In a speech to the Royal Town Planning Institute conference on Monday, Theresa May described what she called a “broken housing market” which she states has resulted in a loss of social mobility leaving whole sections on the population, especially the young, frustrated and angry at the lack of affordable housing and resultant wealth disparity.
At the heart of the speech May stated that she wants to target the gap between planning permissions granted and the number of homes built and although she discussed that revised and fairer planning rules will allow this to happen, she also made it clear that she believes that builders and developers have a large part to play and need to “step up and do their bit.”
May spoke of her dismay at a house building market that creates a “perverse incentive” to actually discourage building houses to achieve the higher prices that lower supply generates and of bonuses paid to heads of some of the largest developers, based on profits and share prices rather than number of home built.
Similarly, the subject of ‘land banking’ was discussed, with a report to be delivered in the spring to highlight any evidence of large housing developers hoarding land and waiting for its value to rise rather than build on it straight away. May vowed to ensure in the future, that planning permissions would go to people who are actually going to build houses, not just sit on land and watch its value rise.
The lack of affordable housing being built was also a key area discussed with May pledging to ending abuse of the “viability assessment” process making it much harder for “unscrupulous” developers to dodge their obligation to build homes local people can afford.
May is of course referring to the perceived abuse of national planning rules introduced since 2012 and the viability appraisals of the amount of profit a developer can expect to make on a housing development. Currently if expected profits are below an industry standard of at least 20% the scheme can be said to be non-viable and the developer can reduce the number of affordable homes it builds under Section 106 agreements to allow for more profits. However, many believe that some developers are overpaying for land, which guarantees their winning bid, and then using the viability assessment loophole to reduce the number of affordable homes built to increase profits later.
Reformists are calling for viability assessments to be limited to exceptional circumstances and for them to be made fully transparent and open to public scrutiny. They also want developers to be given clear numbers of affordable homes to be built on each development, which they believe will result in it becoming a part of the cost of doing business and as a consequence developers will no longer need to overpay for land to stay competitive in the first place and it will drive up the delivery of affordable housing and speed up building.
There are those that argue the government’s current system is flawed and not the developers and builders who are unscrupulous. Indeed many argue that playing the system is the only way to do business today as if you don’t overpay for land and use the viability assessment loophole to make profits back later, you would actually be outbid every time and go out of business.
You could even argue that builders and developers are being made to take the blame and responsibility and indeed solve a problem that is not of their own making. As a country we sold off our affordable housing stock and have simply not built enough houses over the last few decades, often down to restrictive planning rules.
Now builders and developers are being criticised for behaving like any other business, in all industries, where profit and share prices are the primary motive. Plus, they are being challenged with tackling the social issue of a lack of affordable housing when other industries are not expected to step up to mark. Could we ever imagine the government demanding the likes of Waitrose, Asda or Tesco to tackle the growing social need for food banks across the country by providing affordable food?
There is still a lot unknown about the changes; however one thing is clear, the next few months are certainly going to be interesting and challenging.