Who Should Build Our Homes

7/29/2019 Who Should Build Our Homes

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Who should build our homes?Six experts challenge the status quo


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Published in 2009 by the Commission

for Architecture and the Built Environment.

Graphic design: Fivebargate

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CABE is the governments advisor on

architecture, urban design and public

space. As a public body, we encourage

policy makers to create places that work

for people. We help local planners apply

national design policy and offer expert

advice to developers and architects.

We show public sector clients how to

commission buildings that meet the needs

of their users. And we seek to inspire the

public to demand more from their buildings

and spaces. Advising, infuencing and

inspiring, we work to create well-designed,

welcoming places.

CABE

1 Kemble Street London WC2B 4AN

T 020 7070 6700 F 020 7070 6777

E [email protected] www.cabe.org.uk

This publication is available

in alternative formats on requestfrom the publisher.

CABE is supported by

Contents

1

Introduction

Author biographies

Land supply and theplanning systemChristine Whitehead

Building new communitiesthrough local partnershipsPeter Studdert

Financing and changingbusiness models or housingLiz Peace

Time or a citizenshousing revolutionStephen Hill

Sustainable design and newmodels o sustainable livingPooran Desai

Innovations in tenureDickon Robinson

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Introduction

2 3

The housing boom was all about chasing volumesand shareholder return and, ar too oten, deliveringpoor quality. That era came to a sudden end whenthe nancial system ell apart in 2008. Now, with thehousebuilding industry tentatively beginning to nd itseet once more, CABE is looking to uel a debateabout the uture or housing in the next economic cycle.

In one version o the uture, the big housebuildersrepair their balance sheets and continue on as beore,with little real change in quality or output. However,as CABEs chie executive Richard Simmons arguedin No more toxic assets1, more o the same is simplynot good enough. We already know, through CABEshousing audits, that the majority o housing built in theUK does not meet the standards required.

Now there is an opportunity to change the way housingis delivered in Britain, and explore new routes andmodels to achieve the quality and quantity that havebeen so conspicuously lacking to date.

CABE commissioned six experts with strong viewsand their own perspectives to tell us what they would

change to deliver more housing, better designed,at aordable prices. They responded with visionarythinking, radical ideas and a series o persuasivearguments or change.

There is anopportunityto change theway housing isdelivered and

explore howto achieve thequality andquantity thathave been soconspicuouslylacking

1 See No more toxicassets: resh thinking on

housing quality, CABE,2009, www.cabe.org.uk


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n Christine Whitehead points out that housingsupply never came near to meeting demand,even during the boom, and suggests that a newtax regime can tip the balance o power romdevelopers towards communities

n Peter Studdert draws on extensive personalexperience to call or local authorities to be setree rom central government and trusted to

deliver quality housing or the people they serven Liz Peace challenges the predominant build-to-sell

model and calls or both investors and consumersto reassess our attitudes to private renting, i wewant more better quality housing in the uture

n Stephen Hill champions the sel-build movement,insisting that i we want sustainable housingdelivered with vision and initiative, sel-build is theplace to nd it

n Pooran Desai argues that we must seize theopportunity o climate change to build sustainableplaces where people can more easily lead healthyand happy lives.

n Dickon Robinson questions whether we cancontinue to live on our own, and suggests weneed new orms o tenure which embrace

multiple occupation and help people learn tolive together again

All this thinking is a powerul catalyst or debate.CABE wants that debate to generate momentum orthe creation o new and revived housebuildingmodels. Otherwise, it is hard to see how theUK can house an expanding population orundamentally change the quality o its homes andneighbourhoods.

Introduction

4 5


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Stephen HillStephen Hill is director o C2O utureplanners. He isa CABE enabler, a member o CABEs SustainableCities advisory group, BREs sustainability board,and RICS sustainability and planning & developmentproessional group boards, the EU sustainableproperty investment and management advisory group,and the HCA liaison panel.

Pooran DesaiPooran Desai is a ounding director o the specialistsustainable property company BioRegional Quintainand a co-ounder o the international environmentalorganisation BioRegional Development Group.He drew together the development partnership orBedZED where he lives and works. In 2004 hewas awarded an OBE or services to sustainabledevelopment.

Dickon RobinsonDickon Robinson was ormerly the director odevelopment at the Peabody Trust, chair o BuildingFutures at the RIBA. He is chair o Stratord Cityenvironmental review panel, a member o the

CABE English Heritage urban panel and the Bathurban regeneration panel, and visiting proessor oarchitecture at Mackintosh School o Art in Glasgow.He was ormerly a CABE commissioner.

Christine WhiteheadChristine Whitehead is proessor o housingeconomics at the LSE and part-time director othe Cambridge Centre or Housing and PlanningResearch. She has been a specialist advisor to theEnvironment Select Committee and was awarded anOBE or services to housing in 1991.

Peter StuddertPeter Studdert is director o joint planning orCambridges growth areas. He advises the jointplanning committees established between SouthCambridgeshire District Council, Cambridge CityCouncil and Cambridgeshire County Council onmajor housing sites and the new town at Northstowe.The views expressed here are his own.

Liz PeaceLiz Peace is chie executive o the British PropertyFederation and a CABE commissioner. She is also amember o the Peabody Trusts property committee,trustee o the property charity LandAid and a non-executive director o the planning and urban designconsultancy Turley Associates.

6 7

Author biographies


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8 9

1 Christine WhiteheadLand supply and the planning systemSummary

Production o new housing has halved since 2007and the majority o completed units have receivedsome orm o government subsidy. House priceshave allen by 16 per cent and transactions are60 per cent below normal. The crisis involves twodistinct problems: cyclical volatility arising romshort-term economic conditions and the longer termincapacity o the sector to expand supply to meet the

projected growth in household numbers.

The planning system is also ailing. Section 106 hasproduced more aordable housing, but overall thelevels o delivery are still low and quality is quitepoor. The result has been a policy that only benetsthe ew and leads to urther distributional inequalitiesbetween income groups, tenures and generations.

Piecemeal policymaking has led to a centrallydirected strategy that creates more problems thanit solves. The ocus on browneld sites hasincreased costs; pro-density policies have reducedroom sizes; and the system is weighted against rsttime buyers.

There is a need to move away rom the centralised

top-down approach to large-scale development,towards more local approaches. Measures suchas the community inrastructure levy and changesin property taxation oer dierent ways to ensurethat local communities see the benets thatdevelopment can bring to them and the economymore widely.


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Christine Whitehead Land supply and the planning system

Introduction

The nancial crisis and the recession have playedhavoc with housing output and house prices.Housing starts in 2008/09 were less than hal thelevel reached in 2005/062 and have now allen tounder 100,000 per year. Most needed some ormo government subsidy. House prices have allen

by about 14 per cent rom peak in December 2008to trough in February 2009.3 While prices havestarted to rise again this may be mainly the resulto the extent to which the market has simply siltedup with transactions levels at least 60 per centbelow normal.4

The crisis will take a long time to unwind.It involves two distinct problems:

n Cyclical volatility arising rom changes in short-term economic conditions, and in condence,which generate much larger changes indemand than in overall supply. The problem isexacerbated by the relative ease by which newsupply can be reduced in response to market

conditions as compared to the speed with whichit can be expanded on the upturn.

n The apparent incapacity o the sector to increasesupply to meet the projected growth inhousehold numbers and increases in incomes.This has been the major cause o the longer-termtrend in house prices in England which has beeninexorably upward, adversely aecting wagerates, labour market fexibility and internationalcompetitiveness.5

At the moment most o the emphasis is onaddressing the volatility issue and signicantlydenying the underlying problems. Yet during thiscentury unlike in earlier decades supply has notkept pace with actual household ormation, resultingin increasing pressure on house prices and volatilitybut also in poorer housing conditions, increased

sharing and overcrowding.6 Meanwhile many o thenew homes that have been built have been poorlydesigned and planned.

Since the 1960s, private sector output levels havebeen around 140,000 per annum. Governmentintervention appears to be required to supportadditional housing above this level. An estimatedrequirement o 240,000 plus units per annum inEngland implies an enormous gap.7,8

2 Live tables no. 208,CLG, November 2009,www.communities.gov.uk

3 Table HP8, Councilo Mortgage Lenders,2009, www.cml.org.uk

4 Table PT2, Councilo Mortgage Lenders,2009, www.cml.org.uk

5 Review o housingsupply: securing uture

housing needs interim

report, Barker, 2003,London, HM Treasury

6 Homes or theuture: more aordable,

more sustainable

Housing green paper,CLG, 2007, www.communities.gov.uk

7 More homes or morepeople, NHPAU, 2009,www.communities.gov.uk/nhpau

8 Homes or the uture,Holmans, Monk andWhitehead, 2008,england.shelter.org.uk

Figure 1 Housing supply and real house prices(adjusted or ination) 1945-20072

Private sector Housing associations Local authorities Real house pr ices

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Problems with land supply and planning

Land supply and particularly land use planninghave been blamed or this lack o investment inadditional housing. The Barker review identied auller range o reasons including the structure andperormance o the housebuilding industry and, to alesser extent, the possibility o speculation in land.

The review also emphasised the adverse eects otaxation policy in generating greater volatility anddiculties in unding the necessary inrastructure.9

The impacts o land supply and land use planningare also ar more complex than perhaps is generallyrecognised. It is not simply a matter o speedingup or even making more planning permissionsavailable. In simple terms the numbers opermissions outstanding are more than enough tosupport government targets or many years. Yet thenumbers are dicult to interpret: many are outlinepermissions which may simply be there to helpdetermine current option prices. Equally they maybe substituting or earlier permissions. Whateverthe reasons, tensions between developers and

local authorities clearly still remain and this actlies at the heart o the problem o over constraint.

However, the problems associated with the lacko longer-term supply responsiveness are ar moreundamental. The evidence on land and houseprices shows an increasing upward trajectory,particularly since the 1990 Town and CountryPlanning Act shited policy towards a plan-basedsystem and section 106 brought in aordable

housing requirements and other aspects o planninggain (gure 2). Since then the government hasimplemented a large number o separate policiesthat interact with one another to increase thecomplexity, risk and cost o development. Equallythe lack o a coherent policy towards undingnecessary inrastructure, and uncertainty as to whenit will be provided, has made it more dicult both to

overcome local objections to development and toensure stable supply.

Many commentators argue that the current modelo unding is broken, particularly because planningobligations will not be able directly to supportdevelopment in the next ew years. However,discussion so ar has been mainly in the context oshort-term volatility with very little attempt to addressthe more undamental issues. The system did notwork well even in the boom to provide the numbersor types or quality o homes required and so it isworth taking a more detailed look at the model oprovision and planning built into our current policiesand asking how they might be improved.

The principles o land supply and value uplit

Housing needs land: an obvious statement but notquite as straightorward as it seems. It is not simplyabout the total amount o land but also about theattributes o the homes and the land itsel.

The total supply o land or housing will dependon the value o land in other uses: the costs otranserring land into residential use; incentives to

The governmenthas implementedseparate policiesthat interact withone another toincrease thecomplexity,risk and cost o

development


housing needs fnal



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Figure 2 Real land & house price indices 1892-2008 (1975=100)

bring land orward (or hold it o the market):and the planning regime. As the economy grows,the value o all types o land increases. This in turnmakes development more costly.

Within this total, the relationship between land

and housing involves at least three elements:

n What is the cost per home? This is determinedby both size o dwelling and density.

n Where is it? Land is also about accessibility toemployment, local services and all the otherattributes involved in the concept o place.

n What is next door? Similar or dierent typeso housing? Commercial or industrial? Vacant orderelict land, or greeneld land?

Each site has a dierent level o demand andthereore a dierent price that the consumer isprepared to pay. In a smoothly unctioning market,with perect oresight and no transaction costs, theactivity that has the highest value will outbid otheruses at that location and competition betweendierent uses will determine how much land is madeavailable or housing.

Where demand or particular types o land is high,the price is also high and there will be an incentiveto try to increase the density at which building takesplace. So fats are concentrated in high land-valueareas where housing is competing against moreproductive activities. New amily homes with gardens,on the other hand, will oten be located where theonly relevant non-housing activity is agriculture oropen space.

So land use and density is determined by theopportunity cost o that land which depends onthe relative productivity and protability o dierentuses. Commercial activities can usually outbidother uses because they benet rom networks and

concentrations o complementary uses. Housingusually outbids industry and agriculture.

Finally, land remains unused when the costs obringing it into optimal use (or reuse) are higher thanthe benets o that use. This is a matter o majorconcern in the context o regeneration, where theremay be large costs o assembly, decontaminationand demolition as well as building and the provisiono suitable services.

land price index house price index

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Note: house and land data or war years are interpolated

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Land useand density isdetermined bythe opportunitycost o that land


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16

Christine Whitehead

Over time, demand and production methods, andthereore optimal land uses, change. However, tothe extent to which the uture is known, these utureopportunities will be built into current land priceseven i the change o use is way o.

The role o planning

I the world were that simple there would be noneed or land use planning. The government wouldjust need to ensure an appropriate distribution oincome so that every household could compete toobtain at least a minimum level o housing.

Planning inherently changes behaviour because itchanges the quantity and location o land availableor dierent activities. But planning is only worthwhilein a basically market system i it can improve marketoutcomes. The traditional view, that planning refectssocietys objectives and should set the rameworkwithout recourse to market values, has long beenreplaced with an understanding that planning andthe market must work together to generate higherproductivity, higher values and thereore greater welare.10

The role o planning has to be to concentrate onareas where the administrative system can workbetter than the market in supporting ecientdecisions. In a well-unctioning system these include:

n Bringing together inormation and increasingunderstanding o uture opportunities

n Helping to ensure the provision o appropriateinrastructure

Planning hasto concentrateon areaswhere theadministrativesystem canwork betterthan the market

in supportingefcientdecisions

Ian

Canh

am/Alam

y

10 Spatial planningand value, Monk andWhitehead, 2006, RTPI

Compact andbijou: the buy-to-let

boom has producedthousands more small

city-centre fats


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n Addressing large-scale externalities by theseparation or agglomeration o activities

n Setting standards and allocations or public openspace and other social requirements

n Ensuring land is available or social goods such as aordable housing.

However, many argue that this is an optimistic view

o how the planning system aects land marketprices and availability. They suggest instead thatadministrative decisions are likely to be inecientbecause they over-constrain the supply o land andbecause the decisions made reduce demand and productivity.

Inadequate provision o inrastructure is anotheractor that has a major eect. This can arise boththrough nancial and planning constraints andbecause inrastructure is not charged or directlyor by uture taxation which urther increasesprices. In this way the landowner benets, bututure purchasers pay the costs through land prices and productive development may not take place.All o these issues are made worse by uncertainties

and speculation about the uture, which can resultin prices based ar more on expectations thanon reality. So in periods o economic buoyancy,the prices o housing and particularly land arepushed up above undamental levels and whencircumstances change, demand and prices againall disproportionately.

The relationship between fnancing,equity and efciency

Given this analysis it is hardly surprising thatgovernment looks to land values and the increasein them when planning permission is granted as asource o tax revenue and unding or necessaryinrastructure. Eciency, unding and equity can be

complementary or in tension with each other whichimpacts on how eectively the planning system can doits job in good times and bad.

Taxation and fnancing throughthe planning system

Taxation and its relation to planning have been raughtwith diculty or many years. In 1947 the Labourgovernment nationalised development rights in theTown and Country Planning Act and at the same timecharged 100 per cent tax on the increase in land valueater granting permission. This had the eect o puttingo development in the hope o lower tax rates and thepost-war period saw a range o dierent approaches.

Governments also saw the potential or usingplanning obligations to und local investment. Initiallythis was limited to requirements arising rom thesite-specic development. However, an initiative in1989 allowed rural planning authorities exceptionalpowers to grant permission or low-cost homes onsites that would not otherwise be developed. Fromthis beginning, the policy o securing new aordablehousing and inrastructure through the planningsystem was developed.11,12

'Inadequateinrastructurehas a majoreect, arisingrom fnancialand planningconstraints andbecause it is

not charged ordirectly or byuture taxation'

11 Quality and choice:

a decent home or all,the Housing green

paper, DETR, 2000,www.communities.gov.uk

12 Planning gain andthe supply o newaordable housing inEngland: understandingthe numbers, Crook,Monk, Rowley andWhitehead, 2006, Town

planning review, 77(3),pp353-373


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The current policy operates through section 106o the Town and Country Planning Act 1990 asamended by the Planning and CompensationAct 1991.13 The underlying objective is to allowlocal authorities to seek cash or contributions inkind rom developers to mitigate the impact odevelopment so that local residents are essentiallyno worse o.14 Section 106 has three distinct

housing aims: to provide the land or aordablehousing; to enable more mixed communities; andto increase nancial contributions rom developersand other stakeholders.15

This and other important policy changes have ledto quite undamental changes in the way that newhousing is provided and unded:

n More aordable housing although overalloutput levels have remained well belowgovernment targets.

n Market and aordable housing have becomeinextricably interlinked. Most larger sites havea mix o provision but when the market is notoperating well, the system makes it more dicult

to re-adjust commitments to enable developmentto restart.

n A big shit in the location o housing towardsmore pressured areas. This refects relativedemand and need but has meant that averagecosts o provision have risen signicantly.

n Leverage o developer nance, but withoutcomes varying greatly between localauthorities. This is partially as a result o relativebargaining powers and uncertainties about the

available gains. Output has been lower, subsidyrates higher and uncertainties about whopays greater than could potentially have beenachieved.

n Support or some types o inrastructure but withmassive gaps in the unding. Partly in responseto this shortall, the government has movedto introduce a community inrastructure levy

that local authorities can charge on all types odevelopment not just residential.

Perverse incentives in the planning system

The system as it currently operates includes arange o perverse incentives to developers andlocal authorities, and what happens tends to bevery dierent rom what is desired. These problemshave been exacerbated over the last decade byadditional policies related to browneld sites,sustainability and the environment.The most undamental problems in relation toexpanding housing supply and providing high-quality homes and places involve:

n Local government nance. There is no incentiveor local authorities to give planning permission.They keep no business rates and the equalisationo community charges means that governmentrecognition o the need or additional servicescomes slowly and is not directly related toinvestment. Planning agreements are only apartial oset to this.

13 Lessons rom thepast, challenges or

the uture or housing

policy: an evaluation

o English housing

policy1975-2000,Stephens, Whiteheadand Munro, 2005, www.communities.gov.uk

14 Review o land useplanning, Barker, 2006,www.communities.gov.uk

15 Lessons rom thepast, challenges or

the uture or housing

policy: an evaluation

o English housing

policy 1975-2000,Stephens, Whiteheadand Munro, 2005, www.communities.gov.uk

The systemincludesperverseincentives todevelopers andlocal authorities,and so whathappens diers

rom what isdesired


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n Local democracy. Only local residents have theright to vote or the local council. Those aectedby development usually live nearby, whilethose who benet rom section 106 are otenmore dispersed. In this context nimbyism iscompletely rational people have to be veryaltruistic to welcome new investment. It isthereore hardly surprising that local authorities

tend to identiy sites where the political all-outwill be relatively limited. Developers similarlyconcentrate on winnable developments thatmeet these criteria. The quality o design andplacemaking suer.

n Concentration on browneld sites. The shitin policy has to some extent oset the pressuretowards larger sites but it has also generatedother problems. The logistics are oten ar moredicult and alternative use values may alsobe greater so costs are higher and pricesmay be lower unless the dwellings are in goodneighbourhoods with adequate local services.Urban open space which is highly valued by thecommunity has been lost, while nearby greeneldland which has ar less value has been let

undeveloped.16n Increased densities. This has also put pressure

on existing developments in suburban areas,resulting in the loss o gardens and open spaceand more pressure on services and a loss oquality o place.

n Size o homes. The mix o dwellings has movedar more towards smaller homes, to fatsand to low-cost home ownership that allowsection 106 requirements to be met with the

least involvement o government subsidy anddeveloper contribution. The growth o buy-to-letalso impacted on dwelling type. Some o thesedevelopments have now become a drag on themarket. They are oten poorly designed, have highservice costs that have not been ully recognisedand are unlikely to meet longer-term aspirationsor quality places.

n Existing stock. Most o the policy emphasis ison new development and to a lesser extentmajor renewal. There are very ew instruments inthe system to incentivise improvements to existinghomes.

n Tax and home ownership. The incentives tomaintain house prices and ensure that theycontinue to increase are inherently high in thecontext o nearly 70 per cent home ownership.The tax system continues to benet existingowners and increase the problems acingthose trying to enter the market, and to orcegovernment to provide more assistance to lower-income households. Some have argued that atime o turmoil is a good time or change but it ishighly unlikely that government will want to rock

the boat by suggesting large-scale tax changes.

International experience

The Barker review suggested that Britain has auniquely constrained land use planning system.17In much o the USA and in Switzerland, Austriaand to a lesser extent Germany, local governmentnance systems make it worthwhile or some localauthorities to compete or housing development

16 Welare economicso land use regulation,Cheshire and Sheppard,

journal o urban

economics, 52,pp242-269


housing needs interim


The taxsystem beneftsexisting ownersand hampersthose tryingto enter themarket, orcinggovernment to

provide moreassistance tolower-incomehouseholds


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because it provides net benets or local services.18The result is to generate higher levels o output and indeed some suggestion o oversupply.

There are two main models o land use planningin industrialised countries. At one ex treme, theUSA has a clear-cut zoning system with marketprovision. At the other, there is direct government

intervention in the process o transerringundeveloped land to sites ready or production.Traditionally the rst has been seen as being moreeective in supporting production and the secondas generating a better use o urban land.

However, there is increasing evidence that inhigher income areas in market-oriented economies particularly on the east coast o America and inCaliornia supply has become as unresponsiveas in the more constrained countries in Europe,where responsiveness also appears to havedeclined with increasing wealth and output levelshave allen airly consistently (Table 1).The exceptions are Ireland and Spain, where outputlevels grew very rapidly in the ace o increased

immigration and second home ownership, andgovernment support or development.

Table 1: Dwellings completed per 1000 inhabitants

18 The best laidplans, Evans andHartwich, 2007, www.policyexchange.org.uk

In countries with planning systems based ultimatelyon UK legislation there has also been concernabout lack o responsiveness in supply.19 Themost extreme example is probably Australia,which is generally highly market oriented butwhere supply has not kept pace with the numbero households and prices have risen aster thanincomes consistently over the last 20 years. As inthe UK this is blamed on restrictive planning andinadequate inrastructure provision.20

The pressures appear to be towards lowerresponsiveness as economies grow, whateverthe land use planning system. However, moremarket-oriented systems tend to have areas whereresponse can occur and so overall shortages areless. This generates larger dierences in pricesbetween established, well-located and accessibleareas and newer developments but also tends toensure a larger supply o aordable housing.

1980 2004

Austria 6.8 5.2 (02)Belgium 4.9 4.4Denmark 5.9 4.9France 7.0 6.0Germany 6.4 3.4Netherlands 8.1 4.0

Sweden 6.2 2.7Ireland 8.2 19.0Spain 7.1 12.6United Kingdom 4.5 3.2 (03)

Source: Housing statistics in the European Union 2005/06, Federcasa,

2006, www.edercasa.it/news, Table 3.13

19 Housing and urbandevelopment indicators: agood idea whose time hasreturned, Malpezzi andMayo, 1997, Real estateeconomics, 25(1), pp1-11

20 Financial stability review,September 2009, Reservebank o Australia, 2009,www.rba.gov.au/Publications And Research

'The responsivenesso housing supplyappears to havedeclined withincreasing wealth'


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The big dierence between the UK and mostcountries other than Australia is that, even whenincomes have been rising consistently, output levelshave been below the growth in household numberssince 2000. They show no sign o being able toadjust upwards without large government subsidy.

The UK is also highly atypical in terms o the

relative size o new build. In most major Europeancountries, new completions are signicantly largerthan the average size in the existing stock (Table 2).Only in England, Italy and Denmark has the averagesize declined. The contrast may also be even moremarked: the English gures are averages over along period while the evidence shows vast relativeincreases in two-bed fats particularly since 2000.21

One rationale or the shit in provision in Englandhas been that the growth in immigration, students

In most majorEuropeancountries, newcompletionsare larger thanthe existingstock. Only inEngland, Italy

and Denmarkhas the averagesize declined

21 The density debate:a personal view,Whitehead, 2007, www.lse.ac.uk

Austria 2003 93.9 2002 101. 0Belgium 2001 81.3 2005 105.0

Denmark 2005 113.1 2004 107.0Finland 2002 77.0 2003 90.2France 2002 89.6 2004 111. 0Germany 2002 89.7 2003 113.9Ireland 2003 104.0 2003 105.0Italy 2001 96.0 2003 76.5Netherlands 2000 98.0 2000 115.5Spain 2001 90.0 2003 100.6Sweden 2005 91.5 2005 94.0England 2001 86.9 1981-2001 82.7

Source: Housing statistics in the European Union 2005/06,

Federcasa, 2006, www.edercasa.it/news, Table 2.1

Year Total dwelling stock (sq

m/dwelling

Year Dwel lings completed

(sq m/dwelling

and single-person households points to a shortage osmaller units. However, given capacity to adjust theexisting stock, the more usual approach is to buildwith an eye to the uture when, assuming long-termincome growth, households will require more space.Market pressures are clearly towards houses ratherthan fats and larger rather than smaller units.

The specics o the UK system are clearly moreconstraining than in most other countries. Inparticular, the planning process appears to reinorcethe cyclical nature o development and its potentialasymmetry. The mix o policies on density, browneldand section 106 has also helped to generate smaller,and probably poorer-quality, new development.However, i there are no local incentives to develop,it is hardly surprising that local authorities try tominimise costs to their established communities.

The credit crunch has brought demand actors andcredit constraints to the oreront o debate. Onlywhen condence improves will market supply startto increase again.

On the supply side there are big issues associatedwith both nance and planning. Most developersare stretched or cash or building land banks. Thisstrategy makes sense when there are continuingunderlying shortages and prices can be expectedto rise in time. This means that most developmentdepends on government subsidy and too otenthe only support is or shovel ready developmentsrather than those that are most appropriate or thelonger term.

Table 2: Average useul oor area per dwelling (sq metres)


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Many o the short-term issues on the planning siderelate to earlier contracts which are too demandingin current conditions but make sense in the longerterm. Oten what will be better in the long termwill not be exactly what was negotiated in theboom times. This is particularly true or apartmentdevelopments, where ar more care needs to betaken to ensure better design, improved space

standards and low maintenance requirements.

A more undamental issue is what is going tohappen to owner-occupation. Problems o accessare not going to be solved rapidly. In many waysthis seems to be the ideal environment or sharedequity arrangements, perhaps with some elemento government guarantee. However, there appearsto be little immediate appetite or this type oapproach. I this remains the case, then demand orprivate renting will expand but landlords will requirehigher returns to invest adversely aectingaordability.

The undamental problem remains the lack oresponsiveness o supply. Yet, or all the rhetoric,

there is almost certainly no political appetite orchange at least in the short term and actually thereverse, as local government sees a slow take-up onew housing output.

One important but dicult area o potential changeis to shit the mix between browneld and urbanextension development. Economic, sustainabilityand design considerations all point to greateremphasis on developing extensions near good

public transport and accessibility to jobs. But thismeans changing political attitudes to developmenton greeneld and particularly greenbelt land inappropriate locations a blanket approach willencounter massive opposition.

More generally, incentives are needed to make thesystem more pro-development where this supports

the national and local economy and providesor more sustainable communities. The planningsystem cannot play that role at the moment. Thecurrent government has undamentally chosen atop-down approach, with increasing use o publiclyowned land and an increasing role or the Homesand Communities Agency agreeing larger-scaledevelopment on a site-by-site basis. This cannotwin hearts and minds in local communities and itis likely to prove too costly to government over thenext ew years.

The alternative is to develop more local approachesthat can also bring in private nance moreeectively. Local communities must benet. Labourproposals to enable local authorities to borrow

have some traction, but are too limited in terms otenure and location. The Conservatives are lookingat a number o suggestions that would allowlocal authorities to keep some community chargespecic to new building but the incentives willhave to be more persuasive. A modied communityinrastructure levy and some change in property taxwould both be necessary beore there could be along-term sustainable approach to ensuring higherlevels o housing output through a mix o planning

The currentgovernment haschosen a top-down approach,with increasinguse o publiclyowned land


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and unding. In particular, it would be important tomaintain concentration on extension developmentsand growth points where innovative orms oinrastructure unding can be tested.

Conclusion

Any eective change must depend on continued

taxation o development gains to help pay orinrastructure and reduce capital gains romuntaxed benets. At the moment all the emphasis ison declining prices and the lack o gains becauseo downward adjustment in land values arising rompast speculation. However, development gain isabout the act that granting planning permissionimproves outcomes and increases land values.Planning gain will thereore re-emerge as an issueand it remains the most appropriate source ounding or community inrastructure. Now is thetime to be more straightorward about taxation othese gains to benet both local communities andthe broader economy.

Output levels will inevitably rise rom current

levels, in response rst to government subsidyand then to market pressure. However, prices andoutput levels are likely to be just as volatile in theuture unless the basic planning ramework movestowards one which incentivises the right sort odevelopment at the local level. Central governmentcannot do it all people must see that they ortheir children or others they care about will benetrom building more, better designed and moresustainable housing.

'Any eectivechange dependson continuedtaxation odevelopment gains'


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2 Peter StuddertBuilding new communitiesthrough local partnershipsSummary

Even during a boom, the current model ohousebuilding has ailed to deliver either the quantityor the quality o housing required to meet need.

Over the last 10 years, government policy hasbeen driven by the need or greater numbers. Localauthorities have played a regulatory role throughthe planning system, rather than a leadership role.

The rising housing market up to 2007 encouragedan increasing reliance on section 106 agreementswith developers to und the social and physicalinrastructure to support new communities. Localauthorities have become marginalised in this system.

The system also means that housebuilders, whichoperate with tight margins based on short-termnancing models, are reluctant or unable torespond to design and quality standards. Uncertaintimescales, insecure policy contexts and the up-ront costs o section 106 agreements all mean thatdevelopers include high prot margins to refect risk.This in turn aects house prices.

This essay ocuses particularly on the dicultchallenge o building large-scale new communitiesin the designated growth areas a key governmentpriority. It suggests that a new relationship isneeded between the public and private sectors andthat local authorities have a crucial role to play inorging this new relationship. Drawing on recentnorthern European experience, possible new orms

o partnership working are examined that could beadapted to the UK context.


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Peter Studdert

Introduction

Although much lip service has been paid to theconcept o partnership working between the publicand private sectors in the challenge o building newcommunities, the reality on the ground has becomean increasingly raught relationship between theregulator and the regulated. True partnership based

on shared interests and objectives has been hard tond, and as a result delivery has been slow and thequality o the nal product has oten been poor.

The collapse o the housing market provides anopportunity to refect on whether a more productiverelationship between the public and private sectorscould be orged, particularly at the local level, as themarket begins its slow recovery. This new relationshipcould be based on learning rom other countriesand political cultures where a more genuine localpartnership approach has been shown to producebetter results.

The policy context

A major objective o government policy over the lastdecade has been to meet pressing housing needs ,particularly in the growth areas in southern and centralEngland identied in the sustainable communitiesplan. Spatial planning policies have rightly ocuseddevelopment principally on the regeneration o urbanbrowneld sites and on the creation o large compactnew communities on greeneld sites either urbanextensions or reestanding new settlements connectedto nearby towns by public transport. These orms o

Building new communitiesthrough local partnerships

development are a rational response to the needto locate new homes close to existing centres oemployment, as well as respecting the principleso sustainable development by giving themenough critical mass to support investment in newinrastructure and local acilities.

Much o this agenda has been driven by central

government and the larger private sectorhousebuilders/developers, local authoritiesoten reduced to the role o onlookers with theirregulatory role tightly proscribed by planning policystatements. New sustainable communities can onlyultimately succeed with strong local leadership andconstructive engagement with local communitiesbecause o their complex interaction with localservices and inrastructure. The our shortlistedecotown proposals22 all seem to have at leasttacit support rom their local authorities, but it issurprising that this support was not made an explicitcondition or success rom the start.

The boom in the housing market up to 2007 alsomade the job more complicated. It encouraged

central and local government to assume thatan ever greater proportion o the social andphysical inrastructure necessary to support newcommunities, including the provision o aordablehousing, could be secured through section 106agreements with the developers rather thanbeing unded by the public purse through generaltaxation. The UK already has the most centralisedsystem o local government nance in Europe,23and local authorities have very limited control over

22 Eco-towns: locationdecision statement,CLG, July 2009, www.communities.gov.uk

23 See The balanceo power: central and

local government.

Sixth report o the

communities and local

government committee,HMSO, May 2009,www.publications.parliament.uk

Localauthorities areoten reducedto the role oonlookers, withtheir regulatoryrole tightlyproscribed by

planning policystatements


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37

Building new communitiesthrough local partnerships

any revenues that would enable them to invest ininrastructure. Meanwhile central government grantunding in growth areas has progressively beenadjusted downwards in anticipation o a signicantcontribution o capital unding or inrastructurerom developers.

The design and quality standards set by central

and local government to combat climate changeand meet the increasing expectations o localcommunities have also added to the demandsplaced on housebuilders. They have been reluctantor unable to respond because o the tight marginsand short-term nancing model that they havetraditionally operated.

It thereore comes as little surprise that thenegotiations between local planning authoritiesand housebuilders have become increasinglycomplex and protracted or that the quality o thenal product has oten been poor because o theconficting objectives and motivations o the partiesinvolved. The rare examples o good practice thatdo exist have tended to result rom situations where

an enlightened private landowner and developerhas worked in closer partnership with the localauthority and the local community, such as at NewHall in Harlow or at Poundbury in Dorchester, orwhere the development is being promoted by apublic agency working in partnership with theprivate sector, such as at Upton in Northampton.

Negotiationsbetweenlocal planningauthorities andhousebuildershave becomecomplex andprotracted

New model housing:Vathorst in theNetherlands oers uslessons in public/privatepartnership. The localauthority is a 50%shareholder in thedevelopment company

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Peter Studdert Building new communitiesthrough local partnerships

So even beore the recent collapse o the housingmarket the UK model o building large-scale newcommunities had major problems. From a localgovernment perspective these include:

n Accountability. Even where a localauthority is in sympathy with central governmentsobjectives or promoting growth, the top-down

approach oten means that it is seen as being solelyan agent o central government policy. This is thecase both in plan-making, through the numbersgame played in the preparation o regionalspatial strategies, and in the development controlmechanisms on specic sites. This approach alsoallows opponents o growth to dismiss it purely asa central government imposition rather than a localresponsibility to meet local needs.

n Sta. The limitation o the local authoritysplanning role mainly to that o a regulator rather thana community leader makes it dicult or it to attractand retain creative and orward-looking proessionalsta, many o whom have been poached by theprivate sector or non-departmental governmentbodies over the last 10 years.

n Finance. Tight central control over localgovernment nance, particularly the nationalisationo the business rate and the absence o any real taxbenets to local authorities rom delivering housinggrowth, gives little opportunity or local authoritiesto promote the benets o growth to their localcommunities.

n Maintenance. Local authorities take a long-termview o development because they take on theresponsibility o managing and maintaining local

inrastructure and the public realm. This is atodds with the normal private sector priority ominimising short-term capital costs.

n Inrastructure. Central government restrictionson local government borrowing and a lack olocally controlled revenue streams to supportany borrowing make it dicult to co-ordinatethe unding and delivery o major pieces o

inrastructure at the local or sub-regional level.n Delivery. Even ater all the complex planning

processes have been concluded, the actual rateo delivery is in the hands o the housebuilder.Even in a strong market, build rates are otendeliberately constrained so as to restrict supplyinto the market and optimise sales prices ratherthan to meet pressing local needs.

The delivery model creates dierent problemsor developers and housebuilders:

n Costs. They ace a heavy burden o up-rontcostsor promoting a major development throughcomplex and convoluted plan-making anddevelopment control processes, oten over very

many years.n Risk. The protracted timescales create

uncertainties about changing government policypriorities at both national and local levels thatmay add to costs and thereore increase risk.24

n Financing. Land and inrastructure costs,including those required by section 106agreements, have to be unded early in thedevelopment process with associated highnancing costs.

24 See Understandingbuilder to builder

residential land

transactions, CLG,March 2009, www.communities.gov.uk

Centralgovernmentrestrictionsmake it difcultto co-ordinatethe undingand delivery oinrastructure


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n Margins. As a result o all these actors, a highprot margin has to be built in to refect the highlevel o risk, and this has a knock-on eect onhouse prices. Recent experience o open bookviability testing in Cambridgeshire has shownthat prot margins in excess o 20 per cent areoten assumed or market housing, as opposed tothe 6 per cent margin that private housebuilders

assume when building aordable housing.

The centrally driven, market-led model struggled toproduce high-quality new communities during thehousing market boom. The recent collapse o themarket has now thrown the very basis o this modelinto question. Where can we turn to nd a betterway o doing things?

Alternative approaches rom Europe

Problems with UK delivery have led to muchinterest in mainland European models o buildingnew communities, particularly in the Netherlands,Scandinavia and Germany. A recent report by aworking group o the Housing Forum25 summarised

the main reasons why their models appear to deliverhigher-quality places more quickly than the UKmodel. Some o its key points were:

n Local authorities had greater local autonomy andnancial independence and worked within morefexible regional planning rameworks

n Local authorities were oten the landowners instrategic housing developments (or at least hadsome stake in the land) and were thereore in a

position to demonstrate greater leadershipand vision

n Local authorities were able to borrow money,oten rom municipal banks at low rates ointerest, to orward-und social and physicalinrastructure and pay back the loans over alonger period backed by land and property sales

n A much wider range o housebuilders, sel-

procurement groups, private and social landlordscreated a wider choice o types and tenures ohousing and greater competition and aspirationor higher standards o design and environmentalperormance and

n There was greater local support or developmentsbecause o sustained engagement with the localcommunity.

In the Cambridgeshire growth area, representativeso the local authorities have over the past twoyears visited a number o European developmentsincluding:

n Hammerby Sjstad in Stockholm, Swedenn Vauban and Rieseleld in Freiburg, Germanyn Vathorst and Kattenbroek in Amersoort,

the Netherlands.

Through Cambridgeshires local delivery company,Cambridgeshire Horizons, the authorities haveestablished an ongoing dialogue with some othe European local authorities responsible oroverseeing these developments.

25 Land or homes creating value through

community leadership

and co-investment

working group

report, The HousingForum, 2009, www.housingorum.org.uk

Problems withUK deliveryhave led tomuch interest inEuropean modelso building newcommunities


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The development that appears to oer the mostinteresting lessons or Cambridgeshire is Vathorst,an urban extension to the city o Amersoort toprovide 11,000 new homes between 2002 and 2014.Vathorst is being built around a new railway stationthat gives the community easy access to Amersoortcity centre as well as to Amsterdam and Utrecht. Over3,000 houses have already been completed and the

development also plans to include 100,000 squaremetres o oce space, an industrial area and a largelocal centre.

Several eatures o the delivery mechanism seemto borrow the best eatures o a conventional UKdevelopment corporation while retaining the democraticcontrol o the local authority and complying withEuropean environmental assessment regulations:

n The City o Amersoort played the leading role inidentiying the location o the urban extension as theplan-making body. But it is also a 50 per cent ownero Development Company Vathorst (OBV) togetherwith our private developer/builders and one socialhousing association.

n The local authority is thereore a shareholder inthe developer, a conventional planning authority ordevelopment control and building control, a serviceprovider and a client or and developer o the publicinrastructure.

n OBV has responsibility or land assembly, publicrealm, quality control, sports and cultural projects,managing public space during the build-out period,inormation/communications and nancial and riskmanagement.

n OBVs quality control role includescommissioning the masterplan, retaining a qualitycontrol panel o experts who oversee all levelso detail o the design, and carrying out regularcustomer reviews to gather eedback as thedevelopment progresses.26

n The joint approach between the public andprivate sectors engenders trust and a shared

vision because risks and benets are shared andthe local authority is empowered to engage onthis basis.

n The 772 million euros (700 million) cost oacquiring the land and building all the necessaryinrastructure will be paid or by the sale oserviced sites, with the cash fow supportedby several short-term and long-term loans romthe Dutch Municipal Bank totalling 250 millioneuros.27 The interest rate is signicantly lowerthan the rate that private developers would expectto pay on the open market.

The aims and objectives are more ambitious thanrecent developments o a similar scale in theUK. OBV took the bold step o appointing an

international masterplanner to set high standardso design rom the start. The masterplan makesimaginative use o water as a way o makingdistinctive places in the otherwise dull and fatlandscape and has proposed three neighbourhoodson the themes o woods, water and local history.Variety within these themes is achieved by ensuringthat individual architects are responsible ordesigning development areas no larger than80 homes.

26 See Design qualityin new housing:

learning rom the

Netherlands, Cousins,2009, Taylor and

Francis, or more detailon quality control in newDutch housing includingVathorst.

27 Presentation by Wimvan Veelen, joint chieexecutive o the VathorstDevelopment Company,to Cambridgeshireauthorities, May 2009.See also Beyond eco-towns: the economic

issues, Falk, 2008,URBED

Variety isachieved byensuring thatindividualarchitects areresponsibleor designingdevelopment

areas no largerthan 80 homes


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Movement within Vathorst is principally by bicycleor walking. The plans include solar energy, districtheating through waste incineration, sustainablebuilding materials, high insulation standards andexcellent water management practice. Communalrecycling acilities are provided in undergroundstorage containers that reduce the environmentalimpact o individual waste and recycling bins.

Many o these eatures were incorporated into theaspirations or ecotowns.28 However, the Vathorstmodel makes delivery much more likely because othe involvement o the local authority as an equalpartner with the private sector. The key lessonsseem to be that:

n Amersoort had much more opportunity to setthe vision or Vathorst through its participation inOBV. It was able to embed high environmentaland design standards into the vision because ithad the political backing o its local communityand it had the power and ability to do it.

n Private sector partners share the vision andthere are regular opportunities or eedback to

be given rom the community. This givesindividual housebuilders much clearer guidancethrough a switer approvals process thanis the case in the more conrontational UKdevelopment control system.

n Funding and development o the inrastructurecombines the benets o access to relativelycheap long-term public nance with a business-like approach to delivery and procurement.Flexibility can easily be built into the system as

opportunities and issues arise during the build-out period, whereas in the UK the local authorityonly has one chance o getting it right throughthe section 106 agreement at outline planningstage at the very beginning o the process.

n The public/private partnership approach seemsto encourage innovation and a competitive spiritto achieve ever-higher quality standards in the

new neighbourhoods. There is much more useo independent architectural practices whereasthe norm or volume housebuilders in the UK isto rely on standard house types produced byin-house design teams.

The Vathorst approach has, o course, emergedrom the Dutch system o government andpublic nance, but it also seems to havebeneted rom the UK experience o new townsand development corporations.29 It moves thedevelopment corporation model on to a moredemocratic ooting and at the same time ensuresthat European environmental assessmentregulations are respected.

However, it was also a striking eature o the otherEuropean case studies visited by Cambridgeshireauthorities that the local authorities played aleading role in setting the vision and working ina productive partnership with a wide range ohousebuilders and service providers. They werealso able to maintain high standards o design andplace-making and this was as much because otheir role as landowner and development partneras their role as planning authority.

28 See the variousecotowns worksheetsprepared by the Townand Country PlanningAssociation, 2008/9.

29 See Britainsnew towns: garden

cities to sustainable

communities, Alexander,2009, Routledge, ora timely retrospectiveon the new townsmovement.

The partnershipapproach seemsto encourage acompetitive spiritto achieve ever-higher qualitystandards


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So what are the lessons that could be appliedin the UK context, particularly with a housingmarket that in many places will only recover slowly,and with public nances likely to be under morepressure than in the past decade?

Creating productive local partnerships

Housing need will, i anything, increase over thenext ew years. We will still need to meet ambitioustargets or housebuilding, especially in southernand central England, and the government will stillhave a duty to take the lead in setting these targets.

However, there is a danger that past diculties indelivering large-scale new communities will lead toa change to distributing growth to a larger numbero smaller sites that are more widely dispersedand easier to bring orward. Although smaller andmedium-sized sites will o course continue to playa role, larger strategic sites will still be necessaryto enable the physical and social inrastructure tobe concentrated in an ecient and sustainablemanner, and to begin to address the huge

undersupply that has built up over the last 30 years.

My contention is that we need to start a processo restoring power and nancial reedom to localauthorities to enable them to rebuild their capacityto lead the new orms o partnership that willbe required to meet our housing needs in theuture. This will be a long process but all the mainpolitical parties now seem to agree on this. Thecommunities and local government committee

recommended in its May 2009 report that thegovernment should consider options to increaselocal governments revenue raising powers, in orderto promote local accountability and to encouragelocal government autonomy.30

The oundation or uture partnership workingbetween the various sectors should be recognition

o their complementary strengths:

n The public sector local authorities backed bycentral government and its national and regionalagencies should take the main responsibilityor community leadership and local engagement,setting the vision or the place, assembling theland or strategic sites and unding and procuringthe strategic inrastructure.

n The private sector should principally work withinthe ramework set by the local authorities andocus on the ecient and eective delivery o thetypes o housing that people want.

n The third sector social landlords, co-operatives,co-ownership and sel-build groups shouldbe given an increased role in delivering a much

wider variety o types and tenures o housingthan has been the case in the past.

This clearer recognition o roles should mean a lessrisky economic environment or the private sectorand thereore less need to assume such high protmargins. At the same time, the more proactive roleo local authorities in land assembly would lead to amore realistic view about land values, with greateropportunities to invest value uplit in the quality

30 See The balanceo power: central and

local government. Sixth

report o the communities

and local government

committee, HMSO, May2009, www.publications.parliament.uk

We need to starta process orestoring powerand fnancialreedom to localauthorities, toenable themto rebuild their

capacity


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o the nal product. A wide variety o public-privatepartnership models could then be used depending onlocal circumstances.

However, there are three particular areas that need tobe reviewed beore we can move towards this moreproductive model:

n The strategic sites allocation processn The unding and delivery o the physical and

social inrastructure necessary to support alarge-scale new community

n Setting the vision or quality and carrying itthrough on the ground.

Allocating strategic sites

There is a strong argument in avour o introducinga much more simple and fexible regional planningramework to enable more resources to be put intothe more critical level o sub-regional planning andstrategic sites allocation. With the merging o regionalspatial and economic strategies into single regionalstrategies, the opportunity exists to rene the spatial

planning element down to broad principles andminimum targets to ensure that spatial, social andeconomic polices are aligned at the regional level.This process should be led by regional groupings olocal authorities within the ramework set by centralgovernment and should be a high-level and proactivesustainability appraisal o options rather than thedeveloper-led beauty parade that has so oten beenthe case in recent years.

At the sub-regional level, more fexibility is beginningto emerge ollowing the publication o the revisedPPS12 in 2008, which encourages the allocation ostrategic housing sites in the core strategies o localdevelopment rameworks. Methodologies in supporto this approach are being developed by the ATLASteam in the Homes and Communities Agency31 andby CABE through the strategic urban design project.

A particularly positive development is the increasinguse o joint core strategies by groups o localauthorities within an economic sub-region, such asNorth Northamptonshire.32

Funding and delivering inrastructure

From the northern European experience, it seemsclear that masterplanning and developing thevision or a major site is best done when the localcommunity, through their local authority, has astake in the ownership o the land. This enablesit to work in partnership with the private sector todeliver a shared vision or the place over time. Thisis particularly critical in the provision o the physicaland social inrastructure necessary to make the

development truly sustainable.

There will always be a need or ex tra public undingor higher order inrastructure not related to anyspecic development site. This would be identiedthrough regional and sub-regional spatial plans andthe investment rameworks drawn up by regional andsub-regional agencies. However, the introductiono the community inrastructure levy may help tolever in some additional private sector unds or

31 Strategic siteallocations within

core strategies: drat

guidance note, HCA,January 2009

32 For more inormationsee www.nnjpu.org.uk

Masterplanningand developingthe vision or amajor site is bestdone when thelocal communityhas a stake in theownership o

the land


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strategic inrastructure rom the small and medium-sized developments that currently contribute littleor nothing via section 106 agreements. Anotherapproach being explored is the use o tax incrementnancing, or accelerated development zones,mentioned in the 2009 budget. These would allowa local authority to borrow capital or a key pieceo inrastructure and then keep the business rate

increments that the investment has created torepay the debt over a period o time.

However, the greatest sticking point in the deliveryo larger developments is providing the site-specicinrastructure the schools, surgeries, communitycentres, local transport schemes, open spaces andother acilities that make the dierence between asustainable community and just another housingestate. When the local authority has no landownership stake in the development, this has tobe negotiated through a section 106 agreementat outline planning stage and all requirements ora site which may have a 20-year build-out periodhave to be anticipated, costed and agreedbetween the parties. It is these requirements

that are proving so contentious in the currentlydepressed market conditions. What mechanismscan be ound to overcome, or at least smooth, thisobstacle to progress?

The easiest way would be in cases where the localauthority is able to take a substantial equity sharein the development and can thereore borrow unds(or issue bonds33) to provide the inrastructureagainst the potential or increased land values

and the disposal o serviced plots in the uture.This is what happened in the Vathorst case studyearlier and it has been used to an extent by EnglishPartnerships in the past. This would be particularlyeective i local authorities were given powers toacquire land allocated through the strategic sitesallocation process at existing use values, ratherthan see windalls go to landowners who just

happened to be in the right place at the right time.

Even where the development is being promoted bya private developer/landowner, a variation o thismodel could still help so long as the local authorityis able to borrow unds to pay or signicantitems o site and community inrastructure. Ilocal authorities were given enlarged acilities orprudential borrowing, the loan could be backedby a mini-tari levied on the development orrepayment over the build-out period at the timewhen housebuilders were in a better position topay in terms o their cashfow. This would avoid theneed or section 106 trigger mechanisms or thepayment o large sums early in the build-out period,which developers currently nd so hard to und.

However, central government would have to allowlocal authorities much greater on balance-sheetdebt levels to enable these major housing schemesto move orward.

33 See Reinventingthe building society,Dunmore, 17 July 2009,Building

The stickingpoint or largrdevelopment isproviding theinrastructure schools,surgeries,open spaces

that make itsustainable


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There is also an important role here or the Homesand Communities Agency through its singleconversation business model, where additionalland and access to long-term nance can bebrought into the local partnerships established bythe local authorities.

Partnerships or quality

The nal area or review is the process or setting thevision or a place and ensuring that it is delivered. Sooten the visions presented by developers throughdesign and access statements are a supercial andseductive hard sell which is eroded once land issold o to the volume housebuilders and reservedmatters and public realm design and managementschemes are submitted.

Under a joint public/private developmentcompany, the vision or the development can bemore eectively shared and developed in closeconsultation with the local community. It can then berigorously enorced through the control and disposalo land rather than through the cruder instrument

o development control powers. For example,requirements or housebuilders to use competentand imaginative architects and run architecturalcompetitions or signicant buildings could bewritten into the terms o land disposal.

Good progress has been made in the past ewyears in developing methodologies or deninggood practice in design and placemaking,including BuildingorLie, the ManualorStreetsand the emerging work on design coding. Theseare helping to provide a ramework or localplanning authorities to work with developers andhousebuilders on individual sites. In addition,

the use o design panels at national, regionaland local level is becoming more widespreadand more weight is being given to their views byplanning committees and inspectors. All o theseapproaches need to be ully deployed in thenew partnerships.

However, what is also needed is some additionalinput rom the wider public to ensure that thedesign and management approaches being soughtalign with the qualities that people really wantor their neighbourhoods. Regular eedback romcustomer surveys, as established at Vathorst,should be built into the new processes.

Conclusion

Housing delivery in the UK has suered bycomparison with that in northern Europeancountries because o the weak and constrainedstate o our local authorities. This has preventedthem rom entering into meaningul and productivepartnerships with the private sector.

Good progresshas been madein defning goodpractice in designand placemaking


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The delivery o the large strategic housing sitesthat will continue to be required to meet ourpressing housing needs will be much moreeectively promoted and delivered through localpublic/private partnerships.

Local authorities need to be able to take a leadingrole, not only in identiying strategic sites through

their core strategies, but also in acquiring ornegotiating an equity stake in the developmentitsel. They also need greater reedom to useinnovative nancial instruments to orward-undcrucial strategic inrastructure.

Only then will local authorities have a real chanceo delivering both the quantity and quality ohousing we need, and be able to work as equaland productive partners with the private and thirdsectors in building new communities that willcontinue to grow and prosper.


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One o the shortcomings o the predominantbuild-or-sale housing model is that the developerdoes not retain long-term interest in the site.There is thereore no incentive to produce a designbetter than the minimum needed to make a sale,and issues such as the design o the public realmand long-term maintenance can be sidelinedwithout any impact on prot.

The downturn oers a golden opportunity topromote long-term quality through attractinglong-term investment. This means rental models,or either the whole properties or the land onwhich they sit.

There are very ew large-scale providers o rentedresidential accommodation in the UK, beyondsocial landlords. Large-scale investors continueto shun the residential market because incomereturns (rather than capital returns) are higher orcommercial than or residential property.

3 Liz PeaceFinancing and changing businessmodels or housingSummary

However, the success in recent years o large-scale mixed-use developments points to a newopportunity. Companies that have traditionally beenwary o residential should now be seeing how theirskills and experience could open up resh areasor expansion.

Experience in the commercial property market

indicates that one way o improving residentialreturns would be to improve quality. This wouldstart to change attitudes towards renting. We needdevelopers and investors prepared to respond to thedemand that this would create. We need a dierentplanning and tax regime to make investment a viablecommercial proposition. And above all we need aclear political commitment to look or dierent andinnovative ways to provide high quality housing.


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Liz Peace

58 59

Financing and changing business models

Introduction

There is a lot wrong with the way housing in thiscountry is provided.

Even beore the recession there were not enoughhomes to meet demand, and this situation hasbeen massively exacerbated by the economic

crisis. People who need housing simply cannotaord it. In January 2000, the average cost o ahouse was 98,000; by January 2007 it had risento 216,00034. Even those who could aord amortgage can now no longer obtain one becauseo the caution o banks concentrating on re-buildingtheir balance sheets. And the National House-Building Council has recorded an 11 per cent dropin the number o applications or social housingsince 2007/08.

The type o housing provided is not what peoplewant and quality is very oten poor, with smallspace allocations and inadequate public space35.

Neither existing nor new homes meet the

increasingly stringent requirements orenvironmental sustainability and particularly energyeciency, which is signicant because homes areresponsible or around 27 per cent o the UKscarbon emissions.

And nally, the environment around housing is otennot well maintained and housing developmentsrequently lack the acilities and other acets o asustainable community, particularly employment,social and leisure opportunities.

How many o these problems can be attributed tothe act that the main providers have only a short-

term interest in the homes they build?

The most accepted model o housing provision isbuild or sale, where a developer using either debtor equity, or a mixture o both, acquires land, builds,sells to an owner-occupier, takes the prot and thenmoves on to the next development. While this modelmay not be completely broken, the downturn oersan opportunity to explore other models.

One o the shortcomings o the build or sale modelis that the developer does not retain any interestonce the sale is complete and the site is built out.There is thereore no particular incentive to designto any higher quality than that needed to achieve theinitial sale: aspects such as public realm and long-

term maintainability assume less importance thaneatures such as a double garage.

But i the housing providers retained a nancialinterest in the development, they would have adirect interest in seeing design quality enhancedand maintained as a means o preserving andincreasing value.

34 FTHPI nationalmonthly growth series

rom 1971, Acadametrics,2009, www.acadametrics.co.uk

35 What home buyerswant: attitudes and

decision making among

consumers, CABE, 2005

With build-or-sale, thedeveloper doesnot retain aninterest. Thereis no incentiveto design to anyhigher quality

than needed toachieve the sale


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Liz Peace Financing and changing business models

Renting past, present and uture

The most obvious way o achieving this is throughsome orm o renting. At one end o the spectrum,this involves housing provided by social landlordsat a subsidised rent to those who cannot aordto buy or rent at ull market rates. At the otherend is market renting, which can encompass

anything rom luxury penthouses to basic one-bedroom fats that serve the young proessionalmarket. In between is a whole range o sharedownership and shared equity models that involve amixture o mortgage and rental payments, usuallyproviding to increase the proportion owned throughstaircasing. In some instances, such as theoriginal London estate model, the developer retainsan interest in the land and charges ground rent andthe occupier eectively buys the property through along lease.

Renting is not new. At the end o the First WorldWar, some 76 per cent o homes in the UK wererented rom private landlords. Successive waves olegislation and regulation intended to protect the

tenant rom unscrupulous landlords, coupled withthe rise in home ownership, drove many landlordsout o business.

Renting remains a popular orm o tenure in othercountries. In the Netherlands, some 43 per cent ototal housing stock comprises rented homes and inthe USA, it is around 28 per cent.

There are very ew large-scale providers o privaterented accommodation, beyond social landlords,in the UK. Indeed, Grainger is the only one listedcompany that with 16,000 units comes anywherenear the size o the large investors in multi-amilyhousing in the US. Dorrington has a large portolio,mainly in central London, and Residential Landhas 1,400 units. But compared to the 144 billion

secured against buy-to-let property36, proessionalcorporate landlords make up a very smallproportion o the total market.

The downturn in the market has led to speculationabout commercial property companies moving intothe residential sphere, both as builders o homesor sale and long-term investors in residentialproperty or rent. This has been uelled partly bythe growth o the mixed use model o development,with many planning authorities requiringcommercial development to have an element oresidential, or vice versa; and uelled partly by thelikelihood o good returns and the desire or botha capital upside and an ongoing relatively secureincome return.

It has been remarked that the dukes o Westminsterdidnt get rich by selling the reehold. Companiessuch as Quintain, Argent and Land Securitieshave all expressed interest over the last ew yearsin market renting. And since the onset o therecession, other developers such as Urban Splashhave become residential landlords. For many,however, this is a temporary expedient to address aglut o unsold houses.

36 Buy-to-let marketgrows or frst time in

two years, Council oMortgage Lenders,November 2009, www.cml.org.uk

Comparedto the 144billion securedagainst buy-to-let property,proessionalcorporatelandlords make

up a very smallproportion othe market


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Liz Peace

The new estates

There is a widely held view that, i some o thelarger commercial property companies enteredthe private rented sector, this would enhance thequality o both the homes and the space aroundthem. This partly stems rom the perception thatover the last couple o decades commercial

property development has become more creative,employing leading architects and championinggood design, while in contrast, housebuilders havebasically just continued to use 30-year-old designs.

Sir Stuart Lipton, the rst chair o CABE, used tomuse that as a nation we built elegant oce blocksbut as soon as we added kitchens and bathrooms,the design went to pot.

It must also surely be the case that building orrent, as opposed to sale, means that developersmust take a long-term interest. They are responsibleor maintaining the estate and or ensuring that itholds its value and generates income, but neitherare possible i the development is badly designed

or alls into disrepair and ails to attract tenantswilling to pay adequate rents.

Maintenance o the public realm is normally theresponsibility o the local authority. Ensuring thatit is carried out to the standard that the long-terminvestor requires can be a problem, especiallywhere councils are suering rom lack o unds.The solution in some areas has been or councilsto seek ongoing contributions to the running costs.

Building orrent means thatdevelopers areresponsible ormaintaining theestate and orensuring that itholds its value

A

drian

Clark

(Flickr:

a.drian

)

Long-term investment:the immaculate gardens

o London's BedordSquare are paid or

through residents' servicecharges, giving the

landlord an extra return


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This is not always popular with developers, who arethemselves cash strapped and who do not like theconcept o paying out unds and then having nocontrol over how they are used.

The alternative option is or the developeror investor to take over maintenance andmanagement. Commercial developers have shown

that they can build and then maintain attractiveenvironments as well as the buildings within them.Canary Whar has been designed with as muchemphasis on the public space as the buildings.Argents mixed-use development at BrindleyPlace in Birmingham, Grosvenors Liverpool One,Broadgate Centre and More London are amongmany examples.

In all these cases, the developers intend tocontinue to be involved in the maintenance andmanagement o the estate since that is how theywill be able to maintain value or their investment.This should translate or a residential model, withlarge-scale development o either mixed-use orpredominantly residential development or rent, with

the developer/investor maintaining its interest in thesite and looking ater the public realm as well asthe homes.

Some people are nervous about what they see asthe privatisation o public space and the takeovero community acilities by the private sectorinvestor. In her recent book, Ground control, AnnaMinton warns o the dangers o creating sterilegated communities where behaviour is rigorously

controlled and, by implication, community creativitystifed or even destroyed. However, elsewherein the world it is already the norm or the publicrealm around housing developments to be privatelycontrolled and maintained to very high standards ocleanliness and saety.

The problem o returns

The one element o renting that has grownsubstantially over recent years is the buy-to-let market, rising rom just 28,000 mortgagesin 1998 to well over 1.1 million in 2008. Whilethis adds to the numbers o homes available orrenting, it does not deal with the qualitative issuesdiscussed above. Individual investors are not goingto invest substantially in the public realm or socialinrastructure, and they will have had little infuenceon the overall design o the estate into which theyhave bought.

What has not expanded in any appreciable wayis the large-scale investment in homes or rent bylarge property companies or the traditional investing

institutions. This category has, i anything, shrunkand some well-known names, such as BritishLand, have divested themselves o their residentialportolios. There has been much analysis o thereasons why, especially given the impressiveperormance o total returns compared with otherasset classes, as the graph shows overlea:

Elsewhere inthe world it isalready the normor the publicrealm aroundhousing to beprivately controlledand maintained

to very highstandards ocleanlinessand saety


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Comparative annualised total returnsover 10, 20 and 30 years

Commercial and residential average total% returns split by income and capital growth

One way o improving returns might be to improvequality. This could create a virtuous circle wherelong-term investors in residential property wouldhave an incentive to commission or acquirebetter stock and manage it better so that theycan ensure higher returns. The higher returnswould in turn lead to more investment in a sectorwith the potential to contribute signicantly toeasing the housing crisis. This is supported by thepresumption, outlined above and supported by

experience in the commercial market, that investorswith a long-term interest in a property will inevitablywish to preserve its long-term value by ensuringthat quality and sustainability are designed into thedevelopment rom the beginning, and enhancedand maintained by good management.

Totalreturnscompoundp.a.

10 years 20 years 30 years

IPD Commercial property UK residential

London resident ia l Equ it ies Gilts

0

2

4

6

8

10

12

1416

18

20

One possible reason or the neglect o sucha high perorming asset class is that investorstend to ocus on the income return because it

is predictable and allows them to match theirliabilities with more certainty. Even when totalcommercial returns are low or negative, as was thecase in 2007 and 2008, the income return is stillhigher or commercial than residential property, asthe table opposite shows.

Commercial real estate

(IPD)

UK residential

real estate (Savills)

London residential

real estate (Savills)

Total Income Capital Total Income Capital Total Income Capitalreturns return return returns return return returns return return

1 year -4.4 4.6 -8.6 10.2 3.2 7.0 10.0 3.0 7.03 year 10.9 5.1 5.6 9.4 3.3 6.1 8.0 3.1 4.95 year 12.4 5.7 6.4 11.6 3.5 8.1 10.5 3.2 7.310 year 11.7 6.3 5.0 15.5 4.5 11.0 16.1 4.5 11.620 year 10.4 6.9 3.5 13.4 5.5 8.0 13.8 5.6 8.230 year 11.9 6.7 5.2 16.2 6.2 10.0 16.5 6

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Who Should Build Our Homes