- Labour’s manifesto promise was to deliver “the biggest increase in social and affordable housebuilding in a generation”. The height of UK housebuilding was in the 1950s and 1960s. Delivery peaked under Harold Wilson in the second half of the 1960s when just over 300,000 houses were built every year. Since then, we have never had it so good. The government has now set a target of 370,000 new homes a year[2]. How might we get anywhere near this new target? There is only one practical answer: New Towns. I should confess to a love affair with new towns. My wife recounts that when we first started dating, in a romantic moment, she looked into my eyes and asked what I was thinking. Apparently I replied “Milton Keynes: It is a very interesting example of a new town”. However, I dispute my wife’s account: I think it more likely I was thinking about Stevenage[3].
- House-building by development corporations and local authorities was effectively ended by the Thatcher government in the early 1980s and has never since revived to any significant degree. Meanwhile, delivery of private housing has, according to the Office of National Statistics, run between 80,000 and 180,000 units a year since 1990. Without significant public sector contributions to housebuilding, the rate of private housebuilding will need to double. Such an increase in private housebuilding is, in short, almost certain not to happen. Why? Absorption and capacity.
Absorption
- One barrier to delivery is absorption rates: that is to say the rate at which a developer can build houses without lowering sale prices. If I am a developer and I have planning permission for 10,000 new homes in an urban extension, I do not deliver all of those simultaneously; rather I drip feed delivery to the market. I thereby minimise risk and exposure and control local supply so as to regulate the price at which I can sell. In his 2018Independent Review of Build Out Final Report, Sir Oliver Letwin found that the median build out rate for large sites above 1,500 dwellings outside London was 15.5 years: in other words, 6.5% of the consented development is built out each year. In London the rate is much lower still (median build out rate 3.2%): Letwin_review_web_version.pdf (publishing.service.gov.uk). Drip-fed delivery of consented housing is the rational economic course for a developer, but those private incentives end up working as a drag on delivery. Private housebuilders work within self-regulated market-pricing but that has a built-in tendency to under-deliver so as to maintain higher prices.
Britain’s Construction Industry
- Another problem for delivery of housing is the lack of modernisation of our construction industry. Sir Oliver Letwin reported on the UK lagging behind parts of Europe which have developed a more sophisticated industry of off-site construction with increased productivity. The UK also has problems accessing labour and materials. In 2016 the government asked Mark Farmer to analyse the UK’s construction labour model. He identified a chronic lack of investment in training and development, in innovation and in raising productivity: see Layout 1 (cast-consultancy.com). Since then Brexit may have exacerbated those difficulties. In short, we don’t have enough workers (especially skilled workers, e.g. bricklayers) to radically increase the rate of construction. There is a similar story with supply and price of construction materials (we are heavily reliant on imports). The importation of labour may be necessary to fill the skills gap, but that carries political costs. A longer term solution is to increase training and productivity, but that requires commitment by central government to a long-haul.
The Planning System
- Contrary to popular belief, the planning system is not a significant barrier to delivery of housing. Planning reforms are beloved of Ministers. They are easy to produce: a Written Ministerial Statement is just a piece of paper with words on it. We cannot resist the idea that uttering a spell will cause magic transformations, but the part that planning policy can play is overhyped. 90% of planning applications are approved, and almost 90% are approved on time. For major residential development 80% are approved and 86% are approved on time or within an agreed time limit[4].Around 300,000 consents for housing are granted annually in recent years. Statistically, more consents does not necessarily correlate to more delivery. There has consistently been at least a third more consents granted than homes delivered. According to the Local Government Association’s calculations, there is currently planning permission for over a million homes that have not been implemented[5]. If we could only secure delivery of consented homes, the government’s housing targets would largely be met.
- Nevertheless, the government clearly hopes that smoothing the path for volume housebuilders will go a long way to delivering their aspirations. The first part of their plan is already in operation: it is to try and increase the number of planning permissions for housing. This is familiar territory. In recent years we have seen the exclusion of meaningful public participation in Nationally Significant Infrastructure Projects; the emasculation of local plan-making through nationally imposed policies (the National Planning Policy Framework and now National Development Management Policies); and the expansion of permitted development rights. The new government’s early innovations sit within that paradigm of centrally imposed policy, and minimisation of the role of the public and local government. The government has announced a new centralised methodology for deriving mandatory housing targets; a more permissive policy around green belt policy; and an enthusiasm for centralised (departmental and ministerial) grants of planning permission on appeal. Local plans which do not align with the new methodology and green belt liberalisation will soon be rendered out-of-date by these moves. In turn housebuilders will then rely on paragraph 11(d) of the National Planning Policy Framework- the presumption in favour of sustainable development and in turn that will lead to more grants of planning permission against the wishes of local people and local government. However, it is somewhat more doubtful that more planning permissions will translate into the generational kind of difference in delivery of housing to which the government is committed. The minimisation of people’s ability to participate in planning decisions may carry a significant political cost in the longer term which can itself jeopardise the long-term prospects of delivery (think HS2, Heathrow expansion, Stonehenge Tunnel etc).
New Towns
- If the whole history of Britain to date is anything to go by, then empowering local authorities and publicly funded development corporations is the only way that Labour could hit its targets (and even then only over time). In fact, this is a policy area where the Labour Manifesto may actually signal a generational shift is on its way. It says this:
“In partnership with local leaders and communities, a Labour government will build a new generation of new towns, inspired by the proud legacy of the 1945 Labour government. Alongside urban extensions and regeneration projects, these will form part of a series of large-scale new communities across England.”
Labour has taken a tentative step towards this ambition with its “New Towns Taskforce”. Sir Michael Lyons is Chair and Dame Kate Barker the Deputy-chair. It is required to report on locations for New Towns within 12 months. New Towns are defined as developments of 10,000 new homes minimum and includes urban extensions. There is also a recent Policy Statement on new towns[6] which tells us this:
“The post-war New Towns programme was the most ambitious town-building effort ever undertaken in the UK. It transformed the lives of millions of working people by giving them affordable and well-designed homes in well-planned and beautiful surroundings. The 32 communities it created are now home to millions of people. This government will continue to invest in their regeneration, but we are also committed to bringing forward the next generation of new towns…
… The unifying principle will be that each of the new settlements will contain at least 10,000 homes, although we expect a number to be far larger in size. Collectively, we expect they could provide hundreds of thousands more homes in the decades to come.
- The fledgling commitment to new towns does have the potential to increase delivery of housing on a different scale to anything that has been seen since the last wave of new towns in the 1960s. Publicly developed new towns have significant advantages which overcome the barriers to delivery intrinsic to private sector housebuilding. New towns – if developed by public sector corporations – do not suffer from the problems of absorption rates that afflict the private sector. Development corporations can effectively deliver all the housing in the public interest. New towns do not need to rely on affordable housing being delivered from value uplift captured through planning[7]. Meeting the need for social housing, rather than meeting a profit demand can be the starting point. Delivering social housing can be the focal point rather than a collateral byproduct of profitable market housing development. New town developments are one-hit wonders and as such, provided the public is carried along with the idea, are more immune to the political volatility that attends the incremental development of urban sprawl.
Compulsory Purchase and Hope Value
- One of the most important advantages of new towns is that they have the potential to capture all of the development value uplift from building on greenfield sites and are able to recycle that captured value into the public good. When land is compulsorily purchased, the acquiring authority has to pay the landowner for the land. The amount that is paid is assessed by reference to various assumptions. The first wave of post-war new towns[8] were largely built on agricultural land and under rules (1948-1959) whereby compensation to landowners was limited to “existing use value”. That meant that landowners were paid what the land was worth- usually for its use for agriculture and without taking account of any value that might be attributable to a hope of future development.
- However, the position since the Land Compensation Act 1961 has been that authorities acquiring land have to pay “hope value”. In 1968 an order was made under the New Towns Act 1965 designating Milton Keynes as the site of a new town. Mr Myers owned land that was to be acquired as part of a compulsory acquisition process, and he disputed the valuation of his land. He was offered around twice the agricultural value, but he argued that if there were no proposal to build Milton Keynes (the “no scheme world”), he could have sold his land to a purchaser who would have paid a premium for that “hope” of development in the “no-scheme world”. Lord Denning MR said this:
“In assessing the value, it is important to consider what would have happened if there had been no scheme… [the valuer] must let his imagination take flight to the clouds. He must conjure up a land of make-believe, where there has not been, nor will be, a brave new town, but where there is to be supposed the old order of things continuing - a county planning authority which will grant planning permission of various kinds as such times and in such parcels as it thinks best…”
The result of the make-believe approach that has pertained since the 1961 Act is that giving credit to landowners for “hope value” limits the value that is unlocked for the public good by a compulsory purchase with a view to a development.
- The Deputy Prime Minister’s Written Ministerial Statement of 30 July 2024 signals a willingness to revisit the principle of hope value. It says:
“… If we see quality schemes come forward that promise to deliver in the public interest but individual landowners are unwilling to sell at a fair price, bodies such as Homes England, local authorities and combined authorities should take a proactive role in the assembly of land to help bring forward those schemes, supported where necessary by compulsory purchase powers. If necessary, my ministers and I will consider the use of directions, including by local authorities and Homes England, to secure ‘no hope value’ compensation where appropriate and justified in the public interest.”
- This use of “no hope value” directions therefore proposes to capture a much larger slice of the uplift in value gained from largescale development involving compulsory purchase. That value is to be held and used for the public good. In simple terms, that means private landowners may lose out, but a development corporation will have greater latitude to deliver better quality homes and better infrastructure. The government’s consultation documents on the new NPPF suggest that this approach might be used in particular around Green Belt development. Their consultation suggests the thinking is that in releasing Green Belt, they will seek to ensure that green belt land is valued with no, or a very low “hope value”. That way, the more of the once-in-a-lifetime boon of releasing land from greenbelt strictures is retained for the public.
The Short-Term Risks
- Of course, new towns will not be seen this parliament, but they are probably the only true fix in the longer term. The government’s quick-fix policy tweaks may deliver more planning permissions and even an incremental acceleration of delivery, but they carry some longer-term risks. The government is seeking to drive through the consenting of piecemeal private development with a significantly reduced role for public participation and strategic planning in the short-term. Local authorities and citizens who took care to participate in recent strategic plan processes are going to find that new mandatory housing targets and centralised planning policy has trumped some of what they did. They will then find that there is little they can do when development proposals progress to planning appeal. There is going to be a period of years in which planning is run by appeal, and the participatory components of the planning system are diminished in significance. There is a risk, based on recent experience, that people feel disempowered in the planning system. That has the potential to introduce volatility as people turn to seeking solutions outside the planning regime and most probably through politics.
This blog was written by Alex Goodman KC [1]
[1] My thanks for their thoughts on this piece to Dan Kolinsky KC and Hashi Mohamed of Landmark Chambers and Hugh Ellis of the TCPA.
[2] Written Ministerial Statement of 31 July 2024 according to the WMS
[3] I have always found the decision of the House of Lords in Franklin v Minister of Town and Country Planning [1947] fascinating (about predetermination in the decision to designate a new town in Stevenage).
[4] Planning Application Live Tables
[5] FactCheck: England’s million missing homes – Channel 4 News
[6] Policy statement on new towns - GOV.UK (www.gov.uk)
[7] The attempt to create social housing from the profits of private housing is a unique idea- it is hard to think of other aspects of the public sector which rely on the market in this way.
[8] For example Stevenage, Hemel Hempstead, Harlow, Peterlee, Welwyn Garden City and Corby among others.
