Jonathan Bunt: Theresa May takes a small step towards unlocking a policy for homes

The prime minister has delivered a new housing policy and though it moves in the right direction, Jonathan Bunt argues it remains insufficient to provide enough new homes.

Two weeks ago Theresa May unveiled a redrafted national planning policy framework and reiterated her personal desire to fix the broken housing market.

It was a headline-grabbing speech that provided a welcome focus on domestic policy at a time when the news is swamped by Brexit.
Importantly, while much of the speech was foreshadowed in last year’s white paper, the prime minister again flagged her ambition to build 300,000 new homes per year.

After combing through the detail though, it was difficult to see how the statements on viability and attempting to hold developers to account will make a material impact on that number.

Gaps

As so often with this prime minister’s speeches, there were inconsistencies. She predictably emphasised the Conservative standard of home ownership but also placed emphasis on the reality faced by so many of being forced to rent.

Though renters were clumsily reassured they were “not less of a person” for being unable to own a home, it was, at least, a recognition of the rental sector’s importance and its need for substantial investment.

However, the main focus of the current crisis is the construction of houses. In the past the Ministry of Housing, Communities and Local Government (MHCLG) has suggested that local government — in its role as planning authority — is a significant factor in the under delivery of new homes.

This has been strongly rebutted by the Local Government Association (LGA). Both they and the prime minister have highlighted the gap between planning permissions granted and homes actually built.

That said, what was really being highlighted is the gap between national Conservative policy and the nimby positions taken on development by local politicians — often also Conservative — who delay the granting of approvals, or force the use of the appeals process, thus slowing down development.

Allied to the permissions and development gap is the review into potential land banking by Oliver Letwin. Land banking is vehemently denied by developers but, from my time in local government, I know that most planning officers can provide at least one example of house builders appearing to place sites on hold while waiting for something to shift in their favour.

Among the counter measures mooted by the prime minister is offering councils a right to deny planning permission for developers who fail to build out previously granted permissions at an acceptable rate.

The premise is laudable but difficult to implement in practice and will almost certainly end in yet further planning appeals. It could also discourage developers from seeking sites in certain areas, reducing competition for land and forcing down values. Though this could, of course, be viewed in both a positive and negative light.

Affordable

Much of the attention was, unsurprisingly, on the comments relating to viability assessments for affordable housing. The current viability measures were introduced after the credit crunch to ease the financial pressure on developers and as a means of protecting construction jobs.

It is, however, too often the norm for developers to use the viability provisions to negotiate down, or out, any affordable housing provision in their projects.

The impact of changes to viability will depend on the level of detail contained in future guidance and the direction it ultimately takes.

Take the example within the speech (though watered down since) of nationally imposed targets for non-negotiable levels of affordable housing.

The proposal is that 10% of all homes on individual development sites should be for affordable homeownership while at the same time allowing obligations to be fulfilled through “affordable private rent” homes.

That means, the government is making proposals on the use of viability tests which will not comply with Local Plans and could make it difficult for developers to build on large sites.

The planning guidance for viability implies that “viable” is defined as a 20% return on gross development value. This allows a high industry-wide profit level as a form of threshold for viability which developers can use to negotiate down their commitment to affordable homes.

Combine the high-profit threshold with the current pressure on the availability of labour and the rising cost of materials caused by Brexit, and it becomes much more difficult for councils to hold the line on the proportion of affordable homes and contributions to infrastructure.

If the government and councils are serious about ensuring that commitments on affordable homes and infrastructure are delivered, both would invest more funds in planning departments that can challenge on these issues.

Land

The prime minister also spoke of making government land available for homes, if required. That’s a positive step.

One of my frequent gripes — as I have written here before — is about the inability, or lack of requirement for, public sector bodies to work together across their land holdings in an area or region.

If, given the allusion to top down targets, the government is in the mood for central imposition, and it wants to genuinely progress the ideals of “one public estate”, it needs to give a single organisation the authority to do exactly that.

This, combined with tougher planning requirements, as well as stringent application of them, would create an opportunity for local government to develop more sites in their own localities.

Without the need to deliver the high-profit threshold, such developments would offer prime investment opportunities delivering capital growth, as well as revenue returns, from both net rent and savings on homelessness — particularly where it is possible to utilise specific public sector funds, such as the affordable housing grant or retained right to buy receipts.

However, councils will need to create the internal infrastructure to manage the homes and ensure value for money from the appointment of developers who will seek to maximise profit through construction rather than land development.

Green belt and tenancies

One of the desires spoken of by the prime minister was for the development of longer term tenancies for renters. This is an issue local authority housing companies have been leading on, offering three or even five-year tenancies, which may have a positive effect on the offer from private landlords.

This will not be a quick change, however, given the relative power of private landlords due to the imbalance of supply and demand.

For authorities in London and the South East, the message on the greater protection of the green belt offers a further challenge. While it will sit comfortably with many Conservative councillors, the drive to maximise density on brownfield sites may not.

Maximising density puts further pressure on creaking local services and infrastructure. Equally, from a developer’s perspective, the use of brownfield sites is unattractive because they are often more costly to develop than the green belt. That, of course, impacts on scheme viability and, therefore, the provision of affordable units.

As a result, councils are more likely to develop complex sites if the desire is to use them for affordable housing.

By utilising their borrowing power and covenants and — if available through the right structure — any right to buy, or off-site affordable housing receipts, councils can create viable, investible opportunities.

Such a move requires the right capacity and skills in planning and regeneration teams, as well as a willingness to embrace the density expectations.

One thing that was lacking throughout Theresa May’s speech was any sense of the impact, so far, of government policies since 2010.

Homelessness is rising and the local housing allowance is generally inadequate to meet rents, although at least there is a 3% increase from April.

The policy to tackle empty homes has not been enacted by MHCLG and included in the money returned by the department to the Treasury was £72m of unused affordable homes funding.

Of course, the other major item absent, despite reference to social housing levels, was the wholesale scrapping of the HRA debt cap. That appears to be firmly off the table beyond the relatively small nationwide allocation last year.

Despite reservations, these announcements continue the movement of housing policy in the right direction, post-Cameron and Osborne. However, they remain insufficient.  These are baby steps, given the rising scale of the homelessness crisis, and do not go far enough, or fast enough, to reverse the financial pressures on local authorities.

Jonathan Bunt advises local authorities on investment, development and funding opportunities, particularly in relation to housing and regeneration. He is a former strategic director at London Borough of Barking and Dagenham.

Get the Room151 Newsletter