Residential Construction and Housing Supply

Lord Borwick Excerpts

Wednesday 24th April 2019 Lords Chamber

[Lord Borwick (Con)]

My Lords, I first declare my interests, as noted in the register, as a house developer with sites in Bicester, Scotland and Sussex. I am also a trustee of a charity for the education of deaf children and of other charities involved with disabilities.

Modern methods of construction, as considered in our excellent Science and Technology Committee report last year, should include making houses more suitable for people with disabilities. The Government have shown great progress over the last six months on the matter. Accessibility is covered in Part M in the Building Regulations; there is of course more than one level of accessibility, and I am told that developments in London tend to carry the highest level. I am not sure of the geographic distribution of disabled people, but, as disability is so strongly correlated with poverty, I doubt that they are concentrated in London. However, I am sure of the distribution of people who may become disabled in the future—it is all of us, everywhere. We had better get this sorted out before it happens.

Some small changes will make a big difference for those with disabilities, making houses truly usable. Part of the subject of this debate is to build houses in a sustainable way, whatever “sustainable” means. Perhaps other noble Lords may cover environmental concerns when discussing sustainability, but it should also simply mean that the house can be used by anyone in the long term. A house may have a lifespan of about 100 years. The house may be sold every four or five years. The chances of no users of that house—including friends and relatives of the owners—having a disability are surely very slim. Those chances are reducing as society ages.

Housebuilders quite rightly want to build for the person who is likely first to buy that house—the customer. For many sites, this is predominantly young couples, many of whom are expecting a child or will likely be so in the not too distant future. That can have knock-on effects, of course. At a site I was developing, the landlord of the local pub was not so optimistic about the new development bringing in a flood of new customers—he told me, “Half the customers are pregnant, and that is not good for the sale of beer”.

I made an application in the early 2000s for a site in Runnymede, then and now in the constituency of my right honourable friend the Chancellor, and I had intended to make every unit accessible—both the commercial houses and the social houses. They were to be built to lifetime homes standards—invented, I think, by the noble Lord, Lord Best, or his organisation —and I was told that this would be the first purely commercial development to that standard; hitherto, it had been used only for social housing. Connoisseurs will detect the subtle hand of the late great Sir Bert Massie in persuading me that undertaking this task voluntarily would enable him to argue that it was reasonable for everyone to do it. From my point of view, if it brought forward the development of the site and the planning permission by several years, the cost was unimportant.

I was told by professionals that it was a bad idea. Disabled people are less likely to be wealthy, so why would I make every house fit for that purpose? I was told I was going to be building a ghetto for disabled people. But my plan was much more sustainable. Buyers may not be disabled now, but they may be much less mobile in the future. In any case, we all spend time in a wheelchair, though it may be called a baby buggy when we are small—we will be lucky if it is only at the beginning of our lives that we need wheels.

Boosting the housing supply by sufficient numbers simply will not happen as long as we maintain a system of central planning. Central plans have never worked well, whether for tractor production in the Soviet Union or a plan-led system for houses. Only the market, not the Government, has the information needed. If we are to have plans, make them as local as possible—as we are doing—but do not believe they are going to work. The Soviet Union failed to run five-year plans for tractors, but we ask councils to plan for housing up to 25 years ahead.

The only solution to the housing crisis is to relax planning laws and to grant more planning permissions. We are making some progress in that direction. We did not plan our way into the housing shortage, so why should we be able to plan our way out? So grant more permissions with a high level of accessibility built in. Say to the developer, “If you want a quick permission, be the exemplar”.

It is understandable why people may be against granting more permissions, particularly those who will be affected by more houses being built which block their view. Housebuilding planning is particularly strange, as the neighbour has a binary choice—object, or do not object. There is no middle ground, but there could be if ownership of the benefits was shared by local people, not by “the community”. People who live next door to a development could be given the opportunity to invest and receive a share in the development, for instance. That would remove the binary choice, because they would say, “I do not like the development, but at least I will make a profit out of it”. Given my earlier points about building houses sustainably so that they accommodate disabled people, I believe the current system of highly restrictive planning laws puts the apparent needs of councils against the very real needs of disabled people. Is it really more important that we have public art than accessibility?

We know that the costs of local plans are borne by developers. A developer pays corporation tax, Sections 106 and 278 and CIL costs, and the cost of providing 40% social housing. But there are two forms of tax—those costs and delays. We must be careful not to overtax. The argument goes, “There is a shortage of houses”, and the answer seems to be that we must tax the only people that produce them. The biggest cost for a developer is the cost of the land and the delay in planning. Every time there is a delay, the time-based fees of professional advisers go up. That is the reason why the small builders and developers have almost disappeared. The money spent on fees is a big speculative risk.

Talking of costs, I have often wondered whether councils might view planning applications differently if they were faced with the cost of housing benefit. The lack of housing drives up rents, which makes them unaffordable to so many people whose only option is to turn to the state for support—a council delays planning permissions, and central government picks up the cost of housing benefit. What if councils had to pick up the bill for higher housing benefit because of decisions they make at planning meetings? It is worth thinking about. Housing benefit is being wrapped into universal credit, but if that were localised, would we see councils start to grant more planning permissions?

We have a localised system designed to encourage more housebuilding—the new homes bonus paid by the Treasury to councils. But it has some problems. Why is the payment made over four annual instalments? That seems to me to cancel out the idea that this is a “bonus” payment for granting more permissions. Perhaps finding a way for local authorities to bear the cost of restrictive planning, or to reap the benefits of good planning, might be more effective.

Housebuilders

Lord Borwick Excerpts

Thursday 11th January 2018 Lords Chamber

[Lord Borwick (Con)]

My Lords, I declare my interests as noted in the register—I am a property developer of housing sites. I am a great fan of the noble Lord, Lord Best, and his pioneering work on accessibility of housing. I am a shareholder and director in mainly residential developments in Bicester, Oxfordshire, Sussex and Scotland.

Our development in Bicester is of 2,400 houses in total, which includes 30% social housing, or 720. Planning permission was completed seven years after we purchased the farm. Despite the help of the local council, which supported the application, and virtually no objections and no requirement for an appeal, the cost of the process was about £4 million in fees, and it was about seven years after we started that we were able to commence building. Our original plan was to sell “oven ready” sites, but the regulations insist that although we have agreed a building code of 200 pages with the council, every one of our purchasers has had to get approval that their plans meet that code. This has taken a further year.

Builders are often accused of land banking, which may be defined as holding non-urban sites after planning permission is granted to get the increase in value over time. The first mistake is to confuse a “resolution to approve” made by the planning committee dutifully raising their hands with “implementable planning permission”. That could be several years later. Furthermore, when building a house, you must do the special construction tasks such as roofing or electrics consecutively rather than concurrently. You cannot build 200 houses simultaneously. A site with planning permission for immediate work is so valuable that public companies do not sit on assets worth millions of pounds for a period of years. The big housebuilders very nearly went bust in the recession—a point made so well by the right reverend Prelate the Bishop of Newcastle—so they are very careful not to waste money now. They are measured by the stock market on return on capital employed. It is planning system inflexibility, and not land banking, that slows housebuilding.

Noble Lords will know that we have a “plan-led” system. We have local plans in each area for a five-year land supply. When this system was first explained to me, I was told that a developer had to prove “housing need”. I said, “That’s easy: we’ll sell forward some houses”. My friendly adviser said, “No, Jamie, you’ve just proved housing demand; that is different from housing need. Housing demand is when the customer says she wants a house; housing need is when the Government says she wants one”.

We have already agreed on all sides of this place at least that central planning of tractor production on a five-year plan is a stupid communist system. So why do we think that it is right for housing? There must be some controls, certainly, but we should not pretend that they will work perfectly. I know of a local authority that is planning for exactly 1,090 houses to be built in the year 2031, and it is working on 2036. Such a precise number is highly unlikely to be right, and calculating it is a total waste of time and taxpayers’ money. I do not know how many noble Lords are making such detailed plans for their own life in 2036. We did not plan for the housing shortage, so the fundamental question for my noble friend the Minister is: why do we think that a central plan is the best way of solving this shortage? I know that this Government have made great strides in simplification of the rules, and I want to give them the credit for that, but there is so much more to do in making them better in opening the system to small builders and increasing competition.

The housing industry is subject to both punitive levels of taxation and generous subsidies. When we want to encourage an industry, we offer tax breaks, but we do the opposite in housing despite all agreeing that we want more houses to be built. Housebuilders pay corporation tax, stamp duty and planning fees. Some 30% to 40% of their output is nationalised as affordable homes at cost. Under Section 106 agreements, they will pay for new schools, new roads, new public art and often a community infrastructure levy. They have to provide expensive bonds that they will perform their obligations, a factor which discourages small competitors. To the person writing the cheques, these are all taxes. At the same time, their customers are given the generous Help to Buy subsidy. It is all too complex and expensive to make it an efficient industry.

Neighbourhood Planning Bill

Lord Borwick Excerpts

2nd reading (Hansard): House of Lords
Tuesday 17th January 2017 Lords Chamber

[Lord Borwick (Con)]

My Lords, I first declare my interests as a property developer and builder, as recorded in the register. In particular, I have shareholdings and unpaid directorships in developments, mainly residential, in Bicester, Sussex and Scotland, and I am often looking for future developments.

The two primary aims of the Bill are worthy. Identifying and freeing up more land on which to build homes, and speeding up the delivery of new homes, are both crucial in tackling what is, at best, a chronic shortage of housing in the UK. The trouble is that I am not so sure that the clauses in the Bill will actually achieve those aims. However, improving the neighbourhood planning system is a good idea and so is improving compulsory purchase.

In 2015, nearly 143,000 new homes were built, but the Government have set a necessarily ambitious target of building 1 million new homes by the end of this Parliament. That means 200,000 new homes a year are needed—although your Lordships’ Economic Affairs Committee said that 300,000 homes a year should be built to deal with demand. Either way, we are currently not building enough homes, so I welcome the Bill’s intention to free up land and speed up delivery. But how can this shortage of homes, agreed on by almost everyone in all parties, have arisen? It must be the failure of the planning system. The trick is that we all agree that new homes must be built, but we all think that they should be built somewhere else. We have had a land planning system for about 60 years, yet this system does not deliver the houses we need.

A long time ago, when I was first learning about the planning system from my wise and patient planning adviser, Mr Lee Newlyn, he taught me about “objectively assessed need”. I said that was easy; I would sell forward some houses for delivery when they were built. He wisely said, “Jamie, you’ve just proved housing demand, not housing need”. Indeed, the people say, “We want houses”, but local government says, “Yes, but you don’t need houses”. Ever since a dictator’s wife declared, “Let them eat cake”, the people have quite rightly complained that the authorities should not tell them what they need. We do not have an objectively assessed need for cars and bread; we let the market decide, because central planning always fails. When the planning system for houses fails, what do we do? We snap into action, add a second planning system on top of it and call it a neighbourhood planning system. I welcome this attempt to get the second layer right, but I would rather improve the first.

The fundamental problem is that, if we are to have a planning system then that system should be as close to the people as possible, but the people who want the houses are not yet living there and so cannot be consulted or contribute. We all know and respect the people who put hours of underpaid time into planning committees—I do not have the patience to be one of them—but almost all of them are established figures in the community, not people who want to move into that community yet cannot do so. The difference between market price of land with planning permission for houses and land with planning permission as agricultural proves that the system is failing.

It is not just those who cannot buy a new home because of a lack of supply who are affected. Current home owners who are against the idea of more housebuilding in their own area are affected, too, as they do not receive compensation when permission to build is granted. If you are lucky or wise enough to have bought a house with a great view of a green field opposite your front door, that house will reduce in value when some clown builds houses all over your view. The fact that you do not own that view does not make you feel any happier about that change. At present, the system is binary: yes, we build or, no, we do not—in favour or not in favour. The reality is that people might be in favour if only they got something out of it.

The truth is that when a developer wants to build houses on some land, both sides impose costs on the other. One side wants to build houses and the other to keep the land as it is. A proper system of compensation could ensure a mechanism is in place that speeds up the process and satisfies all parties. I do not mean compensation paid to the local council but paid to the individuals. A good idea as to how to do this was first published by Professor Mark Pennington of the Institute of Economic Affairs some years ago. I am not sure whether that change would wholly meet the objections that I outlined earlier, but at least it would be a start.

The housing industry is unusual, partly because of its cautious nature. Housebuilders do not make their houses with state-of-the-art electronics because they feel that the purchaser of a new house is taking sufficient financial risk. Houses are certainly built to modern standards of insulation and heating systems, but the controls and robotics that are available now are not included. New smartphone-related apps for efficiently controlling heating and lighting are sold as after-market additions, rather than original equipment in a brand-new house. Similarly, people have been trying for some time to propose new ways of building houses quicker or cheaper, or for them to be better insulated but keep within the standards. These ideas include factory-manufactured houses, which are widespread in Germany but not widespread here. In my opinion, this is because our building industry is not friendly to bright ideas, partly because it is exhausted by dealing with planning requirements. Perhaps the best ideas which will go ahead are those proposed as parts of the garden cities being discussed for the future. These seem to be genuinely interesting and pioneering. I am proud to declare my interest in one in Sussex.

The current system means that smaller housebuilding projects are unlikely to go ahead. A real problem is that smaller housebuilders are unable to compete. Why should that be? A good example is the requirement by councils for bonds on Section 106 agreements. Say, for instance, that a council and housebuilder agree that he will build a new road as part of a development. The council often then asks the housebuilder for a bond for that road, to hold the business to its end of the bargain. Smaller firms often cannot afford bonds and so are cut out of the process; big housebuilders welcome this, of course. But while one might say that councils are simply protecting themselves by requiring a bond, the truth is that it is a solution to a theoretical problem. The market would surely solve it. If a developer did not deliver the road or the other obligations in accordance with the Section 106 agreement, the entire development would lose value. They may not even sell the houses at all without a road, so the risk is on the developer and the house buyer. What we end up with is a costly solution to a problem that does not really exist, with the consequence being the choking off of competition and stopping new entrants to the market.

What we should be discussing are ways to introduce proper market mechanisms to provide adequate compensation. We should consider those who wish to buy houses, as well as those who wish to build them in an area and those who already own there. We must ensure that we do not pass laws which may have the unintended consequence of choking off competition in the sector.

Housing

Lord Borwick Excerpts

Tuesday 11th October 2016 Lords Chamber

[Lord Borwick (Con)]

My Lords, I first declare my interests as an active property developer with an interest as a director and shareholder in several developments, notably in a development of houses in Bicester and future developments in Sussex and Scotland. All these are noted in the register.

We are asked how to improve affordability in housing, to which the trite answer must be to build more houses. However, the Government could take several actions now to make a difference. I have mentioned before the difficulty of getting planning permission and the slow processing of large applications. One quick win might be to look at the protection of great crested newts as the rules on this awful amphibian are said to be entirely from the EU. This benighted creature is, I am told, endangered on a European scale but not on a British scale. I ask my noble friend the Minister to look at this problem with a post-Brexit eye. The danger is that newts can be, and are, transported to controversial sites by objectors in order to delay property developments that they dislike.

A simple change that can be made is to reduce the taxation level on developers, with a view to encouraging them to build, rather than overburdening them. In addition to normal corporation tax, a developer will provide social housing at a rate of between 30% and 40% of all houses built. Add to that new schools, new roads, new bus services, new playing fields, new community centres, new community art and new books in the local library—all necessary, of course, but all expensive. The simple rule is that if you add more taxes, you get fewer new entrants to a market. I hope I can be understood to be arguing not for less tax on my interests but for more development of the houses we desperately need.

Some time ago, the Government introduced the new homes bonus into the financing structure of local authorities, and many people thought that this would go some way to solving the problem of the shortage of housing. Authorities which could predict a problem, such as the funding of a library or the possible closure of a day centre, could say, “If we grant permission for 100 houses now, the bonus will pay to solve that problem”. But the bonus is structured, subtly, to stop that thinking by paying it over four years, not instantly. That neatly removes the connection between granting permission and getting receipt of the bonus. Bonuses are normally a reward and incentive for desirable behaviour, as we all know, and the Treasury mandarins would presumably be against their own bonuses being paid slowly. Could my noble friend the Minister comment on this?

Global Climate Change

Lord Borwick Excerpts

Thursday 29th October 2015 Lords Chamber

[Lord Borwick (Con)]

My Lords, I declare an interest as a trustee of the British Lung Foundation.

I, too, thank the noble Lord, Lord Hunt, for tabling this important debate. He is absolutely right to highlight the need for action on global climate change. We as individuals can, and should, do what we can to help. We should turn off the lights when we leave the room, turn the heating off when we are not indoors and so forth. As a country, too, we should do what we can to help without paying over the odds and impoverishing bill payers. But the truth is that the difference we can make as individuals is tiny, and indeed the difference we can make as a country is tiny, in comparison with what is needed.

Countries such as China and India are growing at a rate of knots and are burning fossil fuels so quickly that any UK national strategy to curb climate change is rendered useless within hours. We know that China has had the biggest increase in CO₂ emissions and therefore any work to stop that growth at the UN conference in Paris later this month could be extremely valuable. So I welcome the opportunity to discuss this important issue.

I read recently that the London Weather Centre is about 1.8 degrees warmer than southern England and it has been since 1981. That of course has nothing to do with global warming: it is because of the London heat island. But if we add the 0.8 degrees average global warming, then central London is presumably about 2.5 degrees warmer than it once was. When we consider that much of the debate on global warming is about the disastrous effects of a change of 2 degrees, it is important that the discussion is level-headed and that we remember statistics in context.

Even so, there are much bigger decisions that we can take to help reduce emissions globally. Some of them involve being bold at home. For instance, we should fully embrace shale extraction. But equally as important is encouraging others to do the same to reduce reliance on coal. Sharing shale gas technology will allow it to develop as rapidly as possible and be used worldwide. A paper for the Centre for Policy Studies entitled, Why Every Serious Environmentalist Should Favour Fracking, by the noted University of California, Berkeley scientist Professor Muller, who I should declare I know personally, shows that shale gas extraction will actually reduce greenhouse gas emissions. A global switch to natural gas would be a big step forward.

While CO₂ may indeed be a global villain, air pollution is undoubtedly a local villain. Particulates hurt lungs today, right now on the streets of our towns and cities, particularly the lungs of children, so the noble Lord, Lord Hunt, is absolutely right again to highlight the urban environment in this debate. In the early 2000s, the focus was on CO₂ alone, but the evidence is now showing that that was a mistake. As part of the strategy to reduce carbon emissions, the Government encouraged people, using tax breaks, to switch to diesel cars. The RAC Foundation estimates that these tax breaks have helped to encourage UK citizens to buy an extra 2.7 million diesel cars since 2009. And, of course, exhaust fumes are poisonous. The poison may no longer be filled with lead, but it is particulates that we should worry about the most. Particulates bypass the human throat and, just like cigarette smoke, go right down into the lungs where they can cause the most damage. So the single-minded pressure on reducing CO₂ meant that engineers produced more diesel cars, which then led to higher particulates. That means we now have a disastrous air pollution level.

Volkswagen was one company that made a big switch to diesel at the turn of the millennium, but as tests for air pollution became more demanding, that company and probably other manufacturers decided to cheat. VW allegedly set up 11 million of its vehicles with “defeat devices” so that it could tell when they were in test conditions. The cars then temporarily emitted less toxic gas. But independent analysis showed how they emitted up to nine and a half times more toxic nitrogen dioxide when they were on the road. This scandal shocked and concerned me and millions of others. What is equally concerning was the news at the weekend that the Department for Environment, Food and Rural Affairs may have known that manufacturers were gaming the system as long ago as 2009. This weekend’s Sunday Times reported that Defra commissioned research which showed that when on the road, diesel cars were producing much higher levels of air pollution than was expected as a result of tests. Another report was allegedly submitted to Defra in 2011 which identified serious concerns with the testing. If those reports were submitted, then Defra should have acted, but of course VW should not have cheated. I hope that the reports, if they do exist, will be released and that in the future we will see real-world emissions testing to root out the bad guys. Moreover, instead of championing one type of fuel over another, perhaps we can look at ways of encouraging the purchase of electric vehicles, such as allowing them into bus lanes.

The evidence is now showing that it was a mistake to concentrate on CO₂ alone, as we did in the early 2000s. Air pollution is now a pressing problem and it has been greatly exacerbated by our focus on reducing CO₂ emissions. So while we should indeed take a global view on climate change, we should also do so on air pollution. Indeed, the presence of PM2.5 in the air currently kills more people annually than AIDS, malaria, diabetes and tuberculosis combined. But while local action on climate change does not make much of a difference, local action on air pollution can and would make a big difference. If the UK is to succeed in improving air quality, it needs to be embedded across all government departments. They all have some role in tackling what is an extremely serious problem.