Housing Commission led by Sir Michael Lyons
Response from North Hertfordshire District Council
1.The land market - unlocking land for housing development
How do we get much more residential land to market and what are the best
mechanisms to achieve this?
We need to recognise the very different drivers which motivate landowners to bring
their sites to market. Some old landowning families and institutions (e.g. old
university trusts) hold farmland for the very long term and can only be persuaded to
sell if a truly exceptional price is offered. If such bodies feel that their site is being
asked to pay for too much infrastructure or affordable housing, it reduces the margins
to a point where they will not bring it forward. Although the land value is still
considerably more than agricultural values, this sort of very long-term investor will
happily wait a generation in the hope that they will get an even better price at a later
date. This is a capital receipt they can only make once. As they have no pressing need
to sell the land they can afford to be very fussy about when they release sites.
Conversely, once a developer has bought land, they tend to bring it to market more
quickly; typically they have borrowed most of the money to buy the site and therefore
are having to pay interest on capital borrowed, which creates a powerful incentive to
get moving.
However, sometimes a developer buys at what later proves to be the ‘wrong’ price –
typically having bought at the wrong point in the economic cycle. They then have to
weigh up whether it is better to build houses at a much smaller profit margin (or a
loss) than it would be to let the land stand vacant and continue to pay the interest on
the capital borrowed. The developer’s attitudes to risk and their assessment of
economic growth in future will be the determining factors in when they bring the land
to market in this case. The developer who has a site which could be developed now at
a loss, but who thinks that in a couple of years’ time the market will have picked up to
allow it to be developed at a profit, will probably choose to continue to pay interest
for a couple of years before starting work.
How can we ensure that the land brought to market is available for
development and not simply landbanked?
Land banking is a complicated phenomenon with multiple causes, with different
landowners and developers doing it at different times, for different reasons and based
on differing perceptions of how different the future economy might be from today’s.
Sanctions against the landowners and developers will therefore be very difficult to
construct or implement. The best way of minimising land banking is therefore to
strengthen demand and minimise costs. However, both these factors are also difficult
to regulate and a very delicate balance needs to be struck. Artificially stimulating
demand risks creating a bubble, which has wider dangers for the whole economy.
Minimising costs to developers carries the risk that the sites will not provide
appropriate levels of affordable housing nor properly pay to mitigate their local
impact.
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How will a "use it or lose it" power for local authorities to discourage land
banking be implemented?
The danger with a ‘use it or lose it’ power is that it will create a powerful disincentive
to putting planning applications in or promote sites through Local Plans. Under such
a system, a developer will not put in an application until they are sure that the
conditions are right to let them follow through quickly to develop the site. At the
moment they may well put in an outline application in order to prove the principle of
development is acceptable and safeguard their position
Given the consensus that our current development industry is not capable of
delivering the homes we need, how can we bring about greater capacity,
competition and diversity to ensure it can deliver the homes our country so
badly needs?
Greater public investment in infrastructure to unlock sites and increase access to
areas currently less accessible is needed. If we continue to require industry to pay for
all improvements to infrastructure, we will continue to see similar levels of growth to
those currently being delivered.
2.Investment in housing and associated infrastructure
The current structure of the Housing Revenue Account (HRA) system is
overly bureaucratic and is hampering sound investment in social housing.
What flexibilities through the HRA and in other areas could be granted to local
authorities so they can build more homes?
What are the barriers to greater private investment, particularly long-term
investment. How much investment must we attract and through what
mechanisms? What part can institutional investment play?
Since North Hertfordshire District Council has transferred its housing stock and no
longer operates a housing revenue account we have no particular evidence to provide
on this question.
3.The role of a new generation of New Towns and Garden Cities
What contribution can a new generation of New Towns and Garden Cities
make to a step-change in housebuilding?
New Towns and Garden Cities are a sensible way of delivering growth in the longer
term, but it needs to be recognised that they have long lead-in times. From
identification of the site to the first completions is likely to be at least ten years. We
therefore need to start work on such new settlements now in order to secure long-term
delivery of housing, whilst looking to other development types for short-term supply.
What are the barriers to, and solutions to ensure, their effective delivery in
terms of:
O Financing new settlements;
O Land and land value capture;
O Infrastructure.
One of the main notable features about the original Garden City here at Letchworth
was its land-owning model. The land was bought at agricultural prices and the profits
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of development were re-invested in providing infrastructure and other community
benefits for the town – a model which continues today, 111 years after the town was
founded. Investors did not get all the profits, but a dividend based on certain
percentage returns, making it effectively a pure financial investment rather than a
speculative gamble.
What are the most effective and appropriate mechanisms/agencies for
delivery?
Government is probably best placed to secure land at close to agricultural values
through compulsory purchase and then set up bodies similar to the new towns
corporations as a delivery vehicle. Investors should expect a particular return on
capital employed rather than a super-normal profit.
How can a local authority or groups of authorities' best be incentivised to
come forward and identify locations capable of sustaining large scale sites for
New Towns and Garden Cities?
This requires a form of strategic planning for which the current ‘duty to co-operate’
is ill-designed. Much development is to meet locally generated needs, and should
properly continue to be met close to where the need arose. However, development to
cater for migration from other areas is by its nature more ‘footloose’ in character,
not necessarily being tied to a particular point of origin. Such footloose development
would be the main beneficiaries and users of new towns / garden cities. However,
footloose development is looking for areas with excellent communication links and
access to jobs. There are not many places in the country where such conditions
already exist. It therefore requires investment in new roads, railway stations and
services and improving links generally to make a location suitable for a new
settlement. To that end, there needs to be a much bigger than local authority level
consideration of the best locations.
4.A new "right to grow"
How can we ensure that Local Authorities that want to expand, but do not
have the land on which to grant planning permission without cooperation from
a neighbour, are able to do so?
Where an authority has reached its capacity within current boundaries it would be
better for growth to be accommodated in a new settlement rather than risk
coalescence and the absorption of surrounding villages.
We also need clarity as to whose needs are being met before we can work out how
best to accommodate needs. The present system of CLG household projections (which
are being effectively treated as targets by the Planning Inspectorate) does not provide
clarity, on two principal fronts.
The first problem is that population and household projections assume that previously
observed migration trends continue. This means that places which took significant
growth in recent years have to do so again leading to an unsustainable upward spiral,
whilst areas which have seen little growth in the recent past see lower levels of
projected growth, which will not meet the genuine need. The onus for providing new
growth is therefore being put on places which have grown most in recent years – yet
perversely these may be the areas least able to deliver further growth, as they have
exhausted the most readily available options.
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There is therefore no assessment of whether areas with lower housing targets might
be better placed to take growth than areas with higher targets. Those areas are
therefore able to get their Local Plans in place with comparatively less challenge,
whilst the districts with the higher targets find it increasingly difficult to produce a
sound Local Plan.
In this context, it would make more sense to disaggregate the projections into their
‘natural change’ and ‘migration’ components. It is reasonable to expect each district
to meet its own natural change projections as a starting point. This would make
negotiations under the duty to co-operate much more clear-cut as to where growth is
coming from and where it is going to. It would also make much clearer the amount of
unmet need arising from places like London and other major cities – this is the sort of
growth which could be channelled into new towns and garden cities in locations with
appropriate communications links.
The second problem with the current guidance is the obsession with Housing Market
Areas. Whilst it is obviously true that housing markets do not respect administrative
boundaries, all the base data is published for administrative areas, there is no
accepted method of defining housing market areas and it is exceedingly difficult to
base decision making upon them. Many districts straddle several housing market
areas, and the likelihood that all the relevant local planning authorities will be able
to agree a common methodology for defining the housing market area and dealing
with its planning is very slim. The way the jigsaw works there either needs to be a
standard method across the whole country or an acceptance that it doesn’t matter if
different approaches have been used. If the overall aim is to get local plans in place
quickly and thereby get housing delivery rates up, then we need to make the process
as simple as possible. The weight being given to the undefined and ephemeral housing
market areas adds disproportionate complexity to the process for a marginal and
largely academic benefit.
Therefore, we recommend that the projections used for preparing local plans should
be published for local authorities based on natural change. This would take away
many of the most contentious debates about housing market areas and normal
migration trends which are bogging down the system currently. It would also much
more clearly highlight the scale of the problem identified in the question – that of
‘unmet’ need that some major urban areas cannot accommodate within their
administrative boundaries.
Even with all of the above reforms, there still needs to be a larger than local arbiter
for resolving unmet needs from tightly bounded authorities. The Planning
Inspectorate’s examination of plans is not a proper arbiter – it can only say yes or no
to a plan, and its ability to identify the ‘right’ answer is limited. The old system of
County Structure Plans (whilst not perfect) struck a reasonable balance between
resolving larger than local issues but at a democratically accountable level. Whilst
there are many borough / city councils which are tightly bounded, virtually all
counties have substantial rural areas and so are able to take strategic decisions to
accommodate unmet need from their boroughs / cities.
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What are the incentives, disincentives and requirements (and what is the
correct mix) that should be used to ensure cooperation between Local
Authorities to cooperate in a joint-planning process in their areas?
The present system is a very unequal negotiation. Tightly bounded urban authorities
sometimes have massive needs for housing, but the only thing offered to the ‘host’
authority taking it is the New Homes Bonus, which is simply a redistribution of
existing funding and is insufficient to pay for proper infrastructure improvements to
offset the additional burden of accommodating development.
Some tightly bounded urban authorities (including some of the Mark I new towns)
may aspire to grow but don’t actually need development to meet their own needs.
Such aspirational growth needs very careful scrutiny to ensure that a proper balance
is being struck between all aspects of sustainability – if towns in this category are
wanting to attract footloose development from other areas, we need to know that they
are properly the best place for such development.
To make joint working operate properly, we need:
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Clear, unambiguous targets based on natural change, which will endure
for long enough to prepare Local Plans.
A stable local government geography to work within based on local
authorities rather than any academic constructs such as housing market
areas or functional economic market areas.
A democratically accountable method of arbitration between authorities
where unmet need proves a difficult issue so that a decision can be made
and we move on, rather than let plans get bogged down because the main
issue is too difficult.
A proper way of ensuring that necessary infrastructure is provided –
especially for a district hosting development to meet needs of a tightly
bounded authority.
5.Share the benefits of development with local communities:
Despite various attempts there remains a mismatch between national and
regional need for further house building and the incentives local communities
and councils receive when granting permission for specific developments,
especially for major developments like new towns. There are huge windfall
profits from the granting of planning permission but these are captured by
landowners. Agricultural land is valued at under £20,000/hectare, while land
with residential planning permission is valued at around £2,000,000/hectare an increase of over 10,000 per cent.
Is the current planning gain system fit for purpose and what alternatives
exist?
Attempts to claim part of the uplift in value on development have been one of the most
difficult aspects of the planning system since 1947, with many methods tried. Section
106 actually worked quite well, but its impending limitation through the Community
Infrastructure Levy undermines the best method of securing contributions. This is
clearly an attempt to make authorities adopt a Community Infrastructure Levy, but
outside London the likely receipts of CIL combined with the administrative complexity
and impact on affordable housing yield do not make it an attractive alternative.
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CIL is effectively a tax on development companies, apparently justified because they
make super-normal profits because the state has done something – in this case
granted permission. However, it is disproportionately complicated to administer, and
the same justification must also apply to many other businesses – the state has
provided the infrastructure / education / legislative framework etc. to enable them to
trade.
How can we ensure that a larger share of the windfall gains from planning
permission goes to local communities?
Models of Garden Cities like Letchworth (as discussed above) are a good way of
reinvesting money back into the community, but only really work with relatively large
scale development. These days this would probably need to be in the form of a
publicly initiated development on which bonds were issued with fixed returns, leaving
any super-normal profits to be used for community benefit schemes. However, for
most conventional development models currently available it is hard to extract monies
without giving the impression that planning permission is being ‘bought’, which
undermines confidence in the whole system. We also do not want to create a system
which creates economic disincentives to development at a time when we are trying to
increase development rates.
Compulsory purchase powers that value land at its agricultural value not its
developed value could enable local authorities to reinvest profits in infrastructure and
the community.
The Expert Panel
We observe that the panel appears to be lacking in experience in predominantly rural
local authorities such as North Hertfordshire.
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