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Build to let case still needs to be made

prsAttending the launch of the Urban Land Institute’s Best Practice Design Guide for Build To Rent, it is clear there is now the level of engagement between the operator, investor and construction/ design professions needed to drive institutional Private Rented Sector development forward.

A more persuasive approach to development viability and planning is still needed, though.  Build to Let (B2L) developers need to provide a more persuasive model than cheap public land and affordable housing waivers.

Scaling Up

We have previously highlighted the role that planning needs to take to help use the PRS as envisaged by the Montague Review.  Taking a real chunk out of the million homes UK plc needs over the next decade is the goal. As Nick Jopling – UK ULI Residential Council Chair – made clear, B2L it is a real proposition for institutions where it can be delivered at the right scale.

Institutional PRS can, and should, have a key role to play in reinventing and densifying Garden Suburbs around London.  Without it, the 49,000 homes needed are unlikely to arrive. In the longer term, it should also have a real role in the institutional structure of new towns.  To achieve that, equity participation in long-term residential investment in new settlements should be rewarded. We should learn from aspects of the US multi-family tax regime and explore how the planning system can create investor certainty.

Powers and persuasion

The PRS sector has much to do to persuade planning authorities that the viability constraints of B2L are worth paying attention to, both in terms of more flexible application of policies which impose cost burdens and the use of planning powers to assemble land at the right values.

As we have noted before, the PRS viability debate is currently one-dimensional. The onus is squarely on the emerging B2L sector to explain:

  • the demographic need for rental accommodation (and its relationship to housing need and affordability);
  • the benefits of certain types of PRS in different Housing Market Areas;
  • how those benefits can be secured and over what timeframe they should be locked in.

Time is on

Timing is crucial – the opportunity for embedding PRS in this way is linked to the evidence base for Local Plans, in particular the Strategic Housing Market Assessments which often fail to fully recognise the demand for new rented stock.

The sector is doing what is can to drive down build and operational costs.  Persuading authorities that PRS goes beyond super prime apartment blocks and that meeting the needs of Generation Rent is a worthwhile cause is the next step in the viability process for B2L.

Family Hold Back

Dentons and London First hold an annual lunch at MIPIM for leading politicians, developers, investors, public officials and property professionals. The Mayor’s right hand man, Sir Edward Lister, was the guest of honour this year.  The lunch gives an opportunity to explore issues important to London.

The success of London is critical to the future of the country. With this power comes responsibility. At the lunch we noted three particular challenges.

Firstly, rebalancing infrastructure investment – London has gobbled up the vast majority of recent public infrastructure investment in the UK. Any standard cost/benefit analysis suggests that future infrastructure investment should also be concentrated in London and the South East – that is where it will deliver most immediate economic benefit. And London needs more capital investment to continue to compete globally. However, it also needs other cities in the UK to succeed. The UK economy is too imbalanced, and would be more successful, sustainable, and less cyclical, if the cities outside London were stronger. The strength of those cities is dependant, in part at least, on capital investment, and now is perhaps the time for London to hold back and allow more national infrastructure monies to be spent elsewhere.

Secondly, funding London and local government generally – London can and should bear more of the cost of investment it needs. The Olympic supplements, the Crossrail rates supplement and Community Infrastructure Levy show what London can do. The London Finance Commission has proposed changes to ways in which SDLT and business rates should be retained for London. As a long term goal the retention of part of those funds may well be sensible. But changes cannot be introduced while there is such a disparity between the property tax revenues of London and the other cities. At the moment Camden and Westminster raise more in business rates than all the other core cities combined. Any change that uses the present property tax base will limit the possibility of future change.  It will ossify an already outdated system. Instead, London should be aiming for greater and broader fiscal devolution, with local authorities, including London, looking at non-property taxes – local sales taxes, local income taxes, local hotel/bed taxes, etc. London should lead the argument for change, using any new freedoms to fund necessary infrastructure.  This would then provide a fairer nationwide basis for funding local government. Critically, however, London should hold back on asking for changes that would just embed the present arrangements for funding local government.

Thirdly, addressing housing demand – London needs new homes. The Further Alterations to the London Plan propose 49,000 new homes a year, roughly double the number of homes that are presently being provided, and probably 20,000 homes less each year than is needed. The scale of change provides an opportunity for experimentation. It should be like a fast breeder reactor. We should all be working to identify and encourage new investors and developers, to promote different landownership/tenure arrangements, playing with new planning tools, and thinking about different ways of providing infrastructure. That may cause discomfort for existing house builders. It should be a concern for landowners where they are not, without good reason, developing. (The last great monopoly of land ownership needs to be weakened.) It may mean changes to the green belt, new towns built and suburbs being rebuilt. We should embrace these challenges, working both within London and with the boroughs outside. In one sense London might hold back.  In a changing economy, maybe more effort should be made to build on the success of Oxford, Cambridge, Brighton, Reading and look to replicate that elsewhere in a way which reduces housing demand in London.  In the absence of a regional plan for the south east, leadership and co-operation are critical.

London is the leading city. It should show leadership. A required leadership quality is adventurous self restraint and encouraging others to grow.

MIPIM 2014: London Calling for more homes

IMG-20140312-00029This year’s MIPIM is upbeat and dominated by an industry intent on making the most of intense demand for homes and increasing demand for commercial space in London.

Sir Edward Lister, the Mayor’s Chief of Staff and Deputy Mayor (Policy and Planning), emphasised that the Mayor will leave no sites out in order to deliver the 49,000 new homes confirmed as needed in the recent London Plan Further Alterations.

Speaking at the annual Dentons – London First Lunch, Sir Lister called for the development sector to ‘double up’ its current housing production. He also stressed that the Mayor is willing to explore all options to bring forward stagnant sites and new communities, including through the use of compulsory purchase powers.

Sir Lister highlighted the role of transport investment, infrastructure tariffs and TIF-style forward funding to bring forward new opportunity areas such as Old Oak Common.

The Nine Elms Battersea Vauxhall Opportunity Area would be the model, he said. He agreed with our suggestion that flexible plan policies and a board of owners and key investors would be key to making other areas as successful as the VNEB. Dentons has been recognised as a “stand out winner” among the law firms advising in the VNEB Opportunity Area. We have helped secure consents for the 4 of the largest 25 VNEB schemes approved since 2007 – Vauxhall Sky Gardens (Frasers), Vauxhall Square (CLS/ Vauxhall Square Limited), Sainsbury’s Wandsworth Road (Northern Line Extension Works Act Order) and Hampton House.  We are also working on the £2bn New Covent Garden Market regeneration scheme.  Together, these account for around 30% of the 16,000 homes envisaged within the VNEB area.

With institutional investors now seriously interested in residential and infrastructure there is a real prospect of achieving these goals.

A long hard look will be needed to ensure that the CIL regime is up to the job, since it will largely replace the S106 tariffs that have worked well at Nine Elms.  Even after recent reforms, it is a dysfunctional system not fit for purpose in relation to large scale and complex development.

Stephen Ashworth also stressed the need to look wider than London at new settlement opportunities that can both provide for London’s needs and begin to balance growth. Realism is needed on the green belt, he said.

We continue to be involved in the most complex new settlements – at Harlow North, Alconbury Weald and New Covent Garden Market – and are working with the TCPA on their New Towns Act proposals.

New Towns Act 2015?

Dentons sponsored the TCPA to produce a new version of the New Towns Act, updated to make it fit to deliver the cities that we need today.  Why is it relevant?  Because we have all talked about increasing the delivery of housing and found it difficult to achieve in the present planning system.  And because the legislation is already available to deliver several new towns like Milton Keynes if there is the courage to do so.  This could be done quickly, and we would all benefit.

One benefit of a new Act would be to force the present cross-party rhetorical commitment to new homes into legislative form.  It would allow the law to be modernised.  It can bring in duties in relation to good design, sustainable development and dealing with climate change.  Importantly, it could also start to bring back to life the real vision that lay behind the original 1946 Act – of creating better places for people to live and work.  We should seize the opportunity to do so.

Market restrictions

housing-bubbleForeign investment is being blamed for contributing towards a “housing bubble” in London.  I was asked, while speaking at a conference last week, whether the planning system could be used to dampen the ardour of foreign buyers inflating the value of London’s property market by restricting the sale of new market units to UK residents.

Aside from the fact that we have laws which seek to police and prevent discrimination  (of which such a restriction would normally fall foul), this is not an inherent UK “problem” but rather a London-centric one.  How well does this sit with the active promotion of the UK by the Government for foreign investment?

If local authorities are intent on introducing a restriction, there will need to be justifiable and evidenced planning reasons for doing so, ideally enshrined in a local policy.  The policy will have to be justified, for example, on the basis that the local housing market is not meeting the needs of local residents.  Possible means of addressing this may be to require new development to be marketed locally for a prescribed period, or, more restrictively, require a certain percentage of units to only be made available (both of first sale and re-sale) to local residents but with cascade provisions allowing others with local connections to buy units if there is not enough local interest.  However, I question how easy such a restriction would be to monitor and control.

The fact is that foreign investment in residential property, even if largely within London for the time being, provides wider regenerative benefits for the UK as a whole in contributing to economic growth via the creation of new jobs, new homes and infrastructure. Is this not what good planning should achieve?  Whilst the UK is still coping with the effects of austerity, any investment, whether national or international, should be welcomed unless there is a very clear harm which can be “planned away”.

As Lord Rogers recently noted there is a separate issue about houses being bought but not occupied.  Care is needed not to confuse the two points.

Ministry of relief

Lawyers generally hate unique solutions. No-one wants to be at the bleeding edge.

But there are some planning issues that now demand legal innovation. Cities are evolving at a great pace. More people are moving into areas that were traditionally business and leisure locations. And this is creating tensions between neighbours.

Eileen_HousePlanning has always taken a pretty laissez faire attitude to these potential battles. It is taken as a self evident truth that there is no right to a view. It gives little weight to the disruption caused by building projects. It rarely refuses consent because of the existing noise environment, despite the risk that new residents might complain.  This then jeopardises the businesses who create noise and activity. As new residents move in they complain. Even though the noise levels were acceptable for planning purposes they can still be a nuisance and lead to existing businesses being shut down.

In any sensible regime the grant of planning consent would set a higher threshold before granting consent and the grant of consent would then provide protection for existing uses — after all, new residents have moved to the problem. Unhappily in the real world this does not happen; hence the need for a unique solution.

MoSlogoThe Ministry of Sound nightclub at the Elephant & Castle is the type of use that provides character in an area. When faced with a new residential development opposite the club, Ministry was understandably concerned that the development would lead to future complaints that would inhibit their operations. Acting for the developer we agreed to grant an easement to Ministry to allow them the legal right for noise to pass through the development site.  Anyone moving into the new scheme will be aware that they have accepted certain noise levels. If they still make complaints then the local authority will be aware that the resident has already “given up” their rights and that should then influence their response to the complaint.

This is the first occasion that we know of that the mechanism has been used. Hopefully that will give others the confidence to offer the same protection and help to preserve the variety and vibrancy that makes our urban areas attractive places to live.

Muscular Action

The Bank of England is concerned that Britain is building half as many homes a year as Canada, despite having twice the population.  Planners are concerned about unplanned growth.  David Cameron’s support in early 2012 for a new Abercrombie Plan to protect the green belt and meet housing needs led to an RTPI/ Land Securities report.  But a Garden Cities Prospectus promised for high growth areas has not materialised.  Nick Boles’ confirmation in June this year that no resources would be allocated seemed to seal its fate.  But new towns are back on the agenda.  The Labour Party proposes to use five of them to double annual housing delivery until 2022 and the man they have appointed to come up with a blue print for 220,000 homes a year is calling for ‘muscular action’, including the compulsory acquisition of land subject to unimplemented consents.  The Policy Exchange, courtesy of Lord Wolfson, are also keeping the original commitment alive  – offering a £250,000 prize for a workable Garden City model. Now David Cameron’s key planning advisor has jumped ship to oversee it. Here is a short entry for the Prize.

Geographies

Where should new settlements go? In the absence of the RSS ‘Areas of Search’, LEPs should be empowered and incentivised to identify their own Garden Cities and Suburbs, where needs indicate they are required.  Business Rates, CIL and other fiscal tools can be used to make it worthwhile. An assumption that they will be built within range of London or on the line of HS2 needs care – the original Garden Cities were as much about where employment, not just houses, should go. ‘Muscular action’ is certainly needed, if only to make clear choices about the location and scale of major new settlements and their accompanying infrastructure.

Land powers and costs

‘Housing estate’ is a sullied phrase.  If there is going to be social licence to build, genuine placemaking is required.  Excellent masterplanning and design require land budgets and values that allow space for schools, parks and the like as a starting point, not an extra, ‘subject to viability’.  Compulsory purchase will be needed to achieve this, as the draft London Housing Strategy recognises.  The real question is how is it valued and who holds the land once assembled – LEPs, community trusts, Community Interest Companies or an arm of the Treasury?

Prime the pump

CPO valuation will reflect the public cost (or balance sheet risk) of forward funding significant new infrastructure. The TIF approach that has catalysed the Vauxhall Nine Elms Battersea Opportunity Area is a good starting point.  It needs a strategic body – such as the Mayor – to invest in infrastructure before planning payments, CIL and land receipts can catch up.  Labour envisage market borrowing backed by a UK plc guarantee.

City governance

garden city

Letchworth and Welwyn are characterised by communal ownerships and structures, which has allowed investment to be repaid and reused.   Milton Keynes had a different but effective model.  The lessons from these experiences – good and bad – need to be reflected in models of community ownership and reinvestment that provide an asset lock for crucial facilities and a base for social enterprises, releasing local authorities from management and revenue burdens associated with new infrastructure.  The Neighbourhood Share of CIL is a good model for endowing these vehicles.

The Prize winner should address these issues and more, not just design.

Housing our needs

In almost all emerging local plans, there is a perceived problem meeting the need for private rented sector (PRS) housing.  Part of the issue is a lack of imagination about the tools that are available.  Although the following list is by no means complete, it may start a thinking process that, locally tailored, would help to deliver more homes of all types, while maintaining and securing mixed and balanced communities. 

Where there is a PRS need, and it is viable, local planning authorities should consider:

  • critically, as the NPPF suggests, allocating more market housing that can be used to support other housing requirements – never treating “need” figures as maximums;
  • identifying sites that could be used exclusively for PRS;
  • identifying suitable sites where a high proportion of any homes should be for PRS;
  • having a policy that requires all residential developments to have a percentage of PRS;
  • identifying sites that might not, in other circumstances, be developed for residential use (for example in another use or in the countryside) and allowing them to be developed provided that they are preserved for PRS over the long term;
  • since the need for new homes is intrinsically linked to economic development, requiring new employment development to contribute towards the provision of PRS;
  • if appropriate, and where robustly justified, having clear local plan criteria that allows PRS to be provided off site where this significantly increases the scale or quality of PRS being provided in a community;
  • having a local plan policy that, exceptionally, allows financial contributions to be made to a PRS housing fund;
  • using the PRS housing fund imaginatively to, for example, convert existing market homes to PRS use, particularly exploring the opportunities for new homes above and within our high streets and for the conversion of existing homes to create units that meet present PRS needs;
  • where sites have been allocated then using CPO powers to make them available for PRS development, at a compensation value that reflects the new designation.

Clearly the same tool kit could also be used for affordable housing.  Where there are sites with existing consents then perhaps the emergence of a new breed of local plan policies might give an incentive to build out, giving a softer transitional edge to some of the present “use it or lose it” rhetoric.   Given the publication of the Mayor’s Housing Strategy on Monday it is clear that far more needs to be done to help deliver housing.  Being a bit more adventurous with the planning tool kit would be a good start.

Turn up the volume, three suggestions …

The first two parts of this post identified the clear need for new housing and the important role that the private rented sector needs to make going forward.  This part makes three broad suggestions:

Firstly, recognise the limits of Localism.  Once the right locations for growth are identified, the debate should not be around whether but how to deliver. Recent changes to the Nationally Significant Infrastructure Projects regime allow a wider range of projects to be dealt with under Development Consent Orders.  Homes were excluded.  Why? Proposals that would make a significant contribution (say 3,000 homes or more) could and should benefit from the DCO regime,  the use of CPO and other powers to bring them forward.

Secondly, planning should plan positively for new settlements at a sensible scale relative to needs.  If there is significant unmet need in an area then the LEP should be charged with reviewing the best locations for major new development.

Thirdly, we should think about what a new Towns Act would need to look like and how the layering of European law would affect the process for adopting it.  Whilst the compensation regime will look different in some ways to the 1950s and 1960s approach, it will have to perform the same role – assembling land at scales and values that allow masterplanning and design excellence, using longer term land values to pay for the infrastructure, and a fund of part private/part public monies to meet the upfront costs of getting it done in return.  The process itself should learn the lessons of the doomed rush to Eco Towns and reflect the role that Community Interest Companies and other structures can play in providing a long term stake in making new places.

Turn up the volume, part 2

Meeting housing needs is now recognised as a national challenge (see Turn Up the Volume, Part 1).  Love or hate it, the Regional Strategy system was intended to force reluctant authorities’ hand on planning for large scale delivery.  The requirement to objectively assess needs is intended to have the same effect.  But it is only part of the solution, because delivering new places requires a multi agency approach and, fundamentally, a commitment to infrastructure delivery.  Assembling land at sensible values to prevent circular viability debates is also critical.

The NPPF has proved a sensible tool for delivering growth by appeal, which sometimes provides a convenient excuse for authorities for not making decisions.  The Duty to Co-operate is a good approach but is currently delivering punishment not success in the absence of a duty to agree.  If we are genuinely going to deliver the necessary number of new homes of over the next two decades, what reforms will be needed?

Reform on the cards

Labour has committed to a target of 200,000 new homes per year by 2020 if elected. There is loose talk of supplementing the duty to co-operate with a ‘right to grow’, intended to avoid delivery being mired in the same way as schemes like West Stevenage. The RICS wants the Bank of England to get involved. It may be that the political scales are nearing the point where the wrath for failing to meet needs will outweigh the ire for doing so.  Hence the fact that whilst Ministerial brief has shrunk, it is the Treasury and the Prime Minister making announcements on housing.

cartoon

Source: Inside Housing

The first structural change is a recognition in planning that private renting – and the potential for institutional investment in it – is a significant part of the solution.  Planning can be used to help create the commercial certainty to attract institutional investment, but PRS developers will need to provide a more persuasive model than cheap public land and affordable housing waivers.  How can development structuring using public land and long-term equity get the initial land values right for PRS models? How can affordable tenures – both their type and duration – be innovated to work within them?  What is the role for Registered Providers as part of consortia or place-makers in their own right? As CIL rates begin to hit student housing schemes, genuine PRS portfolios will have to prove themselves.  So the first change is that “objectively assessed needs” has to ensure that PRS requirements are identified and met.  The draft NPPG failed to address that issue which was a missed opportunity.

Three further suggestions for reform will follow in Part 3.