Oral evidence - Economics of the United Kingdom Housing Market

Members present

Lord Hollick (Chairman)

Baroness Blackstone

Lord Forsyth of Drumlean

Lord Kerr of Kinlochard

Lord Lamont of Lerwick

Lord Layard

Lord May of Oxford

Lord Teverson

Lord Turnbull

Baroness Wheatcroft

________________

Examination of Witnesses

Lord Best, former President, Local Government Association, Councillor Sue Derbyshire, Housing and Planning Lead, Greater Manchester Combined Authority, and Dr Clive Skidmore, Head of Housing Development, Birmingham City Council

Q123 The Chairman: Lady, gentlemen, thank you very much for joining us today. As you know, we are under a certain amount of time constraint because it is Lord Healey’s memorial celebration, if I can put it that way, this afternoon at 4 pm. Therefore, we need to be finished at 3.38 pm. For our part, we will keep our questions as succinct as possible. Obviously, we are very interested to hear from local authorities and from Lord Best, who knows this field very well, about the ambition that local authorities have to make a significant impact on housebuilding and the supply of houses, in particular to meet the requirements in their areas for social housing and supported housing. Lord Best, it would be interesting to get your perspective on the role that you see local authorities playing going forward.

Lord Best: This is not about their planning role but about them building—the bricks and mortar end of it. Of course, lots of them are out of this game altogether. They have transferred their stock away, they are not part of a building programme any more, and lots of them do not have the capacity and the interest to get deeply immersed in it. It is down to a relatively modest number, but there are some very keen players, and if the idea is to build more homes, we need all the help we can get. Let us help local authorities that do have the ambition and the capacity, rather than hinder them in the things that they want to do.

At the moment, as those who want to do things would see it, it is all hindrances rather than encouragement and support. There are lots of ways in which the opportunities are being dampened down by the arrangements in the world around them, not helped, indeed, by the Housing and Planning Bill, which adds a few more little twists and turns. There are others, but the underlying issue is that the Government do not really want too much borrowing by local authorities. Due to the caps and the restrictions on borrowing, since everything that a local authority borrows goes on to the public accounts—it is part of the national debt and the annual deficit—in the Government’s view it is better not to let local authorities off the leash, those that wish to be off the leash, but to get the housing associations and other people to do the building.

That is a bit of a shame. We have some keen players out there who have access to land, who have opportunities, who can do the planning consents rather easily, who could get on with it. This definition of “public expenditure”—that borrowing to invest in housing counts against the national debt—is the big inhibitor for the Treasury and for government at large. It is the big stumbling block. If we adopted the OECD’s definition of public expenditure—indeed the EU’s and, I think, the World Bank’s—and if investment that is repaid from rental income was taken off the debt figures, local authorities would be freed up to behave like housing associations. Of course, if they inject public money, that is public expenditure, but if the borrowing that goes with that, which is what most of the cost of a home has to be provided through, was not at the moment such a major problem for government, we would be able to get them going and get some more homes built by the local authorities without worrying.

The Chairman: Do you think the local authorities that have the ambition to do this have the skills to manage these sorts of projects or should they do it in joint venture?

Lord Best: Mostly it is going to be joint venture; it is going to be partnerships; it is going to be collaborations. That is the way that most things are going to be done, and even that requires some considerable skill. If we were going to see a really big programme, local authorities would have to gear up a lot, but there is enough capacity. We are going to come later to whether or not the planning departments have the capacity, but within those councils that are raring to go there are keen, intelligent and articulate people who could do an awful lot more and, at the moment, are being sat upon by the various constraints.

There are some little ways in which they might have been a bit freer and had a bit more money, but they are having their rents cut by 12% over four years; if they raise the rents under “pay to stay”, the money goes to the Treasury, not to them, and they cannot keep the proceeds from selling vacant properties under right to buy. At the moment, people sell vacant properties, but not to fund the housing associations to raise money for their own housebuilding. All these ways in which the Housing and Planning Bill adds to the pressures—the ceilings and caps on borrowing—make it extremely difficult for councils to get on with it and do anything. Liberating the keen ones would be a useful additional stream of new homes.

Q124 Lord Turnbull: You have used the phrase “freed up to behave like housing associations”. Is it not the case that housing associations are now being classified into the box that local authorities are in?

Lord Best: Not for long, we hope. Government have brought forward a bunch of amendments, which we hope will persuade the ONS to withdraw this, which otherwise, as you rightly say, puts the housing associations in the same box as the local authorities. We are going to cut off that major stream, which is very much more important at the moment than councils, if they are all classified as public bodies. That would be a complete disaster, but Government are now making the provision, stepping back and trying to ensure that housing associations do not remain classified by the ONS.

Q125 Baroness Blackstone: You suggested that just some local authorities should be selected to be housebuilders. How will this selection take place? How do you distinguish between those that ought to be allowed to do it and those that ought not?

Lord Best: No, it is up to them. For those that have the willingness and the eagerness, the restrictions that apply universally should not apply universally, and they would be the ones to move off the starting blocks.

Baroness Blackstone: Therefore, any local authority that wanted to build some additional housing would be allowed to do so under your proposals.

Lord Best: They are allowed to at the moment, of course, but it is just so difficult. Just make it a lot easier.

Q126 The Chairman: Councillor Derbyshire, Manchester certainly has the ambition and has brought its pension fund in as a funding partner. What do you forecast the demand for social housing and supported housing in Manchester to be over the lifetime of this Parliament and how do you plan to meet that demand?

Councillor Derbyshire: The second part is a difficult one. I do not speak for the City of Manchester; I am Leader of Stockport Council and Vice-Chair of the Combined Authority in Manchester. All 10 authorities have significant housing lists. To be honest, I cannot remember the overall figure, but we have something like 9,500 people on the Stockport list alone, so if you multiply that up, it is very significant demand for housing. The housing associations have been the biggest builders for about the last five years across Greater Manchester, but in Stockport we have built only just enough to keep up with right to buy, so it is a bit like filling the bath with the plug not in.

Obviously, each individual council is doing its own work, but we are working as a combined authority with the other social providers—some of us have HRAs with ALMOs, others have not, but we all have RSLs working within our area—to see how we might, as an area, look at how we maximise the assets. There is something like £1 billion-worth of rent roll in social housing within Greater Manchester itself, although we will lose about £350 million over the next four years because of the rent decrease, which will go out of the local economy, mostly to the Treasury. We are looking at ways in which we can do this, but it is getting quite hard. We have a strategic planning framework, which is looking at the planning network under which housing goes and we are looking to try to take an overall view on a larger scale than one individual authority.

You are right; the pension fund, so far, has done quite a big scheme in the City of Manchester and I think is negotiating on a second. Obviously it has to invest prudentially in the best interests of its pensioners, but it is looking at investing in the high-quality private rented sector, which is part of the market that we also need. Quite a large number of people are in private rented accommodation of very variable quality in the Greater Manchester area.

The Chairman: Can the pension fund investment be used to build social housing or is it just the private rented sector?

Councillor Derbyshire: They need a return on their investment, because they are investing prudentially and with a fiduciary duty to their pensioners, so I am not sure that they would want, under the current regime, to look at social housing. If you are building properties with a business case but it is subject to right to buy or, under certain circumstances, for sale—so the income that you might expect to repay the investment may disappear—I would have thought that was a bit chancy for an institutional investor, which is what the pension fund is.

Q127 The Chairman: Dr Skidmore, how ambitious is Birmingham and how will it meet its ambitions?

Dr Skidmore: There is no limit to our ambition. Since 2009 and the changes to the housing subsidy regulations, we have built nearly 2,000 new homes through the council. That is direct delivery through us, not through housing associations. In the last financial year, we built just over 550 homes. The council is now the biggest housebuilder in the city. We are developing over a quarter of all the new homes in the city and we have a programme to build another 2,000 homes over the next four years. We are very ambitious, but I would add to the comments already made by Lord Best: we are, to some degree, hampered by a number of things, specifically the HRA ring fence and the debt cap; the rent having been cut by 1%; and the complexity of the funding regimes and the fact that they cannot be used together.

We talk and work with a number of other local authorities and have what we call a West Midlands council housebuilding forum, which involves authorities like Wolverhampton, Dudley, Sandwell, Warwick, Wyre Forest and Stoke. All those authorities are either building council houses or are very keen to do so. We also have what we call our ambassadorial programme. That is, we visit other local authorities and we encourage local authorities to come and see us, to see if they can learn from us. In the last six months, we have been talking to colleagues in Hartlepool, Swansea, Carmarthenshire, Cornwall, Southampton and Manchester. There is huge appetite out there for local authorities to do more in terms of housebuilding.

The Chairman: It is the Greater Birmingham powerhouse. Birmingham is blessed with considerable commercial holdings. Is there a way of using those commercial holdings to generate capital to invest in social housing?

Dr Skidmore: It is not the issue of those commercial holdings that we need. It is the freedom and flexibility to do more through our housing revenue account that would enable us to build those extra homes. That is the key issue.

Q128 Lord Layard: I would like to ask two questions about housebuilding. The first one you referred to just now: how far is the reduction in social rents going to reduce the rate of housebuilding for social tenants? Secondly, if you look at the private rented sector, we have a ballooning housing benefit bill there. Is there any way in which something could be done to siphon off some of that money for the purposes of building houses by local authorities?

Dr Skidmore: I am happy to answer both those questions. The cost to Birmingham over the next four years of the 1% rent reduction is approximately £42 million, but the council has made a deliberate decision that it will find those savings elsewhere within the housing revenue account; it will not compromise the housebuilding programme. That is because we are so short of housing within the city that we have to make those savings elsewhere and carry on with our build programme.

Your second question leads on to one of the questions I saw on the list from the Committee. As you say, the housing benefit bill is ballooning; it is now £23 billion or £25 billion, which is an astonishing sum and represents something like 95% of government spending on housing, with less than 5% going on bricks and mortar. There have been a number of reports over the last few years—one from Shelter, one from the IPPR and another one from the Smith Institute, published last year—that basically say that this is not a good use of public money because it is not sustainable. If we were to divert some of the money that is being spent on housing benefit into building new homes, we could be building new homes. It does not matter what tenure they are; we would be dealing with the issue of supply and demand and, at the moment, we have insufficient supply.

Ideally, I would see that money going into social homes, because we are seeing, particularly in the private rented sector, a lot of people who, if there were sufficient supply, would be in the social rented sector. The difference is, because they are in the private rented sector, they are paying very high levels of rent. If we could hypothecate some of that housing benefit spending into bricks and mortar, it would also have tremendous benefit for the UK economy as well, in terms of stimulating the construction industry and providing the homes that we need.

Lord Layard: How would you do that?

Dr Skidmore: It is a difficult one, because you have to cut benefits at the same time as increasing housebuilding. The only way you could do that is to start increasing the housebuilding before reducing the benefits.

Councillor Derbyshire: Certainly within the Greater Manchester context, we work very closely on the public service reform agenda and on complex families and families with multiple needs. It is much easier to work with those families if they are in social housing. We can identify them much more easily; the housing providers have a good relationship with them. There are significant further pay-offs to the public purse of people who need to be in social housing being in there. The difficulty is, of course, you cannot just cut off the benefits to build the houses for people who are currently in private rented. It would probably improve the housing stock no end if housing benefit was connected to house condition. That is, landlords would be able to get housing benefit through their tenants if they met certain standards, which at the moment do not exist.

Lord Best: We can stop doing the wrong thing, which is to constantly cut the grant level so that social housing has to borrow a lot more money, so the rents have to be higher and then expect housing benefit to pay for that loss. All through my career in housing we have argued about this. How much should be the grant upfront, which then produces a low rent, and how much should the grant be cut and have a higher rent and pay for it with housing benefit? It was a Conservative Minister who told us all, when I used to run housing associations, “Let housing benefit take the strain. We cannot give you these big grants any more. We are going to have to cut the grants, but let housing benefit take the strain”. Now the Ministers responsible for housing benefit say, “We are fed up with housing benefit taking the strain. Why can these guys not provide grants to these housing associations?” But the grants are not there—a time of austerity is not a good time to look for more grants. The pendulum has swung on this and at least we should not go on making the same mistake.

I see the academic Geoff Meen over there. He did some work for the Joseph Rowntree Foundation, which showed how, if you invest at the beginning and have lower rents, take a trajectory over the years and watch those rents rise and expect those higher rents to be paid by the Government, it is much better to put in a few grants at the beginning and have low rents into the indefinite future. The high grants at the beginning made the housing associations rich. It gave them the capital assets that they were able then to progress from and do all the other things that they do. However, it has gone the other way; it has gone into higher rents and higher benefits, and Ministers—and I do not really blame them—have got fed up with that.

Q129 Lord Kerr of Kinlochard: Some witnesses tell us that there is plenty of land around for building, some in local authority hands, some in NHS trust hands, some in MoD hands. Is it true? If so, how could it best be freed up and do we have to think about the green belt?

Dr Skidmore: I do not think the reason why we do not have enough houses built is that there is a shortage of available development land. A piece of research published last month showed that the nine biggest housing developers in the country have 600,000 building plots. That does not equate to a shortage of development land. The issue that we have is much more around ensuring consistency of supply and the fact that we are relying on market conditions and, primarily, the private sector to develop those new homes. That is not a criticism of the private sector, but clearly they are vulnerable to the vagaries of the economic cycle.

The other major issue that we have is the shortage of skills at all levels within the construction industry. That is a result of the fact that we are building well below what we need to be building. We are building only about 140,000 homes a year. It is very difficult to step up from that level because the skills in the construction industry, at all levels, whether it is ground workers, bricklayers or up to site managers and technical officers, just do not exist. Bringing more land on to the market is, therefore, not necessarily going to solve the problem.

There is an issue in terms of brownfield versus greenfield, which is that generally brownfield is more expensive to develop. That does not mean that we should just build on greenfield and neglect the brownfield. In Birmingham, we estimate that something like 80% of our housing supply over the next 15 years will come from brownfield sites, but that is because if you have been to Birmingham you will know that it is all brownfield sites. Within our Birmingham development plan, we have a proposal to develop about 7,000 homes on a green-belt site, but that will be only 20% of our new development. There are arguments for developing on green belt as long as the brownfield sites are not then left neglected and cause problems.

Councillor Derbyshire: There is an issue of land in the right places that developers want to go to, which is not always where, strategically, we would like them to go, but it is not really a fundamental shortage; it is about volume. Volume housebuilders do not tend to build in volume. Even when they have quite large sites within Greater Manchester, they typically are, at the most, aiming to put in about 25, 30 per year, so even if the site is very large, it is not contributing vastly to a five‑year supply. Across Greater Manchester, we have identified about 150,000 potential unit spaces; 47,000 of those have planning permission but are not going ahead, and one of the things we are looking at is why they are not being built on. In some cases, it is finance—the Greater Manchester Housing Fund has assisted with a number of projects there. In other cases, it is about the viability of brownfield, the infrastructure that may be needed to deal with contamination or the impact on roads and schools, because houses are not built in isolation. People live in homes, they live in communities and they need those facilities. The value of the land does not really allow for that contribution and local authorities do not necessarily make up the slack for the road network or the other services that need to be put in place. Land is an issue, but it is not the biggest barrier to development. There is plenty of developable land out there, much of it with planning permission.

Lord Kerr of Kinlochard: What about conversion of existing buildings, offices to houses? Is there any advantage there, any margin?

Councillor Derbyshire: That is happening, certainly in my area and I am sure in others. That is contributing, and a lot of us are looking much more closely at our town centres and how they work in terms of more density and more housing, perhaps, than traditionally we have seen. There are all sorts of things going on, some of which may involve green space.

I think it is a mistake when it comes to green belt. Green belt is about urban sprawl, but it is taken now to be shorthand for environmental quality. In fact, some green belt is horrible, and much very loved, very useful urban green space has absolutely no protection at all under the planning system. We need to take a more sophisticated look at what land contributes to communities and how they deal with it, whereas green belt has been used as a bit of a taboo subject and a shorthand. We will have to look very closely at that, but it is difficult to see how some of the really good sites could be developed without, again, some public intervention.

Q130 Baroness Wheatcroft: You mentioned a number of planning permissions that are never taken up. Do any of you have suggestions as to what should be done about that? We have had various ideas put before us.

Councillor Derbyshire: Some of it is about financing. We have had seven schemes from the Greater Manchester Housing Fund so far; we have allocated £67 million and most of those are on site and building, so that has accelerated. That has helped. In others, it is probably to do with contamination or other infrastructure issues, where we are looking at how we might have a loan programme, where there is some gap funding that would allow that to go ahead. There is a mixture. Some of it is unrealistic ambitions of the landowner or the original developer, who perhaps bought at the height of the market. Again, we are trying to work with them to be realistic about what the value of sites might actually be, but many brownfield sites need help to be developable.

Dr Skidmore: It is fair to say also that land is, to some extent, being traded as a commodity. A piece of land can be bought on the open market. If someone secures planning approval for it, it can then be sold at a profit. Sometimes sites are sold over and over again to people who are, potentially, speculators waiting for the market to turn. They are waiting and waiting and waiting. In the meantime, the land is sitting there and we are not getting the homes to be built on it. One suggestion that has been made about how we could deal with that is to tax those sites, because at the moment people are paying no tax on them whatever. I do not know why that is. You have to pay tax on any other kind of building, but you do not have to pay tax on those development sites. Alternatively, have a “use it or lose it” power, on the basis that if you are not going to build on it, let someone else take it on

Baroness Wheatcroft: Both suggestions have been made to the Committee. Lord Best, do you have any thoughts?

Lord Best: To have a blanket number of years during which you must build out your project is a little unsophisticated. You may be trying very hard to get going, but all kinds of obstacles pop up in your way. I have had most of them over a period of years, including the two great crested newts that mysteriously appeared before the visit by the planning committee. Things can happen that stop you in your tracks and stop you from getting on with the building, some of them artificial. Some are underground: we had a car park and we had done boreholes, but we discovered that the boreholes had missed the fact that there were incredibly complicated cellars in one particular part of the site. Oh dear, start again. It took years. Delays are sometimes entirely understandable, so one has to be a bit sophisticated with the way in which you tax delay.

More broadly, on publicly owned land, about half of all the land that could be developed is in the ownership of a public body and not necessarily the local authority, of course: the NHS is such a big landowner; the MoD is a big player; Transport for London; the ex‑utilities own land too. These should be a softer option in terms of, to use Councillor Derbyshire’s words, public intervention in what happens to the land. Of course the land is there; it is what kind of intervention we need with that land that will capture it for the good of wider society. It is all the tricks of how we handle that and one would have thought that land in public ownership, broadly defined, is a softer option. It is not at all.

I was responsible for taking the decision on an NHS site where we had Berkeley Homes and everybody else competing like mad, pushing up the price to the highest possible level, while I was trying to say to the NHS, which owned the site, that we were going to save it an absolute fortune. It was an extra care project that would relieve bed-blocking in hospitals, allow elderly people to have a decent home and not be in residential care and all the rest of it. It absolutely, of course, falls on deaf ears. It is just the price that the NHS is interested in. At least in theory, with publicly owned land one would hope that that kind of intervention, which would make good things happen, would be easier—and it is not always.

Q131 Lord Layard: One thought that we have heard is that the slow pace of development, certainly on permissioned land, is connected with the builders not wanting to build too fast because it would drive the price down, which is associated with a degree of local monopoly that they hold. Is not part of the problem the degree of monopoly in the building industry and the fact that the small builders have disappeared? Is it true that the small builders have largely disappeared because the planning system is so complicated that you have to have a huge office and staff to manage it? In which case, is not part of the solution to simplify planning?

Councillor Derbyshire: Planning is everyone’s Holy Grail. Certainly we saw a loss of the smaller builders in Greater Manchester over the last five or 10 years. It was probably more to do with the economic climate than the planning system. They were working quite well within the planning system until the recession really hit, so it has a lot to do with the economics and their ability to train and bring on new staff as much as anything. On the whole, most builders can get through the planning system as long as they have some stability with it, but it would help if we had more of the smaller builders. The drive towards the really big sites, of course, is also not very helpful to the smaller players in the industry. A lot of the smaller builders are interested in two or three builds on a site, not a really large development.

Q132 Lord May of Oxford: I want to say a couple of things and I hope I say them clearly, which I may not. It seems to me that there are many meanings that can be attached to the focus on green-belt land. There is this person Martin Wolf, who strikes me as a right proper nitwit, who says that he has never been able to see the point of it. What I do not understand is not the point of it; the point of it is to try to preserve, as I understand it, although I am not familiar with the details of the Act, a proper mixture of housing and where people live and an environment that is pleasant to live in. My wife and I have, more or less, just finished two recent circular walks right around London. I do not know how many people here are aware of them. The one that is really good is at every point equidistant from the centre of London and the M25. As you do that, you find the amount of green space there pleasingly remarkable, in places where, at first, if someone had asked you about it, you would have expected to see very little green space. I do not think the green belt has had a hell of a lot to do with it. There will be bits of this where, quite recently, there has been a fight lost by people who wanted to develop a particular part so that they would make some money, where it was not really going to produce more housing or anything other than a diminishment. It is quite an interesting and complicated subject and, it seems to me, it is not helpful to keep using the words “green belt” unless you really understand what that means. This nitwit Martin Wolf said, “If we had had a green-belt policy in 1850 we would not have London”.

Lord Lamont of Lerwick: He lives in Hampstead.

Councillor Derbyshire: There is a legal definition of “green belt” and there are five criteria for it. Forgive me, I cannot remember what they all are, but the criteria are not necessarily that it is accessible to people or that it is of high quality. Much of it is farmed; it is not necessarily unworked land. I am well aware that people tend to use the words “green belt” to mean any piece of green they are fond of. That is a complication for local areas and local members, because most of the parks, for instance, are not green belt. Quite a lot of the green space perhaps was previously, technically, brown, but green to the local community. In a way, “green belt” is a confusing term. We should really be talking to our communities about what is valuable to the communities in terms of the quality of life and what is less so and, therefore, may be available for the housing that those communities also need.

Lord May of Oxford: One of the most fascinating things on the walk we did is, basically, along a railway line.

The Chairman: We need to move on to the next question.

Q133 Baroness Blackstone: Can I just pick up on something that was said before? I will do it very quickly. You talked about very big sites being developed by one builder, who often does not develop it all at once but does it in chunks, partly for profit reasons. Is there no scope for local authorities to divide up these large sites and bring in several different builders, including small and medium‑sized ones, so that you would get them all built together? It also gets away from the monopoly that big builders tend to have in some areas.

Councillor Derbyshire: There is scope, obviously, if it is within the public sector and we have some control over it, but if it is a landowner or a developer applying, it would make planning even more complicated if we were to try to do that as part of planning. I noticed the question about the plan‑led system and I was a bit surprised, because we had not had that comment in GM. It may come from smaller builders, because the plan‑led system does lead you to want to identify larger sites and perhaps forget that there may be smaller infill sites that do not get highlighted in quite the same way.

Q134 Lord Turnbull: I suspect that the three of you, as a panel, are unrepresentative, and what you represent is the coalition of the willing. The question is: are there many local authorities, probably more numerous than you but not so big, who are not in this coalition? For many local authorities, their voters do not want major expansion of housing. Under the planning framework you have to objectively assess need, so what incentive is there on them to do anything other than try to get the smallest number they can get away with? If there then is a planning appeal, they drag their feet, they do not approve it and they throw the blame on to the Secretary of State and then comes an appeal. Do we need something that converts more of the unwilling into the willing? Are the financial incentives to a market town or borough adequate to encourage them to defy the wishes of their electorate?

Councillor Derbyshire: They are difficult conversations with local communities wherever you are, because while many people recognise the need for more housing, for their children and their grandchildren quite often, they hope that there is somewhere else that it can be built. The impacts on the wider community, pro and against, are very important. Very often, the issue is not necessarily about the view or even the green area or the developed area; it is about highways in my area.

It is a mistake to think of housing as something that is a national market. We are all very different. I am sure Greater Manchester has great differences within it. We are very different from the Birmingham market and from other markets. There is not a lot of viability in the land in an area like Greater Manchester. Our average house price is £160,000, so even if you are building you are not producing an awful lot that can go into benefits for the local community. We only have one authority that has a CIL, two or three that are looking at it and others for which it does not seem worthwhile. There is that question of what the value is for communities that are just seeing more building, more pressure on local services, in accepting that, and it is quite a difficult conversation to have, as local councillors.

Dr Skidmore: I would answer that in two ways. One is that, for the first time, there is universal recognition that housing is a national issue and it is the duty of all councils, whatever their views, to step up and make a contribution.

The second one is to follow on the points made by Councillor Derbyshire: development is, by its nature, always controversial. Most of the schemes that I deliver are in the city on brownfield sites. There is always someone who will object to them. Whether you are building on brownfield or greenfield, city or country, there is always someone who will object. The art, if you like, of development is to think, “How are we going to create a development that is not going to make the quality of people’s lives worse but will improve it?” Building new homes can bring with it a number of community benefits. It can bring real benefits as well as providing those new homes. They can be higher-quality homes; they can come with planning obligations requiring highways improvements or community improvements. Very often, when we are dealing with housing developments in the city and we are receiving objections to them, the way that we get over that is to say, “We are going to build these homes, but you need to understand that, as a community, you will get all these benefits”. That is the space that local authorities need to get into and be brave, have those conversations with their communities and explain what the benefits are, because it is not all negative.

Lord Turnbull: You do not think there is a need to change the Section 106 agreements, the community infrastructure levy or some of these more ambitious schemes to capture more of the planning gain to incentivise local authorities. You are almost saying that the political consensus ought to suffice.

Dr Skidmore: The financial argument is a difficult one. If that can be done in such a way that it benefits local communities, that would help councils to win that argument, yes. I can see that as an argument.

Councillor Derbyshire: The failure to develop, though, undermines that quite a bit, because you can go through a very difficult conversation with a local community, trying to explain about planning, getting it, and then the developer does not develop and therefore the benefit does not come, but residents have the possibility of it happening at some point in the future. That is where the ability to continually renew planning applications can be very wearing on communities.

Lord Best: The public’s resistance to development on their doorstep is such a big issue. Lord May would be the first to protest in some circumstances. Keep away, if possible, from green belt, if one can, is my motto, but sometimes developing in those areas is absolutely the right thing to do. The expectation that the local community will accept a development is often a complete waste of time. It is not going to happen, and the bribes that we come up with—the ways in which we try to get the community to accept something they do not want—usually fail miserably. I remember explaining that we were going to pay the bus company so that there would be a really good, regular service coming through the village. “We do not want bloody buses coming through here all the time”. “Oh, right”. “You name the community centre we are going to create”. “Who wants a blooming community centre?” It is very hard to think of the things that people will accept. “We will knock a bit off the rates—the council tax”. “Oh no you won’t. We don’t believe that will ever happen”. The ward councillor representing that bunch of people is always going to say no. One can only get agreement at a higher level and then it is, unfortunately, a matter of saying, “I am sorry. We have to go ahead. These homes are badly needed. The community needs these things. We have to get on with it”. The vain hope that one will be able to persuade or bribe, though, very often is a losing battle.

Q135 Baroness Blackstone: Can I ask you a bit about local plans? Do you think the system is working well? Housebuilders have been quite critical and have said that they would prefer to go back to the pre‑1991 Act set-up. Do you have any views about that?

Dr Skidmore: My view is just to look at the statistics. If you look at the planning permissions that have been granted over the last five years, the number has steadily increased year on year. To me, that is an indication that the system is working.

Councillor Derbyshire: I was surprised at that question, because it was not something that we had come across within Greater Manchester and we work with a whole range of people on the Planning and Housing Commission. We are working on a plan that will cover all 10 authorities, which is quite a big undertaking. For instance, Salford, which does not currently have a local plan—it got to inspection but the inspector suspended everything—has had an enormous amount of building going on, so the existence or non‑existence of a plan is not stopping things from happening. If the plan stands and is not having to be reviewed very quickly, it gives a degree of certainty to all sides. As I say, possibly the comment is about the fact that the plans tend to concentrate on large sites and that may leave the smaller builders feeling that they are not, perhaps, incorporated within them enough.

Baroness Blackstone: When you are constructing local plans, do you take into account the views of developers?

Councillor Derbyshire: Oh yes. It is a very lengthy, complex process and a very expensive one, with many stages at which there is consultation with all stakeholders—communities, developers, everyone—before it gets to an inspection start and then obviously the inspector will take evidence.

Baroness Blackstone: In Birmingham too?

Dr Skidmore: Yes, absolutely.

Lord Best: We have to have local plans. If we believe we have a plan‑led system and that is how things should work, we need a plan so that we know what is going on. The Government are absolutely right to put their foot down and say that by 2017 local authorities have to come up with a plan. Of course it is complicated and difficult, but that is the basis on which you then know what is going to happen. Builders and housing associations can work it out. That is the starting point.

Lord Lamont of Lerwick: The alternative view that was being put was that small builders, in particular, were able to find parcels of land on which small numbers of units could be built and that this was better than having the jumbo plan. It was the same people who argued before us that, because of the pressures of public opinion and what you were saying, local authorities ended up planning for the minimum that was needed and failed to build in a buffer in case the targets were not realised. They felt that the smaller builders seeking out the land might be increasing the volume of planning permission.

Dr Skidmore: Local authorities, as part of developing a local plan, are required to provide a strategic housing land availability assessment, which is, in very simple terms, a list of all sites available for housing development across their local authority area. On the Birmingham list, for example, there are 35,000 building plots within that plan. The vast majority of those are small plots, which large developers would not be interested in. They work on particular margins, they are interested in sites of a particular scale, and most of those 35,000 plots would be aimed more at the smaller builders. That kind of information is out there and readily available for those local authorities that have developed a plan.

Lord Best: Croydon and one or two local authorities are looking at all those small sites, bundling them up and then introducing them to the small and medium‑sized builders. It was the banking crash; they could not borrow, and without being able to borrow you cannot build out housing. We need the SMEs back desperately, and some local authorities—it is the old public intervention line—have been able to assemble those sites and give a steer, not least through the resources that the Government are trying to make available to assist those smaller housebuilders. But it is quite complicated and quite difficult for Joe Bloggs the builder to get his hands on the money or the guarantees that come from that. Local authorities playing their role there can make a big difference to the SME builder.

Dr Skidmore: As a very brief supplementary to support Lord Best’s point, we are doing that at Birmingham. We are identifying very small sites, sometimes municipal garage sites, that are only big enough for two or three or six properties. They are not of interest to the large‑scale housebuilders but they are of interest to the SMEs. We have successfully engaged the SMEs and we have a couple of local SMEs that are building out those sites for us. The problem is that such a lot of those SMEs disappeared during the recession, so there simply is not the quantum of people that there was.

Q136 Lord May of Oxford: There is a fascinating question that we have skipped past, and it was my fault, because it is the second part of the thing that began with the green belt and I went on ranting about it. Simply, to what extent could the housing stock be expanded by conversion of office space to residential use? I think it is a fascinating question.

Dr Skidmore: There is scope for that and the Government have recognised that recently by giving more scope in terms of planning approvals for developers to do that. We have seen some of that happening in Birmingham. There are a couple of issues that we have to be mindful of. One is that we have to be quite careful about where that happens, because clearly if we think about city-centre cores, which typically tend to be the hive of commercial and business activity, you would not necessarily want to see all those areas going over to residential use. The other issue is around cost, because very often refurbishment of existing buildings is no cheaper than new build. The third is that, if we are talking about apartment blocks and that sort of thing, there is still a reluctance on the part of mortgage lenders; it is more difficult to borrow money on apartment blocks. Similarly, if you are a developer, that might put you in the position of a cash-flow problem, because if you are building low‑rise housing or typical houses, you can build as you sell rather than having to build out the whole estate. With an apartment block, you have to do the whole lot before you can sell them, and the people who are willing to buy off‑plan these days and get that kind of mortgage finance from their mortgage company are few and far between. There is scope, but there are a number of difficulties that have to be overcome.

Q137 Baroness Wheatcroft: On the planning process itself, Dr Skidmore, you said that there has been a steady increase in the number of planning permissions being granted, but we have heard complaints about the length of time it can take to get a planning permission dealt with. I wonder what you think the explanation for that is. Is it because authorities have had to cut back on the scale of their planning department or because planning has become more complicated?

Dr Skidmore: There are potentially a number of explanations for that. I am happy to say that at Birmingham we have a very good record and are in the top quartile in terms of processing 90% of major applications and 93% of minor applications within time. There is an issue that Birmingham is a very pro‑growth authority and, therefore, there is very much that attitude of: “Let us see if we can get something approved if at all possible”. Clearly, there is also a reliance on the proposals that come forward being compliant with planning policy, and this is always where we get the tension between the planning policy on the one hand and the developer potentially arguing viability on the other.

Councillor Derbyshire: I would agree with that. Most of us lost planners about five years ago when the numbers of planning applications coming in absolutely dropped. Therefore, the planning income dropped. It does not cover the costs, but it was a contribution. The planning income dropped, there was no obvious role, perhaps, for some of the planners, and local authorities were faced with having to make savings, so a number of people took retirement or went off and did other things. We are, therefore, having to build back capacity as it grows, and that is an issue. Some of the applications are very complicated. We have to have those talks with the communities. They are not always planning‑compliant, so it is not straightforward to say yes, and if we refuse there is an appeal. Just as a single local authority, we have had three judicial reviews of yeses in the last 12 months. We were successful on all them. It did not cost the applicant any more than £5,000, since they cap their costs, but it is not that if we do it quickly it is done, because it is challengeable by everyone at every stage. It is important to get it right, but for the developer as much as for everybody else.

Lord Best: The poor old planning departments are pretty battered and bruised and under‑resourced. I moved an amendment some time ago to try to give the most senior planning officer the status of a chief officer so that their status would rise. We have gone a long way from that, although in some places the head of planning reports directly to the chief executive of the council. People are beginning to get it, but basically it is a bruised and battered bunch.

I have sat round the table for a Section 106 discussion in which the private sector, usually a very large housebuilder, is represented by two extraordinarily sophisticated, slick gentlemen who are on very high salaries and who sit there and have a mass of financial information at their disposal, and somebody who is covering for maternity leave representing the planning department on the other side looking pretty mystified, as I, representing a housing association, sit there. You see how unequal the contest is when there are discussions on viability, whether or not the scheme stacks up, whether 30% affordable housing is affordable to the scheme. We need to really bolster these planning departments. They have a very big and important job to do.

Q138 Baroness Wheatcroft: Do you think that planners could do more to change the building style in this country? We tend to be building houses the way we have built houses over a very long period. What scope do you see for more industrialisation of the building process?

Dr Skidmore: Are you referring to non‑traditional forms of construction—system built, that kind of thing?

Baroness Wheatcroft: Yes.

Dr Skidmore: It is a very interesting area. There is a lot of talk about this and it was stimulated because, two or three years ago, as people will be aware, there was a shortage of bricks. That hit our programme in particular at that time, because we had a number of schemes on site where developers were coming to us and saying, “You specified a brick. We cannot get that brick; they are not available. They are coming from China”, or something ridiculous. There is quite a big discussion about the potential for homes to be built in factories, as it were, and this is something that is done in Europe. There are a couple of points I would make about that. One is that, in Birmingham, we had lots of non‑traditional-construction homes, as I will call them, built in the 1920s, 1930s and 1950s. I have spent 20 years knocking most of those down, because they did not last very long, but there is potentially a role for that form of construction.

Something we have to bear in mind is that, because these homes are made in a factory, they all look the same. That is fine if you have a site that is square, for example, or rectangular. We do not have many of those; they are all strange sites, so you have to bear in mind that it does not take in the complexities of the design of an individual site. In terms of the quality of those homes, it should be very high because they are being built in factory conditions. They are not being built on a building site that is subject to the vagaries of the weather and temperature and so on. It is something we are looking at piloting and I know Manchester is as well, but we are looking at it primarily on smaller sites, because we find that the traditional methods of construction, even using SMEs, can be very expensive on small sites. We are actively looking at it.

Lord Best: I think it is great. We have to get into this. In other countries there is lots more standardisation and modern methods of construction, as we say. I did a development in Leeds, 46 apartments, using, at the time, the most modern methods of construction. These units were built by Volumetric in Milton Keynes, came on a lorry to Leeds and were lowered into place and so on. We won a couple of design awards. The place has been standing empty for a very long time because it was declared unsafe. I was also trying to introduce an overseas firm and I brought Kajima—a Japanese company that had done system building and built 1 million homes in Japan and Korea—into this country, because we do not have any international competition. It was a complete failure, I have to say. It failed because, although they left the factory pristine, when they got to a building site the ones that were strengthened to go on the bottom were put on the top and, you name it, every mistake that could be made was made. We will get there in the end. This is going to be a useful method, but we are so far behind the rest of the world on this.

Q139 Lord Lamont of Lerwick: Lord Layard raised the question of planning gain and the uplift in values. Is there anything you want to add on that subject or whether you think Section 106 is not really adequate in capturing part of the gain for local authorities? Have you any further ideas on this issue?

Dr Skidmore: If it is local authority-owned land, there are a number of ways in which local authorities can capture an uplift in value. They can do that through an overage agreement. The other way they can do it, and this is something we do at Birmingham, is by securing planning approval on the site itself before it is offered to the market, because clearly the moment it has planning approval it is worth more money. At Birmingham our model is to design up sites in advance, secure planning on those sites, de‑risk the sites, and then we have a partnership arrangement with the private sector developer, which means that we share in the developer’s profit. That means that we get far more share of the developer’s profit than we would do if we just put a site on the market without the benefit of planning approval. If it is a really strong site where we know that sales are going to be very good, not only will we secure the planning approval but we will employ a constructor rather than a developer and will build out the homes for sale ourselves. In that case, we take the sales risk, we fund the construction of the homes for sale and we capture all the development profit. There are mechanisms out there that local authorities can use to drive more land value out of their sites.

Councillor Derbyshire: The difficulty is when it is not our site. The issuing of planning permission immediately can increase the value of a site tremendously for the type of either development or transactions that were mentioned before. When the New Towns Act went through and the new towns were done, the land was acquired at pretty much its own value and, therefore, the increase in value could go into the infrastructure. Without some way of capturing that uplift in value or some part of that uplift in value, we are not getting an awful lot, in areas like Greater Manchester, out of Section 106 agreements. The viability arguments on the sites are that there is not the value there to contribute towards affordable housing. The first call tends to have to be on to the highways, because that is the most immediate impact on the area. While in the past we have seen quite good community impact from 106 agreements, it has decreased a lot over the last five years.

Lord Best: Using the new towns illustration, where we bought the land cheaply and then captured the value and released it and all the good things that could happen in a new town, I do not think that is entirely over. Although in a lot of places the hope value has already increased the value of the land, so even if you compulsorily acquire it, it is still extraordinarily expensive, there are tracts of the country where there is no expectation at the moment that there will be a development. We have the rural exception sites where in a village there was not going to be planning consent, but if you sell the site for only £10,000 a plot instead of £100,000 a plot and if you do this and if you do that, and it is for local people, then we will give you planning consent. We can play this trick on a bigger scale still and there may be opportunities—I shall be putting down an amendment to the Housing and Planning Bill in this regard—where, in terms of building garden villages or new settlements of some scale that would not normally be given planning consent, planning consent could be given if people will accept a price that is much nearer to the agricultural value. The land value can be captured and the whole development can proceed on a really good basis, parcelling out the land to the different interests that can develop it.

Q140 Lord Forsyth of Drumlean: I apologise for not being here for the start of the meeting, but I look forward to reading the transcript. Will the proceeds from the sales of high-value vacant properties be able to cover the cost of funding right-to-buy discounts for housing association tenants and the cost of replacing the properties that have been sold?

Councillor Derbyshire: The short answer is I very much doubt that those sums will add up. There is so much uncertainty still with the Bill going through as to what will be defined as a high-value property. We had a property in an area that would probably have fallen under the definition that got 2,000 bids from people with housing points, so it is not that it is a surplus property. We have managed to build no properties at all from the income from right to buy, because once the debt is paid off and the discount, there is no value left. It strikes me as an extraordinarily poor use of public money to try to take money from one set of social housing, to take another set of social housing out and then hope that there is enough left to build some more social housing at the end of it. If we are looking to increase the amount of social housing available, I would much rather put money into helping those people who could afford to buy to move out and release that social housing for those who need it.

Dr Skidmore: It is difficult to see how this can possibly stack up, but one thing we can be sure of is that the proposals as they stand will drive down the levels of social housing across the country. That will have social and economic consequences for us all, because the numbers that would need to be sold in order to make up the deficit and protect the right to buys would be tens of thousands or hundreds of thousands.

Lord Best: Despite those points, the Treasury and the Government will not miss out on this. They will not find themselves shelling out large sums of money for the right to buy, because they will regulate the flow of the right to buy by the housing association tenants who have been given this new opportunity. They will regulate that at the speed that the money comes in from the sale of vacant council housing. They have made it clear that they will just ration the available resources so that they will not miss out. This answers the question in a different, back-to-front way. It may take a long time for the resources to accumulate to cover the costs of paying out the discounts. Seventy per cent of them have to be paid out on the day of the sale. If this all happened in a rush, the Treasury would be in big trouble, but they are saying, “No, we will ration and slow down and lengthen the time that people have to live there before they are eligible”—whatever it takes so that this does not turn out to be a cost.

Lord Forsyth of Drumlean: My understanding of the working of the scheme is that local authorities’ high-value housing will be assessed, and if the local authorities do not sell those houses, they will have to return money to the Treasury. Leaving aside the problem of balancing building new houses against the revenue from sales of high-value houses, is that not going to damage the housing investment potential anyway unless they are able to identify and sell these properties? Is that a difficulty?

Dr Skidmore: Absolutely, it will. I mentioned earlier that we are going to lose £42 million over the next four years at Birmingham. This will be another amount of money that we will be losing, so it will be another levy that makes it more difficult for us to build new homes. It makes it more difficult to look after the homes that we have. We have 26,000 people on our waiting list and 100 people in temporary accommodation, and those numbers are going up every day.

Lord Forsyth of Drumlean: Do you think that the Treasury will take a flexible view on this?

Dr Skidmore: No.

Councillor Derbyshire: We are still waiting for a lot of detail. Lord Best’s information was useful, but it is one of those policies that is being worked through as the legislation goes through, and I am not sure that that ever produces great legislation.

Lord Forsyth of Drumlean: Is that a polite way of saying that it is not thought through?

Councillor Derbyshire: It does not appear to be, from the ground. As described here, there are going to be an awful lot of people who live in RSLs who believe they will have a right to buy but apparently will not—or at least not for quite some time—which is obviously a political issue for those who promised it. I believe that my local authority will lose houses through the high value, because we are relatively high value within Greater Manchester. These will be the highest demand properties. The previous right to buy has never operated in a way that has allowed us to replace anything like like for like. We have used HCA grants and other grants to build, but we have never produced any income through the right to buy. We may have to pay the money for our own houses. Our housing revenue account was a 30‑year agreement three years ago before it got changed, so it is very difficult to plan and, as I say, it makes it dangerous to build houses in your housing revenue account.

Lord Best: Even in a high-value area like London, the local authorities have not been able to replace the stock in the timescale with the money that they have had from right to buy. Haringey and others have handed back millions and millions to the Government, which is rather galling for them, but they have not been able to use the resources in the time available to replace the stock, so it does not look too well thought out.

Baroness Blackstone: In Manchester and Birmingham, would it help if there were an amendment to the Bill that gave you a longer period to replace your stock?

Dr Skidmore: It would help. The threshold at the moment is that we have to spend the money within three years. I am happy to say that we do spend the money within three years, but we are fortunate because we have a large housing delivery programme that we have built up over the last five years, so we are able to do that. Three years is a very short timescale, though, in which to spend that money. The other complication is that we are legally not allowed to use that money alongside any other funding, such as HCA grant, so that makes it a little more difficult—unnecessarily difficult, in my view—to spend that money.

The Chairman: That brings us to the end of this session. Thank you very much indeed for your helpful and informative answers.