as the party of the homeowner, it is a serious political headache.

A crisis has been brewing for decades – and left unattended the problem can only get worse. Britain has a rising population and the trend is for smaller households, both of which mean demand for housing will keep on rising. The weak growth figures for the first three months of 2018 will keep borrowing costs on hold for now but sooner or later the Bank of England will raise interest rates. That will make it still harder for people in their 20s to get a foot on the housing ladder.

Yet sketching out the problem is one thing. Coming up with solutions is trickier.

Replace a regressive council tax with a land value tax? Labour is thinking about a LVT but there is no chance the Conservatives will introduce what they have dubbed a “garden tax” that would hit millions.

How about giving some of the anonymous farmland in the green belt over to housing development? The thin end of a wedge that will result in the south-east being turned into one big urban sprawl.

Make prime residences eligible for capital gains tax? Are you kidding? Politicians know that Britain’s housing market is broken but mess with it at their peril.

The problem is so big, however, that changes have to come. London’s mayor, Sadiq Khan, wants to increase the supply of lower-cost homes in the capital, so under City Hall guidelines private development proposals where affordable units make up at least 35% of the total will be fast-tracked through the planning process. Under 35%, and developers can expect a much tougher time.
But as Daniel Bentley argues in a new pamphlet for the thinktank Civitas, the problem goes deeper than the planning system. Forcing councils to grant more planning permissions in high-demand areas doesn’t guarantee that the supply of new homes will markedly increase.

The reason for that, Bentley says, goes back to the 1961 Land Compensation Act passed by Harold Macmillan’s government. This enshrined in law the right of landowners, in the event of compulsory purchase, to be reimbursed not only for the value of their land as it stood but for its potential value if it were used for something else in the future.

A system so heavily weighted in favour of landowners had two consequences. First, it provided them with an incentive to wait, often for years, before selling their land for development because they would get a higher price. Second, house-builders had to recoup the costs of buying the land and did so by building more expensive properties that were drip-fed into the market to keep selling prices high.

If the aim is to build more affordable homes, this makes no sense. A site with planning permission for housing is worth more than a brownfield industrial site and 100 times more than agricultural land. Research by Thomas Aubrey of the Centre for Progressive Policy found that landowners made windfall profits of more than £9bn in 2014-15 on the sale of land. That meant for every home built that year, an average of £60,000 went to the landowner.

Bentley says the entitlement of landowners to this “hope value”, the prospect that it will be worth a lot more if used for something else, means public authorities are powerless to enforce development priorities that are in the interests of the community.

“This was not always the case. The new towns that were initiated before the 1961 act, and much of the local-authority output of the late 1940s and 1950s, was underpinned by a land values policy that meant landowners were compensated at values reflecting the existing use of the site,” he said.
“This meant land for new homes could be acquired at or close to its much lower agricultural or industrial use values. It also doused speculation and prevented the withholding of land.”

Reforming the 1961 act so that public-sector bodies can purchase land at less than its prospective residential use value makes sense because it would enable developers to get hold of land more cheaply and so build more affordable homes. Nor would it be an especially controversial move politically.

Judging by their 2017 manifestos, Labour and the Conservatives think the current system is weighted too heavily in favour of landowners, who see the value of their holdings increase not through their own efforts but through those of others.

Adam Smith and David Ricardo, darlings of the free-market right were critical of the “unearned increment” that landowners enjoyed. So was Henry George, who the left laud for coming up with the LVT.

May should seek bipartisan support for a rethink of the 1961 act. Sure, Conservative-supporting landowners would object but if the prime minister is to make good on her pledge to fix the housing market she has to side with the many not the few.”

https://www.theguardian.com/business/2018/apr/29/want-to-resolve-the-uks-housing-crisis-heres-how

Case law will impact on developers who say they can’t (now) afford affordable housing

Parkhurst Road Limited v Secretary of State for Housing Communities and Local Government & London Borough of Islington. Case No: CO/3528/2017, in the High Court of Justice, Queen’s Bench Division, Planning Court, 27 April 2018.

“A High Court judge has backed Islington Council in a long-standing battle between the council and developer First Base (Parkhurst Road Limited), who refused to provide affordable homes on a former Territorial Army site in line with the council’s planning rules.

The developer bought the site on Parkhurst Road in 2013 and has attempted to secure planning permission for a residential development with little or no affordable housing, ignoring the long-standing planning requirements on the provision of affordable homes set by the council.

An initial planning application was submitted in 2013 by the developer who were assisted by Gerald Eve as viability consultants. The council refused planning permission for this development twice on the grounds of not providing enough affordable housing, as well as other matters.

The case centres around the viability assessment of development and, in particular, how the price of land should be determined in planning, which is a tool increasingly used by developers and their viability consultants in recent years, to avoid complying with councils’ planning requirements on affordable housing.

Two lengthy public inquiries were held, both of which were won by Islington Council. Each time the low level of affordable housing provided on the scheme was being justified by the developer on factors such as the purchase price paid for the site, and land transactions of other schemes. Following the second public inquiry held in early 2017, an Independent Planning Inspector appointed by the Secretary of State, upheld Islington’s refusal of planning permission in his decision of 19 June 2017.

The developer then mounted a legal challenge against the Planning Inspector’s decision at the High Court. The Planning Inspector’s decision was defended in court jointly by Islington’s legal team and the lawyers representing the Ministry of Housing Communities and Local Government (MHCLG).

Normally, the role of the courts in planning disputes is very limited and restricted to legal technicalities only. However, in this case the Judge Justice Mr David Holgate allowed a fairly detailed examination of planning issues and the development viability evidence in particular.

Today (Friday, 27 April) he dismissed the legal challenge on all three grounds put forward by the developer, and concluded that he was satisfied with the Planning Inspector’s decision to dismiss the developer’s appeal and uphold the council’s decision to refuse the planning application.

Responding to the judgement, an Islington Council spokesperson said:

“We are delighted by the High Court judgement. This decision reinforces Islington Council’s long standing position that developers should abide by the councils’ planning guidelines – rather than overpaying for land and then trying to bypass our affordable housing requirements.

“There is a shortage of good quality, genuinely affordable housing in Islington and a significant unmet housing need. The council is doing everything it can to address this, because we believe that everyone should have somewhere to live that is affordable, decent and secure – and developers must respect these important priorities when they purchase sites in Islington.”

In a highly unusual move, in a postscript to the judgment, Judge Mr Justice Holgate also recommended that the current, widely used, guidance on viability assessments by the Royal Institute of Chartered Surveyors (RICS) should be revised “in order to address any misunderstandings about market valuation concepts and techniques, the “circularity” issue and any other problems encountered in practice over the last 6 years, so as to help avoid protracted disputes of the kind we have seen in the present case and achieve more efficient decision-making.”

This is something that the council has been calling for over the last couple of years, due to serious concerns about how the RICS Financial Viability in Planning (2012) guidance note was being applied in practice.

Islington Council’s planning guidance on Development Viability is very clear and specifically cautions developers against overpaying for land and using the purchase price as a justification for providing little or no affordable housing. This landmark judgment reinforces what Islington (and many other councils) have been arguing for years that affordable housing requirements cannot be bypassed by using the “dark art” of viability assessments to ignore planning policy requirements.”

http://www.islington.media/r/97837/high_court_backs_islington_in_a_landmark_planning_case_on

Letwin explains rationing new builds to keep up prices with a new phrase “absorption rate”!

“A Government-commissioned report has blamed delays in the house-building process on builders concerns about future sale prices.

In the Autumn Budget the Chancellor set up an independent review to look at the delays between planning permission being granted, and houses being built. This review is being led by Sir Oliver Letwin.

The Treasury has now published the commission’s interim report alongside the Spring Statement:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/689430/Build_Out_Review_letter_to_Cx_and_Housing_SoS.pdf

These initial findings suggest that house-builders concerns about sale prices are a major factor in slow “build out” of homes on many of these larger developments.

Letwin says this review had initially focused on larger housing developments and major housebuilders. Further analysis may look at smaller scale models.

In a letter to the Chancellor and Sajid Javid – the secretary of state for housing communities and local government – Letwin says housebuilders have cited a number of “limitations”, including a shortage of available skilled labour, the availability of capital, provision of local transport infrastructure and the slow speed of installations by utility companies.

But in the interim report Letwin says: “I am not persuaded that these limitations are in fact the primary determinants of the speed of build out on large permitted sites at present.”

He goes on to say the fundamental driver of build out rates, once detailed planning permission is granted, appears to be the “absorption rate” – that is the rate at which newly constructed homes can be sold into the local market without materially disturbing the market price.

This rate, he says appears to be largely determined at present by the type of home being constructed and the pricing of the new homes built.

The interim report goes onto say this problem can be exacerbated by many larger development having a style of size of home that is fairly homogeneous.

The next stage of this review will look at whether build-out rates could be improved, either by reducing the reliance on large builders, or by encouraging them to offer more variety in terms of the type and price of property offered.

The report adds: “We have seen ample evidence from our site visits that the rate and completion of the ‘affordable ‘ and social rented’ homes is constrained by the requirement for cross-subsidy from the open market housing on the site.” This can delay the build out of these homes, the report adds.

Letwin says he plans to publish more detailed draft analysis by the end of June, which will contain a more detailed description of the problem and its causes.

The independent review will then seek comments from interested parties before a final analysis which will include a list of recommendations to improve the situation.”

https://www.mortgagestrategy.co.uk/interim-report-planning-delays-published-alongside-spring-statement/

Developer refuses to build more homes

Guardian report:

“Theresa May is saying builders need to open up their land banks and develop more sites, while Berkeley is unwilling to aggressively ramp up production. With conditions in the capital starting to look more precarious, it’s easy to see why Berkeley has reservations. After all, adopting overly ambitious strategies just before the market turns has caught out many a builder over the years.

Its comments on the complexity of getting work started is a clear signal to the government that it believes the best way to move forward is not to churn through the land on its books, but to remove the red tape around the development process.

Property Week agree, saying that:

Berkeley Homes has positioned itself directly against prime minister Theresa May, by refusing to increase the number of homes it builds despite government threats to housebuilders to either build homes on their land or face planning blocks.

Sarah Gatehouse, real estate tax director at Grant Thornton, tweets that the ball is back in the PM’s court:

“Berkeley announces in trading update it won’t build more homes than forecast, citing high transaction costs, the 4.5 times income multiple limit on mortgage borrowing and prevailing economic uncertainty. What’s Theresa’s next move? #housing”

https://www.theguardian.com/business/live/2018/mar/16/housebuilder-berkeley-group-homes-building-government-wetherspoons-trade-war-business-live

“Firms on Caribbean island chain own 23,000 UK properties”

[The article says £1.5 billion of property is owned by these companies in the south-west of England]

“A quarter of property in England and Wales owned by overseas firms is held by entities registered in the British Virgin Islands, BBC analysis has found.

The Caribbean archipelago is the official home of companies that own 23,000 properties – more than any other country.

They are owned by 11,700 firms registered in the overseas territory.
The finding emerged from BBC analysis conducted of Land Registry data on overseas property ownership.

The research found there are around 97,000 properties in England and Wales held by overseas firms, as of January 2018. It adds to concerns that companies registered in British-controlled tax havens have been used to avoid tax.

Close behind the British Virgin Islands (BVI), which has a population of just 30,600, are Jersey, Guernsey and the Isle of Man.

Of the properties owned by overseas companies in England and Wales, two thirds are registered to firms in the British Virgin Islands, Jersey, Guernsey and the Isle of Man.

Many foreign UK property owners are also officially headquartered in Hong Kong, Panama and Ireland.

The analysis provides a new picture of ownership of property by overseas companies in England and Wales following a decision last November to make the database public and free to access.

It found:
Close to half (44%) of all properties owned by overseas companies in England and Wales are located in London

More than one in ten (11,500) properties owned by overseas companies in England and Wales are located in the City of Westminster

More than 6,000 properties owned by foreign companies are in the London borough of Kensington and Chelsea.

The government of the British Virgin Islands said it was incorrect to label the country as a tax haven.

It said that there were many practical reasons why UK properties might be owned by companies incorporated in the BVI. It argued that BVI companies can bring together multiple investors and owners, which is useful for big commercial property deals that have investors in more than one country.
The BVI also said that it shared “necessary information” including ownership details with relevant authorities. …”

http://www.bbc.co.uk/news/business-42666274

“Since Margaret Thatcher came to power, 10% of the area of Britain has left public ownership. No wonder there’s a housing crisis”

“… in all the proliferating discussion about the rights and wrongs of the history of privatisation in Britain – both from those determined to row back against the neoliberal tide and those convinced that renationalisation is the wrong answer – Britain’s biggest privatisation of all never merits a mention. This is partly because so few people are aware that it has even taken place, and partly because it has never been properly studied. What is this mega-privatisation? The privatisation of land.

Some activists have hinted at it. Last October, for instance, the New Economics Foundation (NEF), a progressive thinktank, called in this newspaper for the government to stop selling public land. But the NEF’s is solely a present-day story, picturing land privatisation as a new phenomenon. It gives no sense of the fact that this has been occurring on a massive scale for fully 39 years, since the day that Margaret Thatcher entered Downing Street. During that period, all types of public land have been targeted, held by local and central government alike. And while disposals have generally been heaviest under Tory and Tory-led administrations, they definitely did not abate under New Labour; indeed the NHS estate, in particular, was ravaged during the Blair years.

All told, around 2 million hectares of public land have been privatised during the past four decades. This amounts to an eye-watering 10% of the entire British land mass, and about half of all the land that was owned by public bodies when Thatcher assumed power. How much is the land that has been privatised in Britain worth? It is impossible to say for sure. But my conservative estimate, explained in my forthcoming book on this historic privatisation, called The New Enclosure, is somewhere in the region of £400bn in today’s prices. This dwarfs the value of all of Britain’s other, better known, and often bitterly contested, privatisations. …”

https://www.theguardian.com/commentisfree/2018/feb/08/biggest-privatisation-land-margaret-thatcher-britain-housing-crisis

“TORY MP STANDS UP FOR LABOUR POLICY PLAN IN SPAT WITH TORY MINISTER”

“A Tory minister has been taken to task for juvenile political point scoring by an unlikely source – a senior Tory MP.

The incredible spat between two of the Tories’ most prolific tweeters broke out when Treasury Secretary Liz Truss took a cheap shot at a housing policy being considered by Labour.

Under the plan, which is revealed on the front page of today’s Guardian, landowners would no longer be allowed to inflate the price of land sold for property development:

[There then follows a nasty Twitter spat between Tories Liz Truss and Nick Boles where Bowles sticks up for Corbyn!!!]

Truss responded by trying to tar the attempt to get more council homes built as some kind of Stalinist land grab.

But Nick Boles, himself a former planning minister, was having none of it.

The pair continued to spar until Truss brought the embarrassing blue-on-blue battle to a curt conclusion.

The clash comes after Boles made clear his dissatisfaction with abject lack of policy ideas coming from the Government and his party. …

The Conservative family is not a happy one.

As for Truss’ objections to Labour’s policy, we were reminded of a policy included in the last budget by her boss, Chancellor Philip Hammond.

Hammond announced an anti-land banking policy which the Tories had described as “Mugabe-style expropriation” when Labour floated the idea.

Liz Truss will be defending this “sinister confiscation” before you know it…

https://politicalscrapbook.net/2018/02/tory-mp-stands-up-for-labour-policy-plan-in-spat-with-tory-minister/