Only local government can break the developer’s strangle hold on the housing market

Copied from Sunday Telegraph Sunday 16 April 2017

Economic Agenda
The key to opening up the housing market

By Liam Halligan

For decades across much of the UK far too few homes have been built. The average house now costs almost eight times annual earnings – an all-time record. In London and the South East, of course, this ratio is even higher.

Much of “generation rent” is simply unable to buy a home. For millions of youngsters, even those with professional qualifications and good jobs, property ownership is an ever more distant dream. Ten years ago, 64pc of 25 to 34-year-olds, the crucial family-forming age group, owned their own home. In 2015, it was 39pc.

Three fifths of an entire generation of young adults is locked out of the property market. Over half of first-time buyers get assistance from “the bank of Mum and Dad”, rising to two thirds in the South East. The housing market, once a source of social mobility, has become a source of growing resentment.
Part of the solution, as we so often hear from our politicians, is to “get Britain building again”. Yet the March PMI construction index, which monitors the UK’s leading building firms, last week pointed to a housebuilding slowdown. During the final three months of last year, 2pc fewer new homes were completed in England than the same period in 2015.

Over 2016 as a whole, while the construction of 5pc more homes was started than the year before, the number of new-builds actually completed was 1pc lower. Just 168,000 new-builds came to market across the UK as a whole in 2016 – way below the 250,000 needed annually to meet demand. The UK has built, on average, 100,000 too few homes a year since the 2008 financial crisis. For decades before that, housebuilding was also too low. The last time we did build a quarter of a million homes was back in 1980 – and 113,000 of those were council houses. With council-housebuilding now barely a few thousand each year, the UK’s housing needs are largely reliant on the private sector.

Although few homes are built, the UK’s three largest developers still report surging profits. Barratt saw a 40pc rise to £295m during the second half of 2016 – despite completing fewer homes. Taylor Wimpey made £733m last year, up 22pc. Persimmon’s full-year profits were £775m, 23pc higher.

These three developers now build a quarter of all new homes, with the eight largest accounting for over half. Small developers, suppliers of two thirds of new homes in the 1980s now build less than a quarter. It’s hard not to conclude the big housebuilders, who control so much of the land granted planning permission, are deliberately building slowly, to keep prices and profits up. Waiting to build creates a shortage and means their extensive land holdings also rise in value.

The “big developers” have “a stranglehold on supply”, said Communities Secretary Sajid Javid, at last October’s Conservative Party conference. They are “sitting on land banks”, while “delaying build-out”. The House of Lords economic affairs committee has also weighed in, saying the UK housebuilding industry has “all the characteristics of an oligopoly”. These two statements alone, in my view, mean our competition authorities should take a closer look. The UK’s housebuilding giants deny any go-slow, of course.

When the long-anticipated housing White Paper was published in February, some of us were disappointed at the lack of bold measures. While admitting “the UK’s housing market is broken”, there was no mention of a previous pledge to build a million new houses by the end of this Parliament – so, by 2020. That’s probably because, in the words of Paul Cheshire, a professor at the London School of Economics and probably the UK’s top housing academic, there is “more chance of me living on the moon”.

‘It’s hard not to conclude the big builders are deliberately building slowly, to keep prices and profits up’

Since the White Paper was published, though, having followed various behind-the-scenes struggles across Westminster and Whitehall, I’m pleased to report a little-noticed development that may soon help unlock UK housebuilding.

This column has previously called for the creation of powerful Housing Development Corporations (HDCs) – state-initiated bodies that acquire land, grant themselves planning permission, selling on the land in parcels to private developers. The HDCs then use the “planning gain” from the sharp rise in land value to fund new schools, hospitals, roads and so on. If new housing means local public services are significantly enhanced, there would be far fewer objections from existing residents. Variations of this model have been successfully used in countries from Germany and Holland to Singapore and South Korea.
Under existing “New Towns” legislation, national government can set up HDCs – which, crucially, can buy land at “existing use” value. Arable land, for instance, is purchased as arable land, bringing a healthy upside once residential planning is granted – guaranteeing ring-fenced cash for extra local infrastructure. That’s far better than current “Section 106” negotiations, under which powerful housebuilders hold most of the cards and often spend less on local amenities than councils expect.

What’s new and interesting is that an amendment has been made to new housing legislation allowing local government, with central government permission, to set up HDCs. Councils can buy land for a large development, partnering with the private sector if needs be – but, crucially, the planning gain receipts stay at the local level.

Such cash can then be used to build local amenities or even give residents a council tax rebate, which should make housebuilding much more popular.

This could massively empower local government, while finally sparking the housebuilding the UK so desperately needs. “If councils are considering a sizeable development,” says an insider at the Department of Communities and Local Government, “they should give us a call”.

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All Lincolnshire councils together still seriously short of real cash

Copied from MJ on line
Tierful times
By Andrew Muter | 22 March 2017
Andrew Muter combines the district and county spending power figures and uncovers a worrying trend

L ocal government can now plan ahead with confidence, according to communities secretary Savid Javid.

The publication of the local government financial settlement sets out the level of resourcing and the core spending power available to councils over the next four years. Core spending power may feel like the camouflaging of significant funding cuts. It does, nevertheless, provide some interesting comparative information about what local government financing has become in 2017.

Two-tier local government often struggles to compare itself to unitary government. But by combining district and county spending power figures, it is possible to arrive at ‘whole county’ local government spending figures which can be compared to the whole of England.

One startling outcome of such comparisons is that all but one of the two-tier areas across England have a core spending power per dwelling below the average for English local government. Two-tier areas average a spending power per dwelling of £1,659 – 11.4% below the England average of £1,826. 26 of the 27 two-tier areas are below the average for local government, suggesting the challenges faced by two-tier local government are exacerbated by a historic systemic fault in the allocation of funding. The only two-tier area with a core spending power above the average is Surrey, with a figure of £1,948 per dwelling.

By analysing districts and counties together in their county groupings, it is possible to identify the gap between current core spending power and the England average.

Across all two-tier areas this amounts to an annual funding gap of £1.9bn. A traditional response has been to point to the greater cost of service provision in metropolitan areas because of higher infrastructure costs and higher levels of deprivation. Evidence of the additional cost of rural services has made less impact on funding distribution. But no matter how well such arguments are framed, it is easy to spot the link between the seismic impact of the Brexit vote and the underfunding of the towns and countryside that make up non-metropolitan England.

Hampshire has the greatest gap between its current core spending power and the average – it would need another £180m per year to equal the average. The East Midlands region looks like the biggest loser with all five of its two-tier county areas in the top ten of core spending funding gaps, almost half a billion pounds a year short of the average (box 1).

Box 1
Two-tier area Core spending gap
Local Gov Hantmpshire -£180,356,103
Local Gov Staffordshire -£137,816,881
Local Gov Kent -£126,870,552
Local Gov Lancashire -£117,556,666
Local Gov Derbyshire -£112,137,294
Local Gov Leicestershire -£107,496,873
Local Gov Essex -£102,380,651
Local Gov Lincolnshire -£91,988,977
Local Gov Nottinghamshire -£90,595,409
Local Gov Northamptonshire -£ 85,097,990
Projections for the next four years offer little comfort. The core spending gap widens by 2019/20 for 18 of the 27 two-tier areas. Districts see their spending power reducing by an average 10% over this period, a result of the transfer of New Homes Bonus funds to county authorities. And while counties benefit from this switch and an increase in Better Care Fund, two-thirds of county areas still fall further behind as average core spending power increases nationally. Staffordshire and Leicestershire have the biggest challenges in terms of core spending power at around 80% of the England average.

Unsurprisingly, eight London boroughs feature in the core spending power top ten. Although Wandsworth LBC is at the bottom of the table, London figures do not include the additional spending at Greater London Authority level. Other cities including Liverpool, Birmingham and Manchester also have above average core spending figures (box 2).

Box 2
Authority Top 10 core spending power per dwelling (19/20)
City of London £4,610
Isles of Scilly £4,180
Hackney £2,297
Newham £2,292
Camden £2,260
Knowsley £2,230
Tower Hamlets £2,219
Brent £2,169
Haringey £2,094
Islington £2,092
Those who have argued against the shift in New Homes Bonus towards counties will feel vindicated. It’s clear that two-tier local government is significantly underfunded in comparison with unitary local government and shifting resources between the tiers fails to address this.

One question remains unanswered. If two-tier local government is so poorly funded, why haven’t we seen more evidence of catastrophic service failure in these areas? The answer may lie in the agility of districts in transforming themselves and in the ability of counties to focus on the big strategic challenges in adult social care and children’s services. It may just be that today’s orthodoxy is wrong. Scale and unitarisation may look like the way ahead but maybe two tier local government is the right answer for efficient, agile local government.

Andrew Muter is chief executive of Newark & Sherwood DC

‘Point’ of order Mr Chairman!

Who says council’s meetings are always boring.  A little snippet I came across local gov news website.

John Thomas joke was 
a breach of standards

A councillor who made a “male appendage” joke at a rival has been found to have breached standards.
Lib Dem Nigel Porter made the jibe during a Leicester city council meeting last year during which he was heckled by John Thomas, of Labour.
Mr Porter retorted: “I won’t take any lectures from a man named after a male appendage.”
A future standards committee will decide what sanctions to enforce.