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.