Asset building

Asset building

Asset building

First Published 29 September 2015

Stephen Hill argues that the planning system is the key to using publicly owned land to deliver affordable homes

People who say ‘I told you so’ are irritating. A commentator in last September/October’s LPW said: ‘How can new homeowners possibly afford all this (the rising cost of housing)? In truth, they probably can’t. Today, we can see that cheap credit has not been a victimless benefit. In the end, it simply runs out.’ Who wrote this? Er, actually, I did -a writerly flourish.

However, serious economists, writing in the same issue, warned of the certainty of a property crash. Unrestricted land markets are the cause of the current instability. When demand for new homes and workspace rises with population and economic growth, land prices rise -encouraging speculation. The problem is made worse by careless bank lending in the wake of a seemingly everlasting rise in the value of property assets.

The toxic mixture of limited land supply and uncontrolled credit means that affordability can only be restored through a slump that hurts everyone, undermining banks, employment and the security of home ownership.

When credit is short and recession looms, we revert to the basics. With financial derivative markets (ie not real money) ‘worth’ at least three times world trade, commodity prices and agricultural land values are rising sharply, following soaring demand for food and fuel.

But the value of land for shelter is falling. Here is a unique counter-cyclical opportunity to restore the balance between incomes and affordable homes, to create sustainable mixed communities, and invest in places that create and retain value, rather than extract the value created by others through speculation.

We can safely assume that no government has the courage to change land markets through progressive taxation. However, central and local government now need a clear idea how public land could be used to change the culture of ‘slash and burn’ land development.

If the state is to become an effective leader of change, its land policy must provide certainty for long-term investors. Excellent new government guidance places asset management at the heart of council policy-making, but there is still confusion about the value of public assets, and the best way of using them or transferring them to partners.

In January, during the committee stage of the Housing and Regeneration Bill, MPs quizzed junior minister Iain Wright on the powers of the new Homes and Communities Agency, how it will sell land, and how this compares with the powers of local authorities to sell assets at less than market value to promote their communities’ wellbeing: ‘We need a great deal more clarity,’ said one MP.

The minister and MPs exhausted their vocabulary (and themselves) trying to describe what they meant as ‘the-most-cash-for-the-most-valuable-use-possible-because-that’s-what-the-Treasury-expects’, and what they wanted to see: benefits for the community. The minister reassured them it would all turn out to be ‘the best of all possible worlds’, after further consultation. Clarity? Hardly.

The minister explained that councils have wide powers to promote the economic, social and environmental wellbeing of their communities; with the so-called General Consent 03 enabling councils to sell assets up to £2 million below market value, when used for wellbeing purposes. The trouble is that the MPs didn’t have faith in these good intentions, or that councils understood what they could in fact do, with the Treasury looking over their shoulder. There are two problems here.

First, official language is about loss: ‘less than‚Ķ undervalue‚Ķ disposal’. But why not look instead at positive gains and returns in improved quality of life, wellbeing outcomes, affordable housing, and community empowerment and cohesion? A sale for some notionally more valuable use might be a lost opportunity to improve the lives of citizens.

Second, Consent 03 is simply out of date. The spatial planning system, introduced in 2004, changes everything. It is entirely different from the old land use planning -not a lot of people know that…

Now, local development frameworks (LDFs) give spatial expression to sustainable communities’ strategies (SCSs). These describe the wellbeing objectives, outcomes and service delivery plans of councils and the local strategic partnership (LSP). Councils are recommended to have a single strategy for both LDF and SCS: ‘to create strong and prosperous communities, there must be a strong relationship between service delivery and planning for the built and natural environment’.

New local area agreements (LAAs) will focus on a set of local government performance indicators for the achievement of wellbeing objectives.

How will this make a difference to the way public assets are used? From 2016, the Audit Commission will start a new inspection regime, the comprehensive area assessment, looking at the achievement of spatially focused wellbeing outcomes. Councils can and should use their LDF and SCS to describe not just the physical development required, but the wellbeing outcomes that should go with it. This simple relationship may have a significant effect on how property assets are valued.

Take a large city council undertaking housing market studies across all its neighbourhoods. It decides, on the evidence, that people who cannot afford full home-ownership and will not be eligible for social renting should be enabled to live in a neighbourhood where house prices, supply and incomes are all out of kilter (like most places), to be near essential employment, for community stability and cohesion or whatever.

The council decides to sell its land in that area -not just housing land, should it still have any -for a nominal £1, so that the new homes are affordable at specified income levels. The council will also ensure that future purchasers can buy at a similar entry level price. This is permanently and genuinely affordable housing, fully compliant with the government’s definition in Planning Policy Statement 3, not transitional housing as with conventional HomeBuy and the first-time buyers’ initiative.

This is the ‘best consideration reasonably obtainable’, taking account of the evidence-based policy objectives which determines the site use. As there is no other permissible use for that site, that is the market value, not an ‘undervalue’. There is no other real or imaginary alternative development for, say, executive homes with minimalist affordable housing.

This would not meet the joined-up LDF and SCS objectives. It is not a valid comparison, but it might well have been under the old planning system. Executive housing would now be an unsustainable site use: the polar opposite of what is now expected: ‘Sustainable development is the core principle underpinning planning [Planning Policy Statement 1].’

Similar principles could apply in other situations. Where community groups want to buy a council building for activities that are delivering wellbeing outcomes, the LDF and SCS may be able to say where these can or must be delivered and located; so that imaginary alternatives for a much higher value office use, with a very relaxed car parking requirement to maximise a capital receipt may be just that‚Ķ estate agents’ fantasy.

With this understanding of the power of the new planning system, SCS and LAAs, ‘placeshaping’ councils and their partners could be liberated from the stigma and barriers to sensible action of the ‘undervalue’ problem. They could use their assets creatively and imaginatively to generate genuinely value-added social and environmental returns.

Government could usefully give us a new general consent that applies to both councils and the Homes and Communities Agency, working together to promote our wellbeing. In so doing, they would help underpin the sustainable economic value of all assets, in a truly virtuous cycle of investment and reinvestment: a reminder of the old-fashioned virtues of husbandry of our most precious resource… land.

We must learn to use public assets more carefully. Our enthusiasm for the asset-stripping approach to land development, and relying on speculative land value rises to pay for public goods, can now be seen as foolish as financial derivatives and sub-prime lending.

Stephen Hill is director of C20 futureplanners.