Daily Left News

Christopher Worrall is a housing columnist for LFF. He is on the Executive Committee of the Labour Housing Group, Co-Host of the Priced Out Podcast, and Chair of the Local Government and Housing Member Policy Group of the Fabian Society. 

The Labour Party has recently been accused of watering down its key housing pledges by the i newspaper. Following a review of Labour’s manifesto, the i found that the 70% target for homeownership was now termed an ‘ambition’, suggesting a downgrading of initial intent. This may come as a welcome change of tack that could open up significant improvements to the private rented sector, in large part through meaningful future policy around Build-to-Rent. The i also found wording relating to development corporations had changed. Previously this was cited as being central part of building new towns. This may open up more opportunities for local authorities to come forward with proposals more flexibly. While other criticisms focused on the 40 per cent affordable housing target for new towns becoming more of a general pledge.

The comments in the article from Common Wealth think-tank appear to focus on the renter reform commitments, who cited them as “welcome initial steps”. But they went onto criticize the simplistic 40 per cent target being dropped. Ignoring the mountain of challenges faced in developing New Towns. Generation Rent argued that the manifesto’s focus on reforming renting is “light on detail”. Such criticism totally misses the point on what achieves better renting conditions and affordability. Labour’s transformational “immediate” planning reform agenda was totally missing from their comments on the manifesto. Meaningful changes to the National Planning Policy Framework (NPPF) are set to happen immediately, which have been welcomed across the board.

If we are to review Labour’s key housing pledges they centre around delivering 1.5 million homes, and Labour’s planning reform agenda is set to be one of the most transformative in a generation. Late last year Starmer set out in his speech “how” not “if” Labour will jump start the deliver of 1.5 million homes over the next parliament through a Housing Recovery Plan. On the face of it Labour will be tackling head on the faltering land market inherited from the Conservatives. Labour have set out a plethora of achievable planning reforms for housing, in addition to reforms that will overcome the shortage of data centres and prisons. These are all incredibly encouraging steps to achieve Reeve’s growth agenda. Yet some of other recent announcements have raised more questions than answered, citing weaknesses in the advice the Shadow Minister for Housing may be receiving.

First of all, the much welcome planning reforms include the anticipated reversal of the Villiers-Seely Amendment, which prohibited mandatory targets and abolished five-year land supply rules. Previous announcements suggest we can expect to see a Written Ministerial Statement from the future Secretary of State for Levelling Up, Housing and Communities in the first 100 days. Chief Planning Officers will instruct local planning authorities to approve planning applications that do not have a local plan in place and fail other key policy tests (such as the Housing Delivery Test). To note, close to one-fifth of local authorities have been failing on the Housing Delivery Test (HDT), which has encouraged more speculative development following widespread failure of local politicians to plan ahead.

What compulsory targets then look like to meet the 1.5 million homes set out is yet to be decided, but it is unlikely that a return to the planning consultant gravy train of housing need based on projected populations will return. Many have called for the use of stock as a baseline in previous consultations concerning how housing need is calculated in the planning system. This would be a wise and simple move for an incoming Labour government. In turn, avoiding obvious mistakes made in the past that has been met with much criticism given reliance on population projections.

The Planning Inspectorate will also be called upon to use all its powers available to build homes. Interventions are mooted to range from meditation, up to the use of “call-in” powers, with potential for local planning authority powers being designated should they fail to comply with local plan development requirements. Flexibility of how grant is used, as well as a strengthening of the presumption in favour for developments that comply with local plans, can be expected. Notwithstanding a strong community right to appeal against uncompliant schemes and what has been dubbed speculative development, where certain criteria is met.

Transparency, monitoring, and enforcement of requirements to maintain up to date local plans within fixed time periods have also previously been announced. In areas where local plans have been egregiously delayed we can expect Labour to utilize the “backstop” option of allowing the Planning Inspectorate to draw up local plans. Lichfield’s have previously stated that the five-yearly local plan review was “not operating effectively”, with only 7 per cent of local authorities adopting an updated local plan in the required time frames.

Under the new streamlined system, thresholds to apply directly to the Planning Inspectorate will be lowered, to reflect the fact decision making will be made smoother. In addition to planning officers being granted stronger powers to grant permissions on smaller sites on delegated authority. Delays in securing planning permission have been found to be the key “barrier to growth”. Nine-in-ten Small and Medium Enterprise (SME) housebuilders have cited planning delays as a major barrier to building the new homes we vitally need.

Guidance will be brought forward that will make pre-application advice by officers a material consideration. Further guidance on off-the-shelf environmental mitigations will remove the need for endless surveys and halt the vexatious frustration of applications. Planning capacity will be improved, paid for by a tax on foreign buyers. Labour will also accelerate the incumbent government’s plan to increase planning fees, with potential for revenue being ringfenced for more planning resource. It comes after industry criticized Conservative plans to increase planning fees without being ring-fenced. Much to the dismay of many.

But if we were to be fair on what manifesto pledges warrant criticism, it would focus on what appear to be hobby horse CPO pledges, a misplaced focus on Modern Methods of Construction (MMC) being central to delivering 1.5 million homes, and a permanent demand-side mortgage guarantee for First-Time Buyers dubbed by one industry expert as Labour’s “insane help-to-buy” policy.

It is understandable why eyebrows have been raised as to whether reliance on the collapsing modular housing sector is a wise move. In an interview with Property Week, Shadow Housing Minister Matthew Pennycook set out Labour’s move to “rely more on things like modular building”. Pennycook has slammed the current Conservative government for failing the sector, following the widespread collapse in the solvency of large swathes of modular housing companies. Notable closures have included ilke Homes, Lighthouse, House by Urban Splash, Modulous and Legal and General Homes Modular. One of the last remaining modular firms TopHat, recently cut its headcount by 70 staff, following the Goldman Sachs backed factory citing it has faced “challenging conditions”.

Losses have piled up at many of the modular builders primarily due to the under-use of their factories. Planning consents and subsequent completions have dried up following Conservative anti-housing planning reforms driven by NIMBY backbenchers. Ultimately the lack of pipeline required to sustain such factories has never been achieved under the current planning system. Forecasts expect completions to fall to 160,000 for the year 2024/25, which comes after the Conservatives carried out a disastrous U-turn on planning reform. The result has seen progress of local plans screeching to a halt, as recently reported by Planning Resource. Britain now faces the fewest number of local plans being adopted in a decade.

Modular Methods of Construction (MMC), where a building is constructed offsite, face challenges because in comparison to traditional building methods there are larger amounts of costs up front to be made much earlier. The prefabricated nature of such construction allows sites to be turned around quicker with the often timber frame nature of the build lending to shorter construction programmes. However, when time savings are often offset against the higher costs, resulting in comparative returns in time value of money, or Internal Rate of Return (IRR), but with an overall lower equity multiple. When faced with the choice developers often opt for traditional building methods, which also allow more flexibility on irregular shaped sites.

Pennycook’s announcement to rely more on the industry seems to ignore the perilous market conditions for such types of construction, which offers very little by way of capacity given the plethora of administrations and insolvencies announced over the past few years. Turning this around will not happen without meaningful planning reform for housing. But fortunately that appears to very much be on the cards.

The biggest eyebrow raiser has been Labour’s land reform proposals, which appear steeped in complete ignorance of previous government consultations. In a recent interview with Vicky Spratt, Pennycook valorized his proposals for new Compulsory Purchase Order (CPO) powers as a means to combat “unscrupulous speculators” who “stop development coming forward and drive down the amount of public gain” from land. While accepting these powers would be “only used in limited instances where development is required in an area, but individual landowners refuse to sell land at a fair price”, it is difficult to understand how many homes such a proposal would contribute to the 1.5 million homes promised by Labour. Not to mention ignoring the fact the discretionary case-by-case plan-led system, with no plans, encourages exactly that – speculative development.

Instead, industry insiders say these changes will “increase uncertainty and risk”, while opening up the state to costly litigation. There is no point making a meaningful effort to resource local authority planning departments, if it is to throw it all away on legal fees. It must be noted many local authorities already have CPO powers that must be approved by the Secretary of State, in addition to Homes England being able to do so, but the latter has never actually used them. It is likely that both recognize that such approaches do not work well with the aim of encouraging private investors. Nobody wants to find themselves holding onto something that can simply be requisitioned by the state. All that has been demonstrated is that the evil developer trope is alive and well in some quarters of Labour’s housing team, straw manning land owners on the basis of ill-informed understandings of how land prices work.

Pennycook said that CPO’d land acquired under the new powers will be based on “fair compensation”. Rather than “inflated prices linked to the prospect of planning permission in the future”. In Spratt’s thread on the article, she described “inflated” values of land as also being known as “hope value”, which has “allowed land owners to charge high prices for their land, often with the help of private planning agents” who “jack up prices”. Pennycook goes on to describe how these changes will bring Britain in line with other European countries, such as Germany, France, and Netherlands. He was quoted as saying “we’re talking about bringing ourselves in line with other advanced economies”. As the aforementioned countries have systems to prevent “speculation in their land markets”.

The most troubling comparison is that these comments fail to appreciate that our European counterparts are much more rules based. Often including elements of zoning, which Pennycook has officially ruled out. This is the manner in which so-called “speculation” is effectively removed, with politically-led plans setting out what is expected from the market. The fact remains, the UK’s regulatory environment does not fit the capital markets, which research shows is bifurcated between institutions and investors whose capital cannot take risk on planning. Instead institutions find their investment horizons and minimum investment lot sizes being better suited to focus on construction and market risk. While other more limited sources of capital focus purely on much more risky and uncertain value creation from planning uplift. A report by Barratt and Chamberlain Walker from 2017 demonstrates this in planning terms, which showed 86.6% of outline permissions being held by “non-builders”.

Pennycook has ruled out a move away from the discretionary case-by-case system that does not fit capital markets in the most efficient manner, while vilifying the small pool of investors who do participate, making raising capital to obtain planning even more difficult. One real estate capital markets expert described the current planning system having a significant “risk premium” placed on the return requirements due to the significant risk and uncertainty created by the case-by-case planning system. The concept of “hope value” is relatively not widely properly understood, with its term coming from financial viability negotiations and DLUHC consultation concerning CPO viability in 2022. It is not something arbitrarily created. It is after all the price someone would be willing to pay to develop out a site. A point totally missed in Pennycook’s interview.

The RICS has covered the Land Value Capture consultation at length. It acknowledged that CPO reforms to hope value (Hope value estimates the cost land could be worth if it was developed on in the future) had been a long-term bone of contention for some. Yet the tribunal decisions told a different story. The consultation sought responses from stakeholders on proposals that allow the Secretary of State to cap payments in terms of hope value at existing use value, as now proposed by Pennycook. The aim of the consultation was to “avoid lengthy disputes over the amount of hope value and uncertainty lasting years into the development of a scheme as to how much compensation may be payable in respect of prospective planning permission”.

DLUHC could not provide any evidence to support such claims. But the RICS turned to the number of cases the Upper Tribunal (Lands Chamber) regarding determinations relating to hope value. They found only a handful of tribunal cases relating to hope value. None of which demonstrates values that could affect the viability of CPOs. Pennycook has in effect backed a large red herring into Labour’s housing policy proposals, while demonstrating an ideological, not evidence-based, approach to policymaking. The Liberal Democrats have also added this ill informed bow to their 2024 manifesto, stating they will allow “councils to buy land for housing based on current use value rather than on a hope-value basis by reforming the Land Compensation Act 1961”.

If we look deeper we can see where such calls for policy change has come from. Land reform of such nature has been argued by housing experts Rose Grayston and Toby Lloyd. Lloyd had published a report in 2017 before working for then Conservative Prime Minister Theresa May has a Special Advisor, titled New Civic Housebuilding. It featured in a UK Parliamentary Report on Land Value Capture published in September 2018, which quoted aforementioned research by Shelter. During Rose Grayston’s tenure at Shelter in 2019 she also blogged about land reform, citing the need to remove “hope value”.

Yet the 2022 consultation that followed, found this proposal to be in effect little more than misplaced understanding of how land markets work. What such proponents fail to explain is why the value of land increases if planning permission is obtained. Alan Bertaud describes planning future land use while ignoring predictable land value based on location makes no more sense than “trying to ignore gravity when designing an airplane”. These proposals do no more than that, ignoring the drivers of prices when trying to design land laws.

These values are entirely predictable. This is because they are a function of what the market would be willing to pay. It is not some kind of voodoo economics that so-called “private planning agents” conjure to “jack up” land values to “inflated” prices. Merely land values are a simple calculation of the residual sites valuation, once allowing for build costs and profit. If the capital markets cannot match its return requirements to the opportunities presented by restrictive land use regulations, then it is up for government to amend them to fit. But this is not something that appears to be understood, nor being willfully recognized, by proponents of eradicating land values from CPO legislation.

The final questionable policy is the introduction of Freedom to Buy. A mortgage guarantee scheme proposed off the back of Ian Mulheirn’s report cited previously on Left Foot Forward. Such a policy will only encourage First Time Buyers to take loans bigger than they otherwise would. While the state guarantees any losses on riskier lending banks would otherwise be unwilling to take. Most shockingly is that research shows mortgage guarantee schemes have already been found to not increase homeownership levels. It is after all a pledge to prospective aspirational homeowners who feel locked out the housing market. One that is political, rather than evidence-based policy led. Yet politically convenient policy can come with unintended consequences.

But with those few questionable policies to one side, we are on the brink of a Labour government who is serious about reforming our beleaguered planning system. Not just for housing, but for infrastructure too. The dream of homeownership can become a reality for the many if Labour can overcome the faltering land market through planning reform. Much more will need to be done to effectively overhaul the failed Section 106 system, while effectively delivering the necessary affordable homes to reduce the social housing waiting list down from the 1.3 million households currently left in limbo.

Yet there is much to hope for. Keir Starmer and Rachel Reeve’s teams have set out a plan to make significant steps in the right direction. Whether some narrowly focused think tanks think their manifesto pledges are watered down or not. After all, planning for growth is a central plank for an incoming Labour government. One many critics will ultimately recognise it as the right call once housebuilding comes back online.

The post Why Labour’s housing pledges are more radical than many would like to admit appeared first on Left Foot Forward: Leading the UK’s progressive debate.

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