Tag Archives: land value

Local Plan

Land values languish amid Brexit uncertainty

By Vivienne Shirley, Senior Consultant

Land values slumped at the end of 2018 thanks to increasing build costs and economic uncertainty over Brexit, according to Knight Frank’s latest Residential Development Land Index.

The biggest decline was seen in prime central London, where land values fell a further 2.8%, taking the annual price decrease to 5.6% in 2018 – a drop of almost 20% since the market peaked in 2015. Brownfield land values also declined along with greenfield land value growth.

Patrick Gower, Associate at Knight Frank, suggested the hesitation of developers to purchase land is partly due to growing costs, noting: “Labour costs continue to edge up and the relatively weak pound has made imported building materials more costly for housebuilders.”

Hesitation and stagnation

The continuing economic uncertainty over Brexit is also weighing on home buyers and developers. In the resale market, the time taken from listing a home to sale agreed rose more than 30% since 2016 in the South East and London, as buyers bide their time. Sellers are also holding off in the weakened market, particularly in central London, with no sign the stagnation will end soon. At the same time, the greater risk of building in the current climate has prompted developers to increase their margins, suppressing land value prices.

David Fenton, UK Head of Regional Land at Knight Frank, commented: “Any business, be it manufacturing, housebuilding or professional services, needs clarity in order to inform their decision making process. Across the UK, businesses cannot plan for the short to medium term, therefore we have seen the housebuilders pricing in higher margins to address the unknown risks going forward.”

The hesitation felt by housebuilders is plain to see, with new build starts down 7% in the year to Q3 2018 in London, according to research by Centre for London. The number of approved planning applications declined for both major and minor schemes, which could see the slowdown in construction continue into the longer term.

Michael Hardware, Director of Planning and Property at Chelgate Local, noted: “The housing market continues to slow and shows no signs of abating while the Brexit chaos continues, with London particularly sensitive to the antics in Westminster.”

Who dares wins

However, for those developers with the appetite to take the plunge, there may be big profits to be had in the future by buying land now. In central London in particular, some major players have taken advantage of the weak sterling and drop in prices.

“The majority of central London developers are choosing to wait for greater economic certainty before purchasing land, however there have been notable exceptions in which investors have opted to buy while land values remain 17% below the 2015 peak, and sterling continues to trade at a discount relative to its value before the 2016 referendum,” Gower explained.

To misquote Spiderman, with great uncertainty comes great opportunity. Only time will tell if the gamble pays off – in the meantime, all we can do is urge politicians to get their act together and avoid a Brexit apocalypse.

Housing Minister ‘captured’ in disagreement over land value

By Kasia Banas, Consultant

In his first appearance in front of the Communities and Local Government (CLG) Committee on 5th September, Housing Minister Kit Malthouse MP made it clear he is not planning to introduce a new mechanism for capturing uplifts in land value.

Instead, Malthouse insisted the recently introduced “major reforms” to the NPPF will provide the significant and positive long-term effects that are needed for the process. But while land value capture is definitely off the table for now, he remains open-minded about any new proposals in the future should the reforms not deliver the expected results.

The hearing took place just a week before the cross-party committee of MPs investigating land value capture published its report and recommendations. Formed in late 2017, the committee’s findings are often in opposition to the Minister’s views on the issue.

Land Compensation Act 1961

One of the main recommendations of the committee report is for the government to amend the Land Compensation Act 1961, to give local authorities the power to purchase land “at a fairer price”, and to remove the right of landowners to receive hope value.

When asked about the need for such reform the Minister expressed his concerns about how it could slow down the land supply.

Industry seems to agree with him. Ian Fletcher from the British Property Federation (BPF) said: “If landowners don’t get the uplift in value from change of use, fewer landowners will come forward with land. This will exacerbate the housing crisis.”

BPF puts its support behind new measures such as strategic infrastructure tariffs, where development levies are applied across regions and authorities, such as the London-wide Crossrail CIL.

Compulsory Purchase Order

While the committee calls for further simplification of the compulsory purchase order (CPO) process, Malthouse believes it should be treated as a last resort option, saying CPOs may be appropriate in some cases, but rather than relying on them, he wants to create an environment in which there are enough incentives for the developer not to block new projects.

Voices from the sector such as Philip Barnes from Barratt Developments have questioned the committee’s proposals and their practicality. He asks, for example, what ‘no scheme’ and ‘hope value’ would actually mean in the real world of land valuation, and how a two price market can be avoided if the state wishes to issue CPOs at land values well below the level which rational landowners will sell at.

Community Infrastructure Levy

Commenting on the government’s response to the Community Infrastructure Levy (CIL) review, Malthouse believes that rather than an overhaul, incremental change and market monitoring are desirable for now given the objective of building as many homes as soon as possible. This seems a sensible approach considering Brexit and the current economic outlook.

The parliamentary committee has continued calls for total reform, and CLA director of policy and advice Christopher Price argues the current system already provides a range of benefits, with £6 billion raised via planning obligations such as the CIL and Section 106 in 2016/17.

Support for the report

Committee chair Clive Betts MP said that land value capture is fundamentally about fairness and necessity for the government to improve the infrastructure surrounding the new homes being delivered over the coming years.

His view is shared by the National Infrastructure Commission which welcomed the report’s recommendations and urged ministers to seriously consider these reforms as a source of funding of future projects. Similarly, RTPI chief executive Victoria Hills considers the current system of sharing land value uplift to not be working for the public good and in need of reform.

The government is yet to respond to the report but will do so in the coming year. Given Malthouse’s willingness to give the recent changes in the 2017 Act and new NPPF a chance, a major reform in the near future is unlikely.

land value capture for communities

Government looks Onward to land value capture reform

By Kasia Banas, Consultant

The government has been called on to consider radical reform of land value capture for communities in an open letter addressed to the Secretary of State for Housing, Communities and Local Government, Rt Hon James Brokenshire MP.

The letter from conservative think-tank Onward was signed by 16 organisations including the National Housing Federation, CPRE and Shelter, and identified ‘the way we buy and sell land’ as the primary cause of England’s housing crisis.

The signatories believe more gains from uplifts in land value need to be invested into communities, which will lead not only to less opposition to new development, but also to much better infrastructure. They propose the following three main steps to achieving that:

  • Monitoring the implementation of changes to Section 106 to ensure that councils deliver, and developers do not continue to ‘wriggle out’ of their commitments,
  • Giving local government a stronger role in buying and assembling land for housing, allowing them to plan new developments more effectively, share the benefits for the community and approve developments in places local people accept,
  • Reform of the 1961 Land Compensation Act to clarify that local authorities should be able to compulsorily purchase land at fair market value that does not include prospective planning permission, rather than speculative “hope” value.

Finally, the letter encourages government to look for good practice examples across the borders, to other countries that are considered to be doing a better job in creating desirable new places for the benefit of all.

There are however, voices from the sector that question the early enthusiasm that these ideas have sparked. Matthew Spry, Senior Director at Lichfields UK, cast a shadow of doubt on the comprehensiveness of the proposals and stipulated that some practical questions need to be answered about them. These include issues around the purpose of capturing land value, resources, a two-tier land market, fairness and more. He warned that the failure to consider these could result in “undermining delivery in a system that, for all its many faults, is beginning to supply more of the homes we need”.

The letter was published a month after the National Infrastructure Commission (NIC), the government’s infrastructure advisory body, recommended that councils be granted greater powers to capture any uplift in land value arising from planning and infrastructure decisions.

They also called for powers for local authorities to “levy zonal precepts on council tax, where public investments in infrastructure drive up surrounding property values by 2021″ and for Section 106 pooling restrictions to be removed by 2020 to increase effectiveness of the planning value system.

The government has committed to present the NIC’s assessment before parliament, and to respond to it within six months.

On 5 September 2018, the Housing Minster Kit Malthouse is due to appear at the meeting of the Communities and Local Government Committee, which is conducting an inquiry into land value capture. His evidence may provide an early indication as to the government’s position on the proposed changes to the land value capture system.

Homes growth slows

Letwin Review highlights need for more housing variation

Sir Oliver Letwin, who was charged with the task of explaining the “significant gap” between housing completions and the amount of land allocated in areas of high demand, has released his eagerly awaited interim report.

As in his letter in March, Letwin does stress that the “homogeneity of the types and tenures of the homes on offer and the limit on the rate at which the market will absorb them are the fundamental drivers of the slow rate of build out”.

He urges house builders to diversify the homes constructed within each site to cater to different markets simultaneously – thus accelerating build out rates.

Different strokes for different folks

Letwin suggests developers look at providing different types of tenure – open market sale, open market private rented, ‘affordable’ rented and ‘social’ rented – as well as different forms of accommodation, such as retirement housing and student living blocks, all as part of the same scheme.

The report finds that buyers for these different tenure types don’t compete, so developers could develop more of a site at once without driving property prices down and threatening their business model.

In addition, rather than building rows of identikit semi-detached homes with monotonous landscaping and bland interiors, house builders could also offer custom- and self-build options, or simply provide a variety of looks to appeal to different tastes.

Whether builders accept this or not is another matter – they stand to lose out if they are forced to diversify their housing offer across sites.

Letwin is also cagey on how this diversification will take place, saying the ‘policy levers’ to bring this about while not harming sites economically will form the second half of his review, reporting to Budget.

Banking on land?

Significantly, Letwin finds that none of the UK’s biggest housebuilders deliberately ‘land bank’, with no evidence that developers sit on land they own and then wait for it to rise in value to maximise their profits.

He states: “Their business models depend on generating profits out of sales of housing, rather than out of the increasing value of land holdings; and it is the profitability of the sale of housing that they are trying to protect by building only at the ‘market absorption rate’ for their products.”

We absolutely didn’t need a drawn-out Government Review to tell us this, of course, but having official evidence could aid future Government funding decisions on driving up housebuilding.

What’s more, by moving towards a more varied housing model and accelerating build out rates, developers might finally be able to disprove the myth of land banking once and for all.

You can read the full report here.