Real estate, alternative real assets and other diversions

Land for Hope and Glory Peter Bill's entry to the 2018 Richard Koch Breakthrough Prize looks at how any government could use what he calls the Land Bounty to diffuse the housing crisis

The Guest Essay

SUMMARY 

‘There is always an easy solution to every problem – neat, plausible, and wrong.’ HL Menken

Act one: Amend Compulsory Purchase Order law to allow authorities to buy land at existing use value on sites zoned for homes to generate Land Bounty. Use 80% of Bounty to fund Half Market Rent (HMR) homes. Councils spend 20% on local improvements. Bounty realised by JV with private sector or Housing Assocs. Equity in HMR slow-released to occupant.

Act two: Set aspirational 5-year target of 300,000 new homes a year. Aim for consensus. Accept aim leaves 70,000 shortfall. Accept downturn will hit aim. Burgeoning Built to Rent (BTR) sector included in Bounty initiative to boost numbers. Embed Bounty powers into urban development and New Town corporations to galvanise building programme and cut public spending.

Orchestration: Decry factoids, such as: ‘more new homes will lower prices’; ’fixing planning will fix the crisis’; ‘prefabrication, hurrah!’ Re-score mood music from regretful to rousing. Prime Minister to echo the Churchillian message, ‘Build the houses for the people.’ Bounty lets more people ‘step up’ the equity staircase and buy. Bounty bonus – it supercharges New Towns programme.

Added political options: Go Right: Offer the landowner a fixed percentage of the uplift, determined at time of sale by independent valuer and subject of appeal. Compress time scale to allow occupants 100% equity in 2 to 3 years. Go Left: No HMR Homes. All money goes to pay for homes rented in perpetuity. Go down: Let individual councils decide Left/Right options.

 

ACT ONE: Lead actor, Planning Minister

‘Democracy is the art and science of running the circus from the monkey cage’ H. L. Mencken

Allow the state to benefit from the uplift in land values conferred by granting planning permission. Not a new idea. The concept of ‘Land Value Capture’ has been around since 1909. A June 2018 paper by planning QC, Richard Harwood, gives the full inglorious history, up to the present-day Alice in Wonderland rules, which attempt to define and divide unrealised gains between seller, buyer and state.

A Commons Select Committee on Land Value Capture reported on 13th September 2018 concluding ‘the present right of landowners to receive ‘hope value’ – a value reflective of speculative future planning permissions – serves to distort land prices, encourage land speculation, and reduce revenues for affordable housing.’ The Committee called for a ‘significant portion’ of any uplift ‘to be available to the state.’

What are the chances for a Land Bounty that simply pays the owner the current value of their land, rather than trying to figure and apportion mythical profits? Labour’s housing spokesman, John Healey is pushing for a variant of the plan and Conservative MP, Nick Boles, has written in favour. But it will need a politician of great courage to risk saying ‘why not just pay the current use value?’ But look at the rewards:

Housing land differentials.

Government Land Value estimates for policy appraisal.

Prevent abuse, promote consensus

There must be rules to prevent the spoils wrested from an existing landowner being speedily divided among those who profit from selling homes. First, to ensure the idea meets the ‘politically possible’ test – being acceptable to both main parties. Even the threat of repeal by either will kill the idea in the womb. Second, to mute uproar from landowners. Harder to argue against spreading wealth via home ownership.

Land Bounty can turn renters into owners, slowly

Therefore 80% of the Bounty should go towards providing Half Market Rent (HMR) homes. The remaining 20% to be spent on local amenities. Equity in units sold to occupants under the government Affordable Home Ownership scheme. Equity released for sale over 10 to 15 years to prevent profiteering. Result? ‘Slow release’ of Land Bounty to allow stable renters become stable owners.

Who gets to build HMR homes? Any willing supplier. If the private sector wishes to joint venture with a planning authority which has bought land at existing use value, then, fine. The Bounty can be used as equity. The number of HMR homes built then form part of the negotiations and subsequent planning obligations. Same goes for deals done with Housing Associations.

Newcomers to provide more rental stock

Newcomers to the market offer a way to provide additional HMR homes, albeit rented in perpetuity. Legal & General and M&G and U.S. supplier, Greystar are all investing heavily in Built to Rent (BTR). The British Property Federation estimates (Oct ’18) the pipeline of BTR Homes being developed by financial institutions had risen by over 30% in one year to 132,000, with completions up 45% to 25,600.

Build to Rent projects are exempt from providing affordable homes. But the National Planning Policy Framework, published in July, makes the direction of policy clear, quotas are coming. A quote: ‘For Build to Rent schemes, affordable housing for rent is expected to be the normal form of affordable housing provision. To be known as Affordable Private Rent (APR).’

Build to Rent can help toward target of 300,000

Allowing BTR suppliers to participate in Land Bounty would boost the nascent sector and provide additional homes. Good, because there is a much bigger target, mentioned by then housing minister, Dominic Raab in April. ‘The 45% increase in build-to-rent homes is good news, but we’re restless to do more. Our revised NPPF is a crucial next step in helping to deliver 300,000 homes a year by the mid 2020s.’

ACT TWO. Lead actor, Housing Minister.

‘Politics is the ability to foretell what is going to happen…. And to have the ability afterwards to explain why it didn’t happen.’ Winston Churchill

Reaching 300,000 is stretching. Later you will see performance figures I have compiled for the top seven house builders (Tables 1, 2 & 3). The extrapolations to 2022 below are based on the compound rate of growth of completions achieved between 2012 to 2017 of the top seven, stacked over similar assumptions for rest of the market. The result is a 70,000 shortfall on the totemic target. A gap that needs political minding.

Don’t hit those accused of breaking market

In March, the Prime Minister said, ‘Our broken housing market is one of the greatest barriers to progress in Britain today.’ Indeed. But why admonish those risking private capital? Theresa May demanding ‘builders and developers step up and do their bit.’ is not good for trade. Top seven completions were up 55% between 2012 and 2017, from 44,685 to 69,470 (Table 1). Quite a bit.

Let history repeat itself, but in a different way

Take courage from Harold MacMillan. This from his memoirs: “Churchill asked me to ‘build the houses for the people.’ What an assignment! I know nothing whatever about these matters, having spent six years now either on defence or foreign affairs.” In 1953, 318,000 houses were completed. An achievement that helped MacMillan become Prime Minister in 1957.

What should the current prime minister do? Ask the Home Builders Federation to scale down their 2016 ‘statement of intent‘ to reach 218,000 units by 2020. Settle for 168,000: the top seven up from 70,000 to 98,000 and smaller private fry from 50,000 to 70,000. Any objections? Point out the 7% growth per year target matches the compound 55% achieved over the past five years. (Table 1).

Aim for consensus…

The Guest Essay

About Peter Bill

Peter Bill

Peter Bill is the author of Planet Property: planet-property.net. A guide to the £400 billion UK market which charts the sector against the background of the biggest boom and bust in history. Peter is also a surveyor-turned-journalist who edited Building magazine for six years in the Nineties, before editing Estates Gazette for 11 years, until 2009. Peter wrote the weekly ‘On Property’ page for the Evening Standard City section for seven years, until 2015. He now writes a regular column for Property Week.

Articles by Peter Bill

Our Partners