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A message to Andrew Griffith: cut build costs, not social housing

At the Conservative Party Conference yesterday, Shadow Chancellor Andrew Griffith promised to pare back regulation in a bid to cut the cost of building a new home by £50,000. Pledges include: scrapping changes to improve the energy efficiency of new homes; abolishing Natural England and the Environment Agency; and introducing a new ‘one stop levy’ on developers to replace the much-maligned system for delivering social homes and infrastructure through the planning system.

This blog will focus on the last of these, and why it is a tried and tested dead end for building social homes.

How do planning obligations work?

Currently, Section 106 (S106) agreements and the Community Infrastructure Levy (CIL) secure a share of social and affordable homes as part of private housing schemes, as well as investment in roads, public transport, schools and doctors’ surgeries. Councils effectively cream off some of the profits from private development to ensure local people see and feel the benefits of new housing.

This system of planning obligations has the significant advantage of delivering social homes and infrastructure alongside private homes, but it also results in lengthy negotiations between councils, landowners and developers about exactly what will be provided, when and where.

These problems are aggravated by site-level viability assessments, which allow planning obligations to be negotiated down if a planned development won’t make enough profit to incentivise landowners to sell and developers to build. Because there is no standardised approach, viability appraisal is often described as a ‘dark art’. In some cases viability appraisals have been submitted showing a site is loss-making to reduce or eliminate social housing before it is sold on for a profit. The mistrust and uncertainty this has created adds time and cost to development.

The Infrastructure Levy: a cautionary tale

There have long been calls from academics, think tanks and others to replace S106 and CIL with a ‘one stop’ cash payment of the kind Griffith has just advocated. In fact, the last Conservative Government had a good go at doing so through its Infrastructure Levy, under which developers would pay a non-negotiable cash tax on the final value of private homes. But they ultimately ditched the deeply unpopular plans, widely seen as unworkable and likely to deliver worse outcomes than S106. 30 organisations – including private developers, councils, Housing Associations, planners and construction industry leaders – wrote to the then Secretary of State Michael Gove in favour or ‘retaining and continuing to improve’ the existing system of planning obligations. The current Shadow Cabinet should take note.

Below are four of the major drawbacks of switching from in-kind delivery to cash payments for the supply of social homes through the planning system.

1.    Fewer social homes in the places where they are needed most

If developers pay a financial levy instead of delivering social homes as part of private schemes, there is no guarantee that replacement homes will ultimately be delivered in the same area. Councils or Housing Associations would have to compete in the open land market for sites. In some places, suitable sites will not be available. Social landlords often struggle to compete with private developers’ land teams, which have greater resources, skills and experience.

S106 secures social homes in precisely the places grant has struggled to reach – places where higher demand for market homes pushes up land prices. Replacing it with cash risks fewer social homes in the least affordable places; more people in housing need moving away from communities, jobs, schools and care networks; more economically and socially segregated communities; and fewer direct benefits from new development for local people.

2.    Lower, slower social housing supply

An S106 home is a completed home ready for someone to move into. Before money raised from a ‘one stop levy’ can become a social home, the council or HA must assemble all the other ingredients needed to turn cash into homes: land with planning permission, a viable package of funding and finance, labour and materials. This is likely to take at least two years from start to finish. The result is fewer homes delivered later.

3.    Inflation and market changes erode the value of cash

Unlike a completed social home, the value of a levy transferred to a council is exposed to changing market conditions. By the time a council has assembled the other ingredients needed to turn cash into homes, construction costs will have increased, land values may have risen, borrowing costs may be higher, grant and other funding may have changed. Tax that would have funded a given number of homes when received will fund fewer homes several years later – a point backed up by research from University College London.

4.    Missed opportunities to rehouse those in need

Most importantly, every year of lost social housing supply is another year in which households remain in Temporary Accommodation, unsafe homes or on the streets. Councils would continue paying high costs for TA or other temporary solutions, and the taxpayer would continue paying high levels of housing benefit into private TA or to private landlords, rather than using the money for permanently affordable homes.

Taking on high build costs

The problem of rising build costs is real and pressing. The Home Builders’ Federation estimates they have risen by £76,000 per home since 2020. Surveys of social landlords likewise flag rising build costs as a key barrier to increasing supply.

Much of this reflects rising material and labour costs as geopolitical shocks have collided with a construction sector held back by stagnant productivity. But it is also true that builders of all types of homes are facing a sharp increase in the costs of policy compliance as many new requirements come into effect over a relatively short period of time: the Future Homes Standard, the Building Safety Levy and Biodiversity Net Gain, to name a few. These policies are needed to clear up the Conservatives’ mess on building safety while improving England’s resilience to the climate emergency. Nonetheless, they contribute to a genuine challenge.

The question is, would binning the Section 106 system help or hinder housebuilding? The recent experience of the Infrastructure Levy suggests the Conservatives’ proposal for a ‘one step levy’ would be wasteful distraction from the real work needed to drive down build costs, absorbing time and resources from industry and all levels of government – and it would, of course, produce fewer social and affordable homes, reducing overall housing supply and curtailing opportunities for innovation in the construction sector.

The Government has undertaken sweeping planning reforms to start controlling costs, with more planned – but planning reforms from central government are unlikely to be enough. Fortunately, there are many other opportunities to bring down build costs, such as smarter procurement, finally catching up with the rest of the developed world in the use of Modern Methods of Construction, and addressing the unusually low productivity of our construction sector.

While there is a role for central government, mayors will be best placed to seize many of these opportunities. As devolution progresses, I’d like to see mayors take on the build costs challenge. Could better organisation of funding and powers across housing, transport, planning and skills at the regional level strip out cost more effectively than any central government initiative? And could mayors do so by working with social housing, rather than against it?

Would you like to write for Red Brick? Email rose.grayston@gmail.com to pitch your piece (c.600-900 words)

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Why the construction sector needs social housing

With 169,000 children growing up in temporary accommodation – the highest number since records began – the case for the government’s manifesto commitment to ‘deliver the biggest increase in social and affordable housebuilding in a generation’ is overwhelming. This situation damages children’s health and development, and it is costing councils across England £7.7 million every day. It is a national scandal whose social and financial costs are well-understood.

But social housing does more than provide an alternative to poor-quality homes. It is also the foundation of a successful housebuilding system. Building social homes at scale – including during market downturns – can underpin the government’s response to the crisis in construction skills and innovation. Far from being in conflict, social housing and market housing can support each other.

The inherent limitations of the UK’s development model

In a housebuilding system which relies excessively on speculative market housing, developers compete against each other to pay the most for land. Having taken on a large upfront risk through high land costs, developers then need to recoup their investment, building as slowly as necessary to maintain prices. But when sales prices soften, even moderately, market housing starts plummet. Developers are not incentivised to start new schemes if they will have to sell homes for less than they assumed when buying land.

To make matters worse, in tandem with increasing dependence on this speculative model of market supply, the UK’s social housing supply model has become pro-cyclical. Post-war social housing developments were close to 100% social housing. Most costs were covered by grant, and land was assembled at low cost outside the speculative market. This model was insulated from market cycles, allowing the supply of social homes to continue during downturns in private housebuilding. In other words, social housing supply at this time was counter-cyclical.

From the 1980s, the dominant supply model for social housing flipped: grant rates were cut, borrowing costs rose, social landlords had to start competing with private developers in the land market. As a result, an expanded range of ‘affordable housing’ tenures (with costs pegged to market prices) has become increasingly dependent on cross-subsidy from the profits of building market housing. Far from smoothing out the boom and bust cycle of speculative private housebuilding, this model of building social housing intensifies those peaks and troughs. This doesn’t just affect how many homes are built. It shapes how the construction sector itself operates.

Supporting the UK’s construction sector

Ratcheting down: Private housing completions in England since 1946

Over repeated cycles of the housing market, the total output of speculative development is ratcheting downward. As housing starts plummet, so too does the demand for skills and materials. Many construction workers simply leave the sector, often permanently. It is no coincidence that construction workers are more likely to be self-employed than workers in any other sector. Today, more people are leaving the construction sector than joining it, and productivity has remained stubbornly flat for decades. Why would housebuilders maintain a large permanent workforce, or invest in the skills of that workforce, when they know they will need to retrench supply as the market turns?

Because firms cannot predict demand, materials prices have become more volatile. Official statistics show sharp swings in construction output and brick deliveries, worsening shortages and price spikes in an import-dependent system. As the construction industry has adapted to manage the risks of cyclical demand, construction capacity has atrophied.

The long-heralded shift to modern methods of construction (MMC) has also stalled. The speculative, stop-start nature of the industry makes the expense and risks of investment in innovation unattractive. Investors are reluctant to commit to factories which will be moth-balled at the first signs of the next housing market slowdown.

From stop-start to build, baby, build

A more balanced system would combine market housing with a counter-cyclical social housing programme, alongside new market models based on stable demand such as Build to Rent.

When governments fund and enable social housing at scale, it can be built as fast as need demands and construction capacity allows. As the Farmer Review of the UK Construction Labour Model found in 2016, a major programme of social housing would support predictability of demand for labour, skills and materials, resulting in a less risky operating environment for housebuilders, developers and planners. The booms and busts of cyclical market supply are smoothed out by counter-cyclical social supply, so capacity can be maintained and increased despite housing market cycles.

In countries such as Japan and Sweden, innovations and new technologies have thrived on this certainty, creating new opportunities to expand development capacity. It is no coincidence that the last time that modern methods of construction made a major contribution to overall housing supply in the UK was during the post-war social housing boom.

Of course, the benefits of a more sustainable skills base and of innovation in construction today would be felt far beyond the developments which first enabled them. If social housing schemes keep construction workers in the sector during market downturns, those experienced workers will be available to the private sector when the market recovers. If social housing schemes provide enough stable demand to keep MMC providers in business, market housing will be able to benefit from their services, too. While construction capacity is often seen as a constraint on building more social housing, the reverse is also true. A stable pipeline of social housing would expand capacity, supporting more jobs, stronger skills, and greater innovation across the sector.

The government’s new Social and Affordable Homes Programme 2026-36 represents the most significant policy shift back towards a counter-cyclical social housing supply model in decades. A future blog will explore how this could work in practice, and what further changes are needed.

Would you like to write for Red Brick? Email rose.grayston@gmail.com to pitch your piece (c.600-900 words)

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Let’s Improve Planning, Let’s Abolish It!

I’m the managing director of Positive Homes. Since 2016 we’ve developed five little sites – the last of which won ‘Development of the Year’ at the 2021 Offsite Awards. Everything we’ve done is one version or another of ‘modern methods of construction’ (MMC), and highly energy efficient.

So Red Brick said, how about 1,200 words on what it’s like to be a (new-ish) small housing developer. Well, blimey. Where to start?

How about small developers built a quarter of new homes in the late 1980s. Now it’s 1 in 12. And SME developers always have higher per unit costs. Even worse: At least 99% of all the new homes built since at least 2008 are obsolete the moment their buyers first step over the threshold. That’s because only 1% of new homes are ‘A’ rated for energy efficiency (including all of ours).And ‘A’ is the least they need to be, to avoid a hefty retrofit bill to make homes ‘net zero’ carbon.

Both of these facts are the inevitable consequence of a dysfunctional planning system, that has created an oligopoly of large companies. Hardly a surprise that 94% of small developers say planning is their biggest problem. Why? Because the system makes something not scarce at all (land) into something beyond valuable, by restricting its supply.

Some more facts: According to Savills, we consistently lose around 26,000 hectares of agricultural land a year. Which sounds like a lot – except we have more than 18 MILLION hectares of farmland, and only 6% of the country is actually built on. So we aren’t running out of land any time in, oh, the next several centuries!

Land use is a choice. But it’s a choice we aren’t allowed to make as a society, because it’s been hived off to a group of anonymous, over-powerful ‘planners’. The public are treated like patronised children, being told what’s good for them. Hardly surprising then, that people act accordingly and kick off when it feels like things are being done to them, not with them. There are people from across the political spectrum fighting to stop new homes. We call them NIMBYs, rather patronisingly. But surely these are just reasonable people not liking the concreting over of the precious countryside?

What a mess. So now for the seemingly counterintuitive leap: The best way to get better results – that benefit the whole community – is to abolish the planning system as we know it. Huh?

We need more affordable homes (of all tenures). We need better built, more energy efficient homes. We need better use of existing buildings. We need a resurgence of smaller developers to bring choice to the market and drive innovation. And we need to protect and enhance the environment.

What prevents that happening? Land use restrictions. By preventing the productive use of something we have in vast abundance, we do nothing other than make our society poorer (house price inflation is a mirage). Instead, we would rather blame the big builders for being ‘too successful’, than acknowledge how the current planning system distorts the market. If land is ‘scarce’ and therefore expensive, there’s obviously less money for environmental improvements/ bigger rooms/ better built homes.

So let’s try a different tack: Let’s abolish planning. (Specifically, the post war planning system, and all its evolutions – yes, including the green belt). But wouldn’t scrapping the planning system produce some sort of mass free for all? Actually no –

because there are numerous essential protections and provisions in place that wouldn’t disappear.

First, you need some guiding principles. So how about the Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms, Article 1, Protection of Property (humour me)*:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”

Or, in other words if it’s my land, I should have the right to do whatever I want with it – the ‘peaceful enjoyment’ of my property, providing it doesn’t affect my neighbours’ ‘peaceful enjoyment’ of their property.

From that, you can set (the smallest necessary number of) questions which developers need to answer. And if the answers are right, then there’s nothing to stop you getting building.   Or is there? Actually there’s rather a lot. We need answers to questions like:

  1. Could the highway network handle the extra traffic?
  2. Can the local electricity supply cope with the extra demand? (Especially with electric cars and heat pumps coming in etc)
  3. Does the land flood? Could this be overcome?
  4. Can the water supply and sewer systems cope?
  5. Will every home be ‘net zero’ carbon?
  6. What about local school places? The local GP? Biodiversity?

But hang on – it can’t just be as simple and easy as that can it? If I can successfully answer everything positively, then I can just build? No site identification in the takes-forever-local-plan? No months and years spent on a subsequent, expensive application process? Yes, it really is that simple, with one condition – that additional question I mentioned: 

7. ‘Does the scheme meet the local design code?’

One of former Housing Minister Robert Jenrick’s most interesting reform proposal of 2021 was the idea of local codes, written by residents to recognise what makes their communities great. New housing boss Michael Gove has taken this on by proposing street by street design code referendums.For me, these are a logical extension of neighbourhood plans which, if done right, encourage the voices of the vast majority who don’t get involved in the current system.

Where I live, our village plan process involved a huge number of local people making positive contributions. That included identifying potential sites, along with the type and quality of homes that should be built there. There are now 700 homes under construction, and all the developers embraced the village’s requirements in their designs with minimum fuss.

Is it really so wrong so say we should trust local people to know what’s best for their communities? Most people are capable of weighing up competing priorities to arrive at a sensible, democratic outcome that benefits everyone. Or would we rather continue the ‘who shouts the loudest’ moanathon as the balance to the anonymous planners, who think they know best for your community?

Instead, let’s replace the centralised planning system with….. you and me: Human beings who want the best for their children and their community. Hopelessly optimistic?

Well it happened in Tottenham just recently. The council’s role? To facilitate the development of a design code that local people wanted and needed – and to then get out of the way and let them get on with it. Why wouldn’t you want that where you live too?

(PS: I started writing this when Housing Minister Robert Jenrick was proposing some highly sensible reforms to the planning process. I finished it with Michael Gove fundamentally abandoning the zoning model – while the House of Lords says we need action to support smaller developers and build more homes. And we wonder why nothing ever gets done around here!)

<strong><span class="has-inline-color has-accent-color">Martin Valentine</span></strong>
Martin Valentine

Martin is the Managing Director of Positive Homes.