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News Release from: Chartered Institute of Building [CIOB] | Subject: Planning gain conference
Edited by the Buildingtalk Editorial
Team on 10 February 2006
Housing is affordable, land is
unaffordable
Planning gain conference: trying to build affordable homes on unaffordable land.
PGS: trying to build affordable homes on unaffordable land Yolande Barnes, Savills research director, put the issue before the planning gain conference in simple terms: housing is affordable, land is unaffordable
This article was originally published on Buildingtalk on 12 Mar 2004 at 8.00am (UK)
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Will the planning gain supplement proposed by the United Kingdom Government to fund the infrastructure make land more affordable?.
Her answer was, No.
The prospect in fact is that land will become progressively more expensive, in other words less affordable, over the next five or ten years.
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A chart demonstrating the gain in land prices measured against the growth in house prices shown at the Newzeye 'land tax' conference illustrates the issue clearly: whereas over the past 25 years prices of new houses have shown on average a sevenfold increase, the price of the greenfield land on which they were built has risen by a factor of nearly 20.
That's roughly a ratio of three to one in land price acceleration against house prices since 1979.
One of Savills' recent research papers on residential development issues poses the important question, where is the future land supply going to come from? Land in the view of Yolande Barnes - and no doubt of most people in the development industry - has become a rare commodity.
With planning policies restricting the supply of greenfield sites, it is not surprising to learn that land is increasingly competitively sought after.
Savills' latest analysis of house builders' land banks shows that the average number of plots held by the major players has not changed appreciably since 1999.
Supply held in terms of number of years actually fell last year.
So where is the land coming from to meet the Government's expanded house building target? Recently, as Ms.Barnes points out, the answer has been, from previously developed land.
But is it true that brownfield land can meet the immediate and growing demand for residential development land? Why we shouldn't be worrying.
"We should be reassured therefore", she says, "that according to the Office of the Deputy Prime Minister there is enough previously developed land potentially available in England to provide plots for nearly one million new homes.
"According to this data then, we shouldn't be worrying at all.
In fact, there is enough land to provide homes for the next ten years.
Yet we believe that these figures paint an unduly optimistic picture and one that is unlikely to be realised even in the long term.
"When the ODPM's National Land Use Database which monitors previously developed land supply is examined more carefully, it reveals some sweeping assumptions about what can be developed as housing.
Of the 64,000 hectares of brownfield land identified by the local authorities, 26,000 hectares are still in use and only 38,000 are vacant.
"In practice, this rules out development in the near future as existing users and businesses have to be relocated.
On top of this, not all land is suitable for housing, and even where it is, not all of it has been allocated for housing".
Growing appreciation of these facts is no doubt what prompted the Treasury and the ODPM to commission Kate Barker to produce her next report, this time on land use.
That will probably come out under the title Land Supply as a complement Kate's report on Housing Supply.
But profound as its disclosures may be, it will not produce any more land.
Savills' view is that the true housing plot supply on previously developed land (PDL) falls well below that of the estimate by John Prescott's department.
They believe that the true supply is more like 450,000 units, less than half the level put forward by the ODPM.
That represents under five years' supply at current build rates.
Figures for 2002-03 for instance show that developers' plot holdings fell by 25 per cent after the steady rise of the previous three years and didn't recover in the year following that.
As access to greenfield land is restricted in line with Government guidance, and if it is true that the current supply through PDL could be exhausted in five or so years, the question 'where is the land supply going to come from?' is seen to be acutely relevant.
One of the best known facts about land supply is that they are not making it any more.
In short, the Savills' message to the planning gain conference through the agency of Yolande Barnes was that land supply does not match housing demand.
In London, diagrams based on authoritative sources of data show that the housing shortfall per annum is running at around 1,300 units, and in the South East generally by some 800.
The same diagram based on similar information shows that the number of hectares of vacant land with planning permission for housing is rapidly falling in the direction of zero in London and the South East of England.
Where demand is relatively low however, such as in the North West and North East Regions, the quantity of land with planning permission for housing rises sharply, towards 30,000 hectares.
As Ms.Barnes again pointed out, rarity impacts on value.
In the South East Savills land shortage indicator is up to 60 compared with less than 10 in the East Midlands, the West Midlands and the North.
Land values per hectare with permission for residential development differ as widely as £2.5 million and rising in the South East, compared with £1million and falling in the North.
Ms.Barnes, who promised at the outset of her talk to dispel some land market myths, dealt with one that is generally believed, that the rise in value that occurs when a site is developed.
Of course it does, but what is not so generally realised is that the increase starts as soon as it is known that preparations are being made to acquire the land and to draw up a construction schedule.
"Once you have permission", she said, "you don't have to build anything on the site to see it grow in value".
As to the entry of PGS on the scene, this will be an additional complication.
What with the tendency of land prices in London and the South East to rise under current economic pressures, the continuing inflation of construction costs and now the demands being made on the development industry for large PGS sums to be paid out on commencement of the work, the outlook for affordable housing does not appear propitious.
To continue to subsidise this process will demonstrate not only the rising cost of social housing in terms of burden on the Exchequer but also the inability of current government policies to rein in the unaffordable element in housing supply.
Kate Barker got close to a better answer in her interim report but it is understood that her sponsors in the Treasury and the Office of the Deputy Prime Minister did not approve of her radical ideas on checking the upward spiral of land costs.
Hence the present reliance on a horse that has entered this race before but never got near the finishing post.
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