What is generalised blight?

Reductions in: – Value – Volume – Mortgage lending

Variations Causes:

– Loss of amenity and new nuisance – Uncertainty – Amplified by fear of uncompensated losses

1 A309 (1) HOC/01591/0005

2

Impact of blight

Traps people in their homes Causes stress, worry and upset

Interferes with enjoyment of property

Imposes a property tax

A309 (2) HOC/01591/0006

Cash option (10% capped) OR

Distance PwC* 2014 (rural)

CBRE 2012 (rural) (urban)

CBRE 2010 (all)

Hamptons 2014 (rural)

Others (eg agents)

Wide range of evidence and examples from Estate Agents on price effects and sales activity

Results limited to 500m from line

EHS cases: out to 1km, 46% >200m; requires 15% price reduction.

Confined to 1-3mls (NB HS1: 40% less sales within 1 mile )

Whole villages blighted. Evidence to 0.5 mile; but 1 to 3 miles too

Other points Final blight >2023: 10% - 7%. Blight unlike HS1 #.

More expensive properties will lose proportionately more. “Inertia” means low take-up of schemes.

Buyer concerns: see it; hear it; construction impact.

Over £1m homes more difficult to sell. Health/welfare effects.

120m

300m

500m

30%

40%

20%

1,000m

1 -3 miles

(Sales based) 19.5% *** (Rural = 2.5 x urban loss)

27%

15%

40% 35% (Sales based) 18.1%**

Survey 5/10%; to 25% if see it

10%

5%

15%

20%

10%

800m

Over tunnels: 10% 5%

Study covered 1,000m

* Scenario used is where the property bond is not effective (and so closest to current situation which has no bond). ** Sales-based study comparing 500m band with 5 miles (may underestimate effect due to the worst cases not selling, and including EHS cases). *** Derived from post code sales-based study ,adjusted to correct for the rural post-code areas being too large ie up to 12.5km) # “…The unique characteristics of HS2 mean that datasets which might be considered comparable are, on closer examination, not to be relied upon to accurately project the level of blight around HS2” ... PwC

How bad is blight?

Blight

A309 (3) HOC/01591/0007

What this means in money (PwC)

4

Phase 1 Average price <120m <300m <500m 120-300m 300-500m

Blight to 2023 £ £ £ £ £ £

Country South 775,000 310,000 233,000 155,000 207,000 113,000properties 265 1,133 2,930 868 1,797

Country North 425,000 170,000 127,500 85,000 114,000 62,000properties 83 541 1,820 458 1,279

average 641,000 235,500 199,000 128,000 184,000 92,000

Final blightCountry South 775,000 77,500 58,000 52,000 52,000 52,000Country North 425,000 42,500 32,000 28,000 28,000 29,000

average 641,000 59,000 50,000 46,000 46,000 42,000

Source data : PwC Cost Report, March 2014*Assumes scenario which is closest to having no bond ie pessimistic case where Bond fails to reduce blight

Derived Distance from lineAverage losses per home owner*

A309 (4) HOC/01591/0008

Properties near to HS2

Number of properties within specific bands: 0- 60m

(Safeguarded Zone)

60 -120m 120 - 300m; 300 - 500m

60 - 120m; 120 - 250m; 250 - 500m

0-500m (rural), or 150m urban or deep tunnel

0-1km or 250m of deep tunnel

0 - 1km 0 - 1 mile

Area All Rural only Rural only Urban only All All All All

Phase 1 532 (348/184)

348

1,326 3,076

1,417 3,070 5,904

43,000

172,000

236,000 (486,000 with Phase 2)

240,000 (540,000 with Phase 2)

Source DfT (urban/rural)

DfT (excl. now bought)

DfT CBRE HS2 Ltd DfT/HS2 Ltd/DbD

FOI PQ (Cheryl Gillan)

Notes Presumed to now exclude HS1/2 link

Deloitte had 788 in Rural Support (& 823 in 0-60m)

Larger figures from DfT to a PQ from Cheryl Gillan, MP, 2013 = 2,240 & 5,642.

From CBRE 2012 spreadsheet

Used by DfT as basis for alerting homes to Oct. 12 compensation consultation.

DfT used 1 km for Feb 2011 comp. consultation, and most later ones

Not used by DfT for consultations

• 172,000 phase 1 properties are within 1km/0.6 miles or 250m of a tunnel • About 1 million people live within 1km of both phases

5 A309 (5) HOC/01591/0009

Discretionary Compensation Schemes

Current – Exceptional Hardship Scheme (EHS)

Proposed – Tunnel Guarantee – Express purchase – Rent back option – Voluntary purchase/cash alternative – Home-owners Payments – Need to Sell

6 A309 (6) HOC/01591/0010

Need to Sell = EHS?

EHS Property type Location Blight No Prior knowledge Hardship

– Unemployment (financial) – Job re-location – Up-scale (larger family) – Divorce (financial) – Illness (financial) – Retirement/downsize (financial) – Executors – Repossession – Financial

Need to Sell Same Same but what about tunnels? Same Same Compelling reason to sell

– Same – Specific distance? – same – same – same – anticipate 3yr otherwise same? – Same – Same – same

7

A309 (7) HOC/01591/0011

Location and hardship criteria

Location: – Extra requirement beyond blighted – At odds with scheme’s purpose – DfT say: “to ensure …. not obliged to accept an application from

an unreasonable distance away” Hardship/‘compelling reason to sell’:

– Downsizing misrepresented to Select Committee? – Intention unchanged – relabelled, not new approach? – Means-testing applies widely – any change? – Unsuited to a long-term scheme – Personal circumstances, not blight – Human rights issues

8

A309 (8) HOC/01591/0012

What do proposed schemes do?

Cash option (10% capped)OR

Zone HS2 Schemes* Terms NosOver bored tunnel

Tunnel guarantees Before & after surveysSettlement deedsSubsoil purchase (£50)

610+

SafeguardedZone (surface)

Express purchase Unblighted value, + 10% home-loss (£47k cap), + moving costs (incl. stamp duty)

532

Rent back option Market rent as tenant (applies to anyone who sells to HS2 Ltd eg Voluntary purchase too)

Rural Support Zone

Voluntary purchase OR cash sum**

Sell to HS2 Ltd - unblighted value; OR opt to stay - 10% but capped (£30k -100k)

348

Rural Home-owners payment**

120m - 180m = £22.5k lump sum180m - 240m = £15k240m - 300m = £7.5k

388631307

Unable to sell(must meet 5 criteria)

Need-to-Sell (replaces phase 1 EHS, byend 2014)

Unblighted valueCriteria: property type, location, blight, prior knowledge, compelling reason for sale/hardship

Est. 700 (50/a)

Physically impacted

Statutory Scheme: Part 1 compensation

Loss due to physical impacts of HS2 eg noise (not views and not market loss). Typically 5/7%

30m

60m

120m

300m

**2014 consultation on proposed arrangements*New schemes start by end 2014 and last until 1yr after HS2 starts (2027), when “Part 1” applies 9

A309 (9) HOC/01591/0013

Solutions

Transparency of rules, processes, independent appeal Improvements to the proposed schemes:

– Need to Sell: remove restrictive rules unrelated to blight – on location, hardship, prior knowledge; add in other property types.

– Voluntary Purchase Scheme: add HS1 additional payments; make cover a greater distance and urban; larger cash option and reversible

New schemes: – Sold & Lost: top-up if had to sell & lost money already (open market of

EHS)

New approach – Property Bond – to limit the blight itself

11

A309 (11) HOC/01591/0015

Property bond

Purpose – To restore market confidence – Compensate those blighted – Prevent opposition based on personal interests

What it is – Agreement for Promoter to buy property at unblighted value if open market

sale cannot be found after a trigger point in project’s development • Promoter is purchaser of last resort • Agreement is transferable

Why it works – Acts as insurance (eliminating risk for seller, purchaser and lender) – Allows mortgage providers to lend at unblighted values

Advantages – Cost effective: private finance keeps market functional 12

A309 (12) HOC/01591/0016

Property Bond: support

Overwhelming public support: – EHS 2010 : 84% – Feb 2011: 95% – Sept 2013 (rerun): 76%

Supported by leading professional bodies: CML, BBA, National Association of Estate Agents

Other concerned groups: MPs Forum; Councils; CLA; NFU

DETR Interdepartmental Working Group, 1997

13

A309 (13) HOC/01591/0017

Property bond: DfT objections

DfT concerns 1. Largely untested

2. Uncertainties create risk of excessive take-up:

Costs (max. possible outlay)

Community cohesion

Market stability

3. Take too long to implement

Response 1. Central Railway experience

2. Public inertia advice suggests take-up will not be excessive (CBRE)

Ignores NPV cost – ie standard basis Opposite of PwC advice Contrary to consensus of experts. 3. Poor reason for not offering solution. People waited 4.5 years already.

14

“It could not guarantee sufficient benefits to outweigh the risks of the scheme and the significant commitment of resources that it would warrant” DfT 2014

A309 (14) HOC/01591/0018

15

Central Railway experience

Objectives: restore market confidence and avoid opposition Properties covered • A common sense approach – all properties likely to suffer general blight

Key features • Self – Assessment of pre blight valuation; could include premium • Index linked • Transferable • Bond exercisable at construction

Advantages • No purchase costs until money raised for construction • Supported private sales at unblighted values

Evidence of effectiveness • 2004 1,100 bonds of which 35% used to support re-sales or mortgage re-valuation • DETR Interdepartmental WG 1997 commended it as best to date

A309 (15) HOC/01591/0019

Local perspective

Characteristics of area Owners:

– move once every 8 years – 85% of sellers are downsizing

Transactions: down; and further when construction starts HS2 blight:

– Affecting Chilterns generally – Properties by distance:

• Under ¼ mile (400m) : 20-30% discount if can see HS2 • ¼ to ½ mile (400-800m): 5-10% loss if can’t see it, but might hear it

– Purchasers of more expensive homes more “demanding”

17 A309 (17) HOC/01591/0021

Experience with EHS

Experience 1. Means testing applies excessively &

where hardship not financial 2. Valuation process incorrectly applied,

and people lost money 3. Unresolved muddle over blight

criterion 4. Administration: bureaucratic &

unsympathetic 5. Discretion creates uncertainty & stress

EHS as operated exploits vulnerable people

Learning 1. Financial tests are

inappropriate 2. Process needs better integrity;

an appeals mechanism; redress 3. Clear properly communicated

rules 4. Staff have appropriate

competence 5. Clear rules Schemes should be fair, transparent and policed, with a complaints process

18 A309 (18) HOC/01591/0022

Frank Dobson, MP

Frank Dobson, MP for Holborn and St Pancras Urban issues:

– Construction – Small traders – Social housing – Over tunnels

19

A309 (19) HOC/01591/0023

Cheryl Gillan, MP

Cheryl Gillan, MP for Chesham & Amersham Chair of MPs Compensation & Mitigation Forum –

cross party group of MPs on route of HS2 working together to push for fairer compensation.

Change in policy needed: nearly 5 years of suffering, financial loss and unfairness for constituents affecting health & wellbeing

Rural case studies 20

A309 (20) HOC/01591/0024

Hc7 ~

ALLIANCEUncertainties about the performance of a bond appears to have led the Government to assess it on the

basis of the maximum liability that a bond might create. They assess this by the purchase cost

exposure to purchase all properties that might be eligible for the bond eg just over 1 bn if it were a

300m boundary.

First, this is despite the fact the PwC model, even in its ̀ pessimistic' scenario model shows the bond to

result in greatly less outlay. For example with a 300m boundary the exposure would be to properties

worth just over a £1 bn, but with an expected worst case position of about a half having to be bought (ie

£509.4m)..

Secondly, and more importantly, to use the gross cost figures is not a correct valuation of the cost of

the bond.

The Government assess costs in terms of the net present value cost of options ie the end column of

Table 9. The Government would purchase properties at the unblighted value, followed some years later

by the sale of the same properties when the railway is operational and values have recovered to their

long term final level. The interim would involve management and maintenance charges that are

counterbalanced by rental income. It is the net cost that is the measure of cost normally used by

Government to make such decisions.

Although the Government quote the exposure to purchase cost as the critical cost of the scheme47, eg

£1.1 bn at 300m, PwC correctly assess the property bond on the basis of its estimated net present cost.

They calculate this to be in the range £30m to £158m fora 500m scheme. This is less than 1 % of

the £16,667m subsidy that the Government plan to spend on HS2.

The principle risk to the scheme having a moderate cost is not in fact the number of properties that the

Government might need to purchase, but the failure of open market property prices to recover to near

the unblighted price when HS2 is operational. However, there is no justification for making owners

suffer if this occurs, as it will be due to a failure to sufficiently mitigate the adverse effects of HS2 —

which the Government and not the property owner controls.

There are clearly perverse incentives when the Government funds the costs of mitigation, but not the

loss in value resulting from inadequate mitigation.

The situation is in fact even worse: the costs of mitigation enter the Governments social cost benefit

analysis —but the losses to individuals from their properties being devalued do not.

It is indefensible that Government should reject the scheme on value for money grounds relying on an

inappropriate gross cost parameter. If the scheme is a success (the optimistic scenario) its cost is

extraordinarily low eg £18m at 300m and £30m at 500m, and it still has a modest cost if it is less

successful in propping up the property market eg £85m out to 300m and £158m out to 500metres.

It is HS2AA's view that the findings of the report have not been appropriately used.

Reason 3: "Unacceptable burden on the taxpayer"

The Government conclude (at pars 8.3.7 of their April 2014 Decision Document) that were the bond

scheme to fail to operate successfully, then "a wide-boundary bond scheme would be likely to result in

costs so high as to, in fhe Government's view, represent an unacceptable burden on taxpayers".

This is reiterated in their final summary (para 8.3.10) where they state: "The fact that the analysis is

based on subjective assumptions cast doubt on the reliability of the results. As a consequence we have

decided that the financial risks are too great and the likely outcome of such a scheme too uncertain to

warrant the implementation of a property bond scheme.'

All models are necessarily based on assumptions, and in the case of the PwC model it was informed by

a wide range of experts and professional judgement as well as consultation with both Dff and HS2 Ltd

47 David Prout, DG of Dff (High Speed Rail), Presentation on Property Compensation, slide 4 Property Bond

Proposal, June 2014

30 September 2014 29 www.hs2actionalliance.org

29

A310 (29) HOC/01591/0053

"ACTIONALLIANCE

Appendix 4: ̀Helstrip' v HSZ Ltd Judgement

Extract from Appeal to Information Commissioner; Helstrip v HS2 Ltd; Case No

EA/2012/0201, Decision dated 29 January 2013

Decision by Judge., Chris Ryan

4'1. All parties accepted that.a. the EHS scheme way intended to help those who own a blighted

pro~~erty at a time when other circumstances are forcing them to sell;

b. the praperry market i~ nUt entirely rational end uncertainty abo€~t a

planned project may tem{~orarily undermine property values across an

area that is much larger than that in which such values will be seen to

have beEn permanently reduced, once the project has been

completed.

42_ We also received evidence, tivhich was not seriously challenged by HS2; to

the effect that estate agents in the area close to the Appellant's property

considered that paces had been significantly reduced across an area

extending up to three miles either side of the pro{~osed route.

43. In those circumstances it may be said that the Loc~~tion (:riterion imposes an

unnecessarily strict limitation on qualifying properties, in that it requires proof,

not that the property in question is suffering a tem{~orary price deterioration

due to market ~erc~ptions of the likely effect on it of High Speed T~vo, but that

it will act«ally be -'s~~hstantially adversely affected" by it. This wocrld seem to

us to give rise to the rea[ possibility that i7iarket misperception will lead to

individuals, with an urgent need to self a property (thus satisfying the

Hardship criterion), finding it impossible to sell a pro~erry (satisfying the

Efforts to Sell Criterionj, and yet not qualifying for EHS assistance because

the panel decides that, ultimately, the adverse effect tivill not be as great a~ i~

currently assumed.

44. The evidence of the HS2 witnesses, as supplemented by the answers they

gave to questions posed during the hearing, su~gestecf to us that the terms of

the Location Criterion assisted in rnaintaininc~ what they perceived as a

responsible attitude to not ex~cFrhating plight. Yet it seems clear from the

official explanation of the purpose of EHS that it was nit created in order to

control blight, but to providE redress wherever blight occurred, regardless of

what may have caused it. Public misperceptions may cause blight to extend

across a wider area than HS2 think is really necessary, but the harm suffered

by those trapped w~tllin it at a time when they are forced to gel! is r~o less real

for that_ AI( that is different is that HS2 will ultimately stand a much better

chance of recovering its outlay than in the case of properties closer to the

planned route.

30 September 2014 57 www.hs2actionalliance.org

57

A310 (57) HOC/01591/0081

Council of Mortgage Lenders

Robert Syms, MPChair of High Speed Rail (London -West Midlands)

Bill Select CommitteeHouse of CommonsLondonSW 1 A OAA

17 November 2014

Dear Mr Syms

HS2 Enquiry

The CML is the representative trade body for the residential mortgage lender industry that includes

banks, building societies and specialist lenders. Our 125 members currently hold around 95% of the

assets of the UK mortgage market. In addition to lending for home-ownership, the CML members also

lend to support the social housing and private rental markets.

In our responses to the earlier consultations we have referred to the fact that lenders will prefer to see

a method of compensation which will provide for valuations and purchase on an un-blighted

basis. This will give greater certainty to owners and lenders. For these reasons both the Voluntary

Purchase Scheme and the Property Bond Scheme would be preferred over the Hardship Scheme and

the Compensation Bond.

Yours sincerely

Chris Smyth

Chris SmythInterim Head of PolicyCouncil of Mortgage Lenders

address North West Wing Bush House Aldwych London WC2B 4PJ

telephone 0845 373 6771 fax 0845 373 6778 website www.cml.org.uk

A310 (67) HOC/01591/0091

o`~siaenrai~

'~

NASA "~ ICBA NAVA I~ P

14 h̀ November 2014

Robert Syms MP

Chair of High Speed Rail (London-West Midlands) Bill Select Committe

e

House of Commons

London

SW1A OAA

Dear Mr Syms

HS2 Select Committee

We write as the leading organisation for sales and letting agents in th

e UK to support the concept of

a property bond. We contributed to the PWC Report and spoke with

them at length. The property

market in the UK is dependent upon sentiment and certainty. Anyt

hing that is a cause of concern

both now and in the future affects saleability and demand. Whilst th

e property bond has a cost, we

believe this should be balanced against helping the homeowner an

d homebuyer in clarifying the

situation and giving impetus to the market along the proposed route

.

We would be very happy to provide further detail if so required.

Yours sincerely

MARK HAYWARD

MANAGING DIRECTOR

THE NATIONAL ASSOCIATION OF ESTATE AGENTS

~..~ n~

11~+OPP(rational Fedarntion o"r Property Professional

s

Arbon House, 6 Tournament Court, Edgehill Drive, Warwick CV34 6LG

T. +44 (0►1926 496800 F. +44 (01926 417788 E. membership@nfopp.co.uk www.nfopp.co.uk

Clutha House, 10 Storey's Gate, Parliament Square, Westminster, Lon

don, SW1P 3AY T. 0207 222 6172

Conference House, 152 Morrison Street, Edinburgh, EH3 8E6 T. D131 200 6000

Registered in England Nn. 8979D7. Registered address Warwick office.

6 9

A310 (69) HOC/01591/0093

arise are unemployment, job relocation, divorce and splitting of assets or perhaps people who are approachingretirement and wanting to downsize and release capital —because homes are major investments for so manypeople. they want to release the capital for retirement. The beauty of this scheme is that it does not have to waitfor hardship to occur. People can come to HS2 in advance and say: "We're seventy. We want to downsize. Wewant to release the capital. If we can't sell this property, will you buy it?" If they can demonstrate a need to sellat an early stage, if they cannot sell it at reasonable price then the Promoter will acquire it.'

This appeared to differ from the information provided on the ̀ Need to Sell' scheme in its consultation:

"43.25 For example, a couple who are approaching retirement age might find that as they are facing a reducedincome they need to downsize in order to reduce their outgoings and realise capital. Such applicants would only

have to prove a need to sell in the near future, allowing them to plan in advance for their retirement." (PropertyConsultation 2073 for the London-West Midlands HS2 route: Consultation document, Sept 2073, p28)

The subsequent decision document was less specific and simply gave an example of a "compelling

reason to sell" as

"5331............"the need to release capital for retirement" (Decision Document. Property Compensation

Consultation 2013 for the London to -West Midlands HS2 route, April 2014)

In the consultation materials at least, there appeared to be a clear requirement, that the "need to sell"

had to be driven by prospective financial hardship, ie by facing a reduced income that would

presumably make it hard to continue to live in and maintain a now too expensive property.

Our understanding is that there are a number of grounds under the proposed scheme that may not

require the demonstration of financial hardship, notably:

• Winding up the estate of a deceased person

• Moving due to job relocation

The passage from the presentation to the Select Committee suggests that downsizing for (or in)

retirement may be another such ground, as there is no financial hardship qualification mentioned

about facing less income in retirement, just "wanting to downsize and release capitaP'.

Can you please confirm the correct position?

Is the presentation to the Select Committee correct, ie a ̀compelling reason to sell' is, for a retired

person, to downsize and realise capital (as their property no longer meets the owner's needs for

example because the house is now too large for them or the gardens too extensive under the

circumstances of retirement). Alternatively, does there still need to be actual or prospective financial

hardship — eg that because of reduced income the owner could not afford the costs of residence and

upkeep in retirement —and that the unsuitability of the size of home by itself is an insufficient basis.

As I am sure you will appreciate, it is just these sort of differences that determine whether the

scheme can be characterised as means tested or not.

Numbers of properties in nroximity to the line

Recently published data in various documents have revealed considerable differences in the

numbers of rural properties close to the line, excluding those over tunnels, provided via Dff.

The Price Waterhouse Coopers (PwC) March 2014 report 'HS2 property bond: Cost report' page 7

provides a table of the number of properties by distance from the line in rural areas. These numbers

are sourced from CBRE and generally correspond with those contained in a presentation given byDavid Prout on 3 June 2014 titled ̀ HS2 Investing in Britain's Future: Property Policy

Announcements'.

2

r~:~A310 (76) HOC/01591/0100

Reference: FS50498174•

~~O•k+e.~~~.«~,~.

its consultants, who were specialist property consultants, throughprofessional judgment. It explained that the figures used by theconsultants were not arbitrary figures but were figures that lookedbroadly realistic.

19. The Commissioner accepts that it may have been possible for thepurpose of the exercise that was being undertaken for the Dfi7'sconsultants to have entered arbitrary figures, which bore noresemblance to reality, in respect of the percentage diminution inproperty values in the models for comparing different combinations ofcompensation schemes. However, it appears that they did not enterarbitrary figures.

20. The Commissioner acknowledges that the figures that were produced bythe consultants may not have been intended to have been preciseappraisals of the potential impact of the development of HS2 onproperty prices. However, the figures that were used were clearly anattempt to assign some form of realistic judgment to the impact of HS2on property values by consultants who had relevant expertise in theproperty field. Although they may not have been intended to have beenprecise estimates or predictions of what might happen, they were a formof estimate. Consequently, the Commissioner has determined that thediminution figures contained in the Df7's models constitute estimateswhich fall within the scope of the complainant's request.

21. Having determined that the information identified by the Di-T fell withinthe scope of the complaint's request, the Commissioner went on toconsider whether it constituted "environmental information" under theEIR.

(ii) Is the information "environmental information" under the EIR?

22. The Commissioner notes that "environmental information" is defined inregulation 2(i) of the EIR as:

"...any information in written, visual, aural, electronic or any othermaterial form on -

(a) the state of the elements of the environment, such as air andatmosphere, water, soil, land, landscape and natural sitesincluding wetlands, coastal and marine areas, biologicaldiversity and its components, including genetica!!y modifredorganisms, and tine interaction among these elements;

(b) factors, such as substances, energy, noise, radiation orwaste, including radioactive waste, emissions, discharges andother releases into the environment, affecting or likely toaffect the elements of the environment referred to in (a);

5

A310 (83) HOC/01591/0107

HS2 property bond

However, many of the assumptions that have been required to develop the cost model cannot be based entirely

on empirical data and therefore involve making a number of subjective judgements.

Where these judgements have been required, a collaborative approach has been encouraged which has sought

to leverage relevant experience from other major infrastructure projects, HS2 Ltd's existing property schemes

and the professional judgements of a number of informed parties.

A series of workshops and meetings were facilitated with representatives from DfI', HS2 Ltd, VOA (Valuation

Office Agency), HMT and we have also met with professional organisations such as CBRE to draw upon their

experience in refining the assumptions that are detailed in section 3 of this report. A number of refinements

have therefore been made to the assumptions as a result of these discussions. In addition, separate discussions

have been facilitated by DfT and HS2 Ltd with RICS, CML, CBRE and NASA about specific assumptions and

their views have been considered and reflected in the base case cost model inputs.

Given the subjective nature of a number of the inputs, a range of sensitivities have been run on the cost model

which demonstrate the impact on the model results from changing a specific assumption. Details of these

results are included in section 5 of this report.

2.3 Scenarios

Based on the approach to developing inputs outlined above, for several assumptions it is believed to be

inappropriate to only include a single assumption within the cost model as the actual outturn position is likely

to fall within a range and there is little basis for selecting a specific value relative to any other. Therefore, the

cost modelling has been prepared on the basis of two scenarios:

• `Optimistic' scenario —this assumes that a properly bond achieves many of its objectives and a

relatively viable property market is maintained. In particular, the presence of the bond limits the

number of owners looking to sell their properties, there are lower levels of blight and most properties

(other than those in close proximity to the line) are able to sell in the private market at an un-blighted

value; and

• `Pessimistic' scenario —this assumes that a property bond does not achieve all of its objectives and

the property market does not function as intended. In this scenario, we are assuming that a higher

number of property owners would look to sell their properties, blight levels would be higher and there

is limited demand in the private market to acquire properties at an un-blighted value, hence HS2 Ltd

purchase more properties,

It should be noted that these two scenarios do not represent all possible outturns and there is a possibility that

actual performance of the scheme would be outside the range captured by these two scenarios. In particular, the

`pessimistic' scenario should not be considered to represent the ̀worst case' scenario as this would reflect a

situation where a very high proportion (90+%) of property owners look to sell under a property bond and there

is a material level of ongoing blight.

In addition to the ̀optimistic' and ̀pessimistic' scenarios, the cost model has also been prepared based on three

potential eligibility criteria. These are all distance based and consist of:

• i2om from the line in rural areas;

• 3oom from the line in rural areas; and

• 5oom from the line in rural areas.

Section 3 includes details of where the assumptions that have been adopted are assumed to vary based on the

different eligibility criteria.

5 • PwCCost report

115

A311 (9) HOC/01591/0139

HS2 property bond

3.~ Level of blight

The level of blight experienced by properly owners during the construction and operation of HS2 is important

in determining the overall cost of a property bond as well as influencing a number of other assumptions.

The blight assumptions have been developed based on:

• anecdotal evidence around the level of blight that exists in the current market as a result of HS2. It

should be noted that this tends to be based on a very small sample size and involving properties that are

not typical of the properties that would be captured within any potential scheme;

• drawing on the experience of other professional advisers (including CBRE who prepared a December

2oro Blight Study for the HS2 scheme) around the available evidence in respect of blight on HSr and

other major transport schemes; and

• considering the available academic literature on the nature of blight and the shape of the ̀blight curve'.

It should be noted that the unique characteristics of HS2 mean that datasets which might be considered

comparable are, on closer examination, not to be relied upon to accurately project the level of blight around

HS2. For instance:

• HSi was predominately constructed adjacent to existing road and rail corridors and the sound

mitigation measures that HSi introduced meant that for many property owners the introduction of HSi

actually led to a reduction in transport related noise;

• HSi included intermediary stations which meant that many of the communities that had the potential

to experience the greatest blight as a result of HSi were also able to benefit from improved transport

connections and this has led to house prices increasing faster than the regional market in some areas

such as Ashford;

• similarly to HSi, road schemes generally provide a benefit to those living near the scheme from being

able to use the improved transport network which can offset other forms of blight; and

• other infrastructure schemes where local residents do not benefit from improved amenity but

experience blight tend to include airport expansions and nuclear power stations. In the case of nuclear

power stations, these tend to be sited in remote areas where comparatively few properties experience

blight. In addition, nuclear power stations tend to employ large numbers of people and therefore can

significantly increase housing demand in a local area. Airports similarly employ large numbers of

people and therefore can increase demand for property in the proximity. In addition, the limited

development of aviation facilities in the UK in the last 20 years means that no project comparable to

HS2 has been undertaken where blight patterns can be observed.

In the absence of robust data from other schemes, the blight levels for Phase i HS2 have been prepared based

on the following assumptions:

• experience shared with us when consulting other professional bodies suggests that for other transport

projects, generally the highest level of blight experienced is in the region of 35-40 %and can be lower;

• blight was highest on HSi for high value properties where the number of potential purchasers is lower

and their perception of value tends to be most affected by large infrastructure projects. HS2,

particularly in the Country (South) section of the line contains properties with an average value that is

significantly in excess of the national average at £775k with a number of higher value (£im+) homes;

and

17 • PwC Cost report

127

A311 (21) HOC/01591/0151

HS2 property bond

• whilst there is limited supporting data, it is generally accepted and logical that blight follows a curvethat is at its peak during the construction phase of a project before dropping and values moving back inline with the norm as construction completes and a project commences operations.

On this basis, following discussion with DfT and HS2 Ltd, the cost model has been prepared on the basis of theblight curves shown in the graphs below.

All of these curves follow a similar pattern involving:

• a constant level of blight from the introduction of any property bond to 2023 when construction beginsto complete (NB: the traditional blight curve shows blight increasing as construction approaches. In thecase of HS2, the route has been public knowledge for up to 5 years prior to any property bondcommencing so it is assumed that blight could already be at its construction level);

• the peak blight is 40% in the i2om pessimistic scenario which is at the upper level of what hastraditionally been experienced for individual properties in other schemes but reflects a prudent viewthat blight could be more severe as a result of HS2 than other recent transport schemes;

• blight declines from 2023 to 2026 with the level of ongoing blight at the end of the scheme rangingfrom io% in the pessimistic i2om scenario to 2% in the optimistic 5oom scenario; and

• the level of blight is expected to be lower the greater the distance from the line.

18 • PwC

Level of blight -120m scenario

5CJ%

44%

30

20%

1096

0°.6

2015- - --

2Q16 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

—120m Optimistic --124m Pessimistic

Level of blight - 340m scenario

40%

30%

20%

1096

0%

2015- - — -

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

30Dm Op#imistic 300m Pessimistic

Cost report

128

A311 (22) HOC/01591/0152

Birmingham

~t3MPTONSINTL'H\AT!(1YAL

Linking Housing Markets

The effect of transportinfrastructure on housing

i■r u~' ui ~■iur m ur ui

n~unnn11111111!?UI ....1111i111~~N11 ~ ~ ~ ~ ~~~

llitlll l l l 11 11 1iUiili ~ ~ ~ ~ ~ ~ ~

_~ ~ ~ ~

1 ~~

1 ~•

• ••

HS1

.~~..,~~1 ,

~~~ ~~~ ~~~ ~~~ ~f

~~~ ~~~ ~~~ ~~~ ~.'i• C'

~.

~~

A311 (49) HOC/01591/0179

LINKING HOUSING MARKETS

Impact of

Uncertainty on Pri

ce

ithin 500m of the HS2 route outside of London

aver

age pr

ices

dec

line

d both from 2009 (when

the current roide was pro

pose

d) and since 2012,

when the government con

firm

ed tha

t the project evould

go ahead. Prices within 500m of the route fe

ll by ~.5 per

cent in thr last yea

r and are

seven per

cen

t lo

wer than in

2009, To pu

t th

is in co

ntex

t. prices in

Eng

land

& YVa

les

incr

ease

d by d.R

per

cen

t in

the last ye

ar and by fiv

e pe

r

cent

since 2009.

At fur

ther

distances fro

m the li

ne the

re has been

litt

le effect

on pri

ces th

at can

be attributed en

tire

ly to HS2. As wit

h the

8/9

HSi Det

ling

and Har

riet

sham

example there seems to have

been no spe

cula

tive

and ant

icip

ator

y effect on pri

ces as

ther

e is no ben

efit

in te

rms of

tra

nspo

rt.

Looking just at the section of

the lin

e that falls w

ithi

n the South

East

region, mai

nly Buckinghamshire, r

t seems that th

em may

be an exaggerated n=dative efiert up to a mil

e frorn the li

necausing pn

ces to fa

ll i

n ihF la

st ~ 2 mon

ths.

Opp

osit

ion to

the

route is

most voc

ifer

ous in

this pa

rt of th

e country an

d this is

like

ly to be a maj

or con

trib

utin

g fa

ctor

. In co

mpar

ison

, pr

ices

in

the wi

der Buckinghamshire ar

ea increased by 4.3 per

cen

t in

2013 and by 8.8

per

cen

t si

nce 2009.

aoo oa

u ooa

oao 00

0 000

aoo oo

u o00

000 00

0 000

i

Change in Prices by

Dist

ance

from HS2 Route

(exc

lude

s London)

500 METgES

0

0

oo ~ ry a o

r 7D

N .~-

V' ~

12 mamas

~~] From 2009

HIGH SPEED 2

Change in Prices by

Dist

ance

from HS2 Route

in the

Sou

th East 0

0

V'

~ N r

500 METRES

15

14 —

13 —

12 —

11 —

10-

9-

8-

7-

6—

5 —

4—

w 3—

a 2_

O

~

Z ~ 0—

z a x U

.~ —

w c7 Z '2 —

U a

-3 -4 —

-5 —

-6 —

-7

A311 (53) HOC/01591/0183

r C1

LINKING HOUSING MARK[RS

O

Surv

ey of Agents

e con

duct

ed a sur

vey

among buy

ing and lettings

agents in

the

vic

init

y of th

epr

opos

ed route in

oMer to gauge the

effe

ct the

HS2 scheme is

having now

and exp

ecta

tion

s of

how the

local

markets ar

e li

kely

to behave in f

utur

e.While the sample size is quite sma

llthe re

sult

s still give an insight into the

market from th

ose cl

oses

t to

it.

The resuRs echo the

exp

erie

nce of

HS1

in that

it is

the

are

as cl

oses

t to

the

line

which are mostaflected. Un

like

HS1,

the route wi

ll not

foll

ow a mot

orwa

yuntil f

t approaches Birmingham so there

is pot

enti

ally

mor

e to lose, but

this is

offset by mo

re tu

nnel

ling

. The tu

nnelling

will

mitigate t

he ef

fect

on the

lan

dsca

peafter c

ompl

etio

n, but

disuption from

construction while the wor

k is

ongoing

will

rem

ain.

The sur

vey re

sult

s sug

gest

that

the

area

s fu

rthe

r up the route tow

ards

Birmingham are

less likely to se

e an

impact, wh

ich

is not

surprising gi

ven

that

the

se are

as are

less densely

popu

late

d. Ov

eral

l respondents

were

sanguine ab

out the cu

rren

tef

fect

of HS2 on the local housing

mark

ets.

Mast respondents did not

thin

k there is

any

eff

ect on markets

right now, wi

th the exc

epti

on of those

area

s closest to

the

route. Here the

uncertainty ab

out the impact on the

view is paramount. Th

is unc

erta

inty

Conclusion

The experience of HSi con

stru

ctio

nteaches us some things ab

out what

we should expect with HS2. The

lack of access to stations means that

unlike HS1 there vas

no upl

ift i

n pr

ices

in ant

icip

atio

n of

ben

efit

s of

bet

ter

hans

port

. In

stea

d, li

ke the Det

liny

and

will continue un

til the ro

ute is

mapped

out in det

ail (

there may yet be

alte

rati

ons to account fo

r en

gine

erin

g)

and may continue to dis

tort

markets

for lo

nger

than is

des

irab

le.

Looking ahead, respondents expected

any impact to be largely confined to

a!h

ree mile radius. There was a notable

and in

tere

stin

g ex

cept

ion to this wh

ich

reve

aled

an ex

pect

atio

n th

at residents

may move wit

hin th

e lo

cali

ty but

just

furt

her away from th

e line

Ther

e was a bro

ad con

sens

us th

atab

out a quarter of

enquiries t

o bu

ypr

oper

ty raised qu

esti

ons ab

out HS2.

In the

are

a closest t

o th

e pr

opos

edro

ute,

unsurprisingly, t

his r

ose to th

ree

quar

ters

. The fa

ctors of

most co

ncer

nwe

re con

stri

ctio

n di

snip

tion

, bli

ght hom

pote

ntia

l noi

se and

spo

iled

views.

Interms of

the ef

fect

on prices, th

e re

sult

s

were

difficult t

o in

terp

ret as it

is se

nsitive

to the pre

cise

location. Res

pond

ents

did re

port

, how

ever

, that properties

clos

est t

o the li

ne wee proving di

fficult

to se

ll. Tho

se properties wkhin half a

mile but wdh no view of

the line wer

eestimated to

hav

e between a 5-10 per

cent dis

coun

t. Homes va

ithi

n ha

lf a mile

with

a dis

rupt

ed view we

re dis

coun

ted

by los

er to

25 per ce

nt.

Apart f

rom th

e ar

eas cl

oses

t to

the line

there was li

ttle evi

denc

e th

at ex

isting

residents were keen to sel

l. Disruption

caus

ed by co

nstr

ucti

on wor

k was

Harr

iets

h2m ex2mple

all o

f the ri

sks

are skewed to th

e clom~nside.

Unlike HS1, the HS2 rou

te does no

tfo

llom

~ a~ ex

isti

ng motorvaay so the

risk

s

to the

lan

dsca

pe are eve

n mo

re negative.

Undo

ubte

dly this would lead us to

expe

ct a lar

ger e

ffec

t on local housing

ment

ione

d in almost ev

ery case as a

reas

on to co

nsid

er moving away or

not move in. One res

pond

ent sa

idth

at th

is was th

e only fac

tor affecting

markets, im

plyi

ng tha

t the effect is

temporary and con

diti

ons will ret

urn to

normal on completion of the line.

Over

all,

the

survey results br

oadl

yconfirm that housing mar

kets

in the

vicinity of HS2 in Buckinghamshire

will be affected

in a sim

ilar

way

to the

exp

erie

nce in

are

as close

to the

HS1 rou

te where there was

no additional tr

ansp

ort benefit.

Uncertainty is cle

arly

a cri

tica

l fac

tor

creating fear about the potential

cost

s in

ter

ms of th

e le

vels

of

disr

upti

on and the

eventual ef

fect

on the landscape. Th

is unc

erta

inty

has fr

ozen

mar

kets

to an ext

ent and

caused prices to tal

l in

the

are

ascl

oses

t to

the

lin

e, as was the

case

in HS1. The fear of

blight seems

to have had a bi

gger

effect on the

HS2 rou

te, probably because, un

like

HS1, it

does nit

follow an existing

motorway. Lo

okin

g ahead, the

fea

rsassociated wit

h other infrastructure

proj

ects

tur

ned out to

be ove

rpla

yed

and thi

s may well tu

rn out to be the

case wit

h HS2. One quote from

an off

ice cl

oses

t to the line sums it

up wel

l. "The number of po

ster

s/ba

nner

s (r

elat

ing to

HS2] ev

erywhere

is als

o not helping."

mark

ets in

the ea

rly s

tages an

d that

seems to

be the case.

If th

e ex

peri

ence

of HS1 and

oth

er in

frastructure projects

which th

reat

en to bl

ight

landscapes ho

ld

true, these mar

kets

will ret

urn to

nor

mal

and th

e ne

gati

ve impactwill no

t be as

significant as fe

ared

.

Compensation Schemes

Once the

rou

te was confirmed home

owners whose properties fall who

lly or

partly within the defined 'safeguarded'

area

(app

roxi

mate

ly 60m of the route)

were able to ser

ve a statutory blight notice

requ

esti

ng the

Government to pu

rcha

seth

e pr

oper

ty. S

tatutory Blight Cl

aims

entitle

the owner to the un-blighted value of

their pr

oper

ty plus ahome-loss payment

of 10% of it

s value (up to £47,000) and

reasonable mov

ing ve

sts.

Even though the

owner is

ent

itle

d to

com

pens

atio

n, ther

eis

still un

cert

aint

y ab

out how much of a

disc

ount

the

blight causes.

-.,

I,

The Exc

epti

onal

Hardship Scheme (EHS)

is designed for those who, for re

ason

s of

exceptional hardship, ha

ve an ur

gent

need

to se

ll but

hav

e not been able to

wit

hout

substantially discounting their property, as

a dir

ect r

esult of

the announcement of

HS2.

Qualification is on a case by case basis

whic

h adds to the uncertainty .The same

unce

rtai

ntie

s abo

ut the

level of discount as

seen in St

atut

ory Blight apply.

HIGH SPEED 2

The current pro

pose

d ro

ute co

mpri

ses th

e fo

llow

ing

broa

d el

emen

ts:

►A Lon

don te

rmin

us st

ation at Euston;

►An in

terc

hang

e station at Old Oak Common in

West London;

/The mai

n ro

ute of

the

high sp

eed

line. This wo

uld ru

n in

a tun

nel f

rom ne

ar Eus

ton,

surfacing in West Lon

don an

dleaving Lo

ndon

via a tunnel at Nor

thol

t un

til

it re

surf

aces

atWest Ruislip. I

t would the

n proceed largely in a tun

nel f

rom

the M25 as fa

z as Hyde Hea

th. The lin

e the

n continues t

o th

ewest of Wendover and Ayl

esbu

ry, pa

rtly

in tun

nel an

d pa

rtly

following the ex

isti

ng A4~3 and Chiltern Li

ne co

rridor, wRh

an inf

rast

ruct

ure ma

inte

nanc

e de

pot ne

ar Ca

lver

t. The next

section would broadry utilise the

lar

gely

preserved tra

ck bed

of the former Great Central Ra

ilwa

y, passing to th

e ea

st of

Brac

kley

before co

ntin

uing

in al

lort

h-We

ster

ly dir

ecti

on to

pass

between Ken

ilwo

rth an

d Co

vent

ry to ne

ar Water Ort

on.

Here

the li

ne would divide with one arm serving Birmingham

city

centre (

part

ly in

a tunnel an

d with a ro

lling stock de

pot at

Washwood Heath) and

the other con

nect

ing with the

West

Coas

t Main Lin

e north of

Lichfield.

►Spu

rs to

accommodate the

routes t

o Leeds

and Ma

nche

ster

;/ An int

erch

ange

station on the

outskirts o

f Birmingham;

►A ce

nVal Birmingham te

rmin

us st

ation at Cur

zon Street in

the Eastside reg

ener

atio

n area.

10/1

1

A311 (54) HOC/01591/0184

Final FteY~ort

1. Introduction

1.1 It u w►~ely perctrved tit the emergence of Excxioaals for mayor infr~atrucnue

pmjccu carries with is the pcxential fur ciepreciztion to the lcxal pcuperty market and

lores co busincs profi~~bility in addition to the wiser henefia the pmpasals ue designed

to bring. Althcwgh this perctpticxi is not new, plaru for a high speed rail luilc from Lamd~.m

to [he Kenr coast ha~•e generated a Ko~cl ckal o(debatr, partly bec~u~e of the numhers nt

people affecteJ by the ~+n>pueyl~, uuj par[ly hetaust of tfie n~rvelty — in the 20th century

— of a plan her the cnnsrruceion d a major new n~lrray. Thu pherwmenon w~ieh links

depret~ation in ptvpertY values, and butine~ Icx~aes, durctl~ to wuertnin~ics Reiunccd 6y

Fr~uale fog tn~j~x development prujecu is known as generalised (cx perceived) blight.

House of Commons Select Committee on the

CTRL

1.2 The Hewx u(G~enrtux~s Select Qimm~ttee nn the Channel Tunnel Rail Link

(CTRL) Bill way concerned a[ t!u diFficultiu experience 6y property owners a{ong ehr

routes which hac! F+een pn>FxxeJ fur the CTRL Mtn~bten th~trf~xe a~ahlished :u~

intenie~vtmenrnl w.xking getup un bligh~ (I[~WGB—'the Cirwp') to r~v~ew the xupr,

ca~cac and effects of blirht aru~ng durin6 the varicxu ~tagcs d map~t infrastrvctwc pro~ecrs

aru3 to c~xu~er whrthrr any ptactu~l chu~ges can be made ro the ex~snn~ arranRcmcnes

for propem' ~+urthax arul compensation. The Full trrnu ~~f reference ase a~ Anaex A.

The work of the group

1.3 A detailed proRtess tepcxt and ~n account d the rcprescntatioro made to the Group

was prrscntcd to Parliament on 20 No~•~mhet 1996. In wmmary•, the Gtoup puhlvched a

duc~Kxi ~apet in June 1996, in response u~ Which more than 60 wbmunons wrrc

received. The Group held H numE+er of mcettngs with ~n.3ividuaL~ a»d organisa~k~ns,

~nclueling uffuiata from overseas g~n•rmment ~3epanmenu. it also collrcte~ evu3ence vn

prc~erty price [rends en areas affectrd b~~ prc~+cuals for major ui(rasinxturc pnijects.

Exceptional hardship

1.4 As a rewlc of an undertaking Qiven to the Select C:cmimittee vn the Parliamrntar~•

Q~mmissx~ner for Administratwn, the Cn~vemment formulaeed a scheme co pruvicle

redtes~ w those affected to an exneme and exceptional .kprce by gencralued blight from

the Channel Tanncl Rail L~n]c bctM•ccn ]unr 1990 acid .Aril 1994. The re~•icw nut cif

M~htch the scheme emerged had ~ quire J~fferent rcmi~ to th~c of the IUWGB uu! ~ra~

u~ncemed with Aeneralued bl~Yhc refaced specifically to a parwd v( uncem~inry aMut the

route d the CTRL dunng the ,3evel~~ment of the project. lr x~ not a general

a~nsiderotion of bli¢ht and prc~crty purchase arringrm~nts. 6nyumea a~~ut thr

'E~cceptwnal Hardship' xhtme shxwld br addrarrul to CTRL D~visbn, Deparcmcnr of

she Env~ronmrnc, Trans~rt and the ReQicros, Zone 3J29, Grcot Mmurr HoLL~r,

?9 H~xsefem~ R~u~.~, L.~mdun SW I P 4DR.

164A311 (58) HOC/01591/0188

Property Compenzatio~ Cons~itateon zoi3 for the Lwfdo~-West Midlandz HSz route ~ Long•tertn hardship scheme (LTHS)

the inherent flexibility of the scheme to ensure applicants are treated fairly. We willexplain more aboutthis in the scheme guidance that we will issue when the schemeis implemented.

5-3~~6 Second, it was suggested that potential buyers would be discouraged by this criterion.The Government does not consider it reasonable, however, to underwrite the valueof properties purchased by individuals who have full knowledge of HSz. Governmentcannot be expected to purchase properties on the basis thatthey cannot be sold foran un-blighted value due to H5~ if the property owners themselves had knowledge ofthe source of the project.

5-3~z7 Criterion S (hardship) generated a very strong response from the public duringconsultation, and the Government has amended the criterion with the intention ofallaying, where possible, public concerns. Though it is not reasonable to expect theGovernment to intervene in the property market by buying properties without acompelling reason, the Government's aim in proposing a hardship criterion has beenfrequently misunderstood.

5-3-z$ ~Ne recognise that we should clarify our intentions in order to ensure that eligibleproperty owners would not be discouraged from applying to such a scheme due to amisperception of what we mean by'hardship'. Respondents' comments frequentlysuggested that the hardship criterion was indicative of asystem ofmeans-testing'applicants or that only financial hardship would be considered valid. In looking atconsultation responses it was of great concern to the Government that individualsin challenging circumstances would have been put off from applying to the schemebecause they did not feel that their circumstances warranted the label ̀ hardship'.Further, some responses suggested that as'hardship' was not defined with referenceto specific circumstances through a strict definition, it may be misapplied by panelmembers to the detriment of applicants.

5.3.zg It is due to these comments that we will change the hardship criterion to ̀Compellingreason to sell', a title which more accurately reflects the purpose of the criterion,which is to ask that applicants demonstrate that they need to sell their property andthat the Government therefore ought to assist the individual directly. Therefore thescheme name will be changed from'Long-term hardship` to'Need to sell'.

53-3o With this in mind, we have also considered whether or not to provide a list of specificcircumstances which demonstrate a'compelling reason to sell'. While superficiallyattractive, we would not want such a list to become shard-edged set of inflexiblerules. It is not possible to specify all the circumstances in which householders mightfind themselves, and it is important that a panel considering any individual request isfree to consider the merits of the case put to them.

53-31 To provide some clarity of the GovemmenYs broad intent with this criterion, we wouldlike to indicate at this point some of the scenarios where we consider applicants couldmake a strong case that they have a ̀compelling reason to sell'. These scenarios include:

• unemployment;

• relocation for a newjob;

• dividing assets as part of a divorce settlement;

29

190

A311 (84) HOC/01591/0214