There's no quick fix for the housing market
Julian Boswall and Alex Minhinick discuss the recent housing white paper, a report on the community infrastructure levy, and compensation in compulsory purchase cases
The Department for Communities and Local Government published its housing white paper, ‘Fixing our broken housing market’, on 7 February 2017. The government states that the proposals contained in the paper are crucial to achieving its objective of delivering ‘between 225,000 and 275,000 homes every year’. The paper’s headline proposals are to:
Incentivise older people to downsize to smaller properties;
Force developers to begin construction within two years of securing planning permission;
Establish a fund of £3bn to assist smaller builders in delivering more houses;
Provide incentives for buy to let; and
Maintain protections for the green belt.
It is not clear how the government’s proposals on downsizing will be effective in achieving its aims. Although the paper acknowledges that there are ‘many barriers to people moving out of family homes’ and states that the government is ‘committed to exploring these issues… and finding sustainable solutions to any problems’, the paper contains no concrete proposals regarding this issue. Instead, the paper simply encourages development companies to build and supply homes that are suitable for older people. It is not clear what effect, it any, public proclamations of this sort are likely to have on the market.
The proposal that developers should be forced to begin construction within two years of obtaining planning permission is one which has been heralded by the secretary of state as fixing the perceived problem of developer ‘land banking’ – that is, obtaining planning permission for land and thereafter holding it for an indefinite period of time to maximise its value in an increasing market. However, the default (and common) time period for the implementation of planning permissions is currently fixed at three years, and it is difficult to see how reducing that figure by a year is going to have any significant effect on rates of house building.
Delivery of consented sites is a complex process. One of the biggest barriers to commencement of works is often a developer’s struggle to have various planning conditions approved so that works can commence. While it is noted that reforms are being promoted to tackle those issues separately by the government, the central proposition of the paper to reduce the life of a permission to two years is not going to promote a step change in housing delivery.
The continuing protection of green belt land is a highly charged issue. The brownfield-first strategies proposed by the government are criticised as being too complex, costly, and time consuming. The National Housing Federation has declared that ‘there is only enough brownfield land to support less than five years of housing need. We urgently need to have honest conversations about how green belt land is used and we would like to see the government encouraging local authorities to undertake strategic reviews of their green belts.’ Despite the clamour for a serious public debate about the purpose of the green belt, and managed, proportionate releases of land from it, the government has (perhaps predictably) firmly reiterated its protection for the green belt.
New legislation will require all local planning authorities to review all of their local development documents (i.e. local plans and supplementary planning documents) at least once every five years and produce realistic housing plans for their areas. While laudable in intent, the patchy record of local authorities to promote, update, and review local plan documents does not stem from any lack of incentive on them. There is already a statutory basis for their promotion, and a more pressing concern is the effect of a lack of five-year housing land supply for local authorities.
The real issues lie in the complexities and costs inherent in the system. Local authorities are often under-resourced. Planning permission has a disproportionate effect on land value, and speculation on development plan allocations for housing sites is too attractive a proposition for landowners, developers, and consultants. Added to that a highly complex legislative and policy environment within which plans have to be promoted, and it is not a surprise that plans are regularly stalled for years, or subject to legal challenge and the process having to recommence.Funding to assist smaller house builders to access the market is a positive step, but it is unlikely to cause a fundamental shift in the way in which the system operates.
If the market is broken, it is not clear how a wide range of piecemeal reforms picking at the edges of a complex process are likely to offer a fix, let alone a quick fix. In addition, a major national conversation about housing is needed to facilitate more courageous political decisions on green belt and other matters.
Community infrastructure levy
An independent report on the effectiveness of CIL was published on 7 February 2017 alongside the housing white paper. The paper states that the government will respond to the CIL review at the Autumn Budget 2017.
The report concludes that CIL is failing in its aim of being a fair, fast, and simple way of collecting financial contributions towards the infrastructure necessary to address the impact of development. Furthermore, the scale of funding that CIL has produced has been less than was first anticipated.
These conclusions chime with the market, where many local authorities are now seeking to ‘zero-rate’ larger greenfield sites (i.e. charge no CIL on those sites most likely to generate higher CIL receipts) and instead opt to engage with the developers of those sites on detailed section 106 agreement negotiations. In other words, the CIL regime has to a large extent been rejected by local authorities in favour of the existing mechanism of securing infrastructure contributions through section 106 agreements.The report recommends the following measures:
Replace CIL with a hybrid system of a broad and low-level local infrastructure tariff (LIT) and section 106 agreements for larger developments; and
Enable combined authorities to set up an additional mayoral-type strategic infrastructure tariff (SIT).
Efforts to improve and simplify the current rules regarding infrastructure payments will be welcomed. In particular, supporters of LIT have pointed to the success of the pan-London levy established to raise funds for Crossrail.
A full analysis will only be possible with the release of the government’s proposals in the autumn, but the decision appears to have been taken to abandon a comprehensive infrastructure levy system of the sort CIL was intended to be, and instead adopt a more piecemeal approach.
Compensation in compulsory purchase
On 22 February, the Supreme Court handed down its judgment in the case of Homes and Communities Agency v J S Bloor (Wilmslow) Ltd  UKSC 12. The case concerned the assessment of compensation for the compulsory acquisition of land for the development of the Kingsway Business Park (KBP) in Rochdale.
JS Bloor (Wilmslow) Ltd had relied on the prospect that, in the absence of the KBP scheme, planning permission would be granted for residential development on its site. With residential planning permission, of course, comes a significant increase in the value of the land – something the claimant sought to rely on in the compensation assessment process. In assessing compensation, the Upper Tribunal (at first instance) did so on the basis that there would have been a ‘50/50 chance of planning permission being obtained… in a no KBP world’.
The key issue in the appeal was the relationship between, on the one hand, the statutory planning assumptions which are to be made in relation to a site for compensation purposes, and, on the other hand, the Pointe Gourde (or ‘no scheme’) rule, which provides that compensation for compulsory acquisition should be assessed by disregarding any increase or decrease in the value of the land which can be solely attributable to the underlying scheme of the acquiring authority (which, in this case, was the KBP). The former are statutory, the latter part of the ‘compensation code’, an unwritten compendium of case law and guidance on compensation in compulsory purchase.
In its judgment the Supreme Court upheld the ‘exemplary’ decision of the Upper Tribunal, overturning the Court of Appeal’s decision. The Upper Tribunal had been correct to analyse each part of the process (the planning assumptions and no scheme rule) as separate, and thereafter had not elided the two. The Supreme Court emphasised that the planning assumptions were not determinative of the planning position to be considered in the no scheme world – the latter has consistently been held to encompass matters beyond the scope of the narrow statutory code.
The Supreme Court stated that the decision reflects the potential complexities generated by the Land Compensation Act 1961 and hopes that current amendments (which are contained within the Neighbourhood Planning Bill 2016-2017) will be approved. Those amendments would write the no scheme rule into the statutory provisions governing the assessment of compensation, and in doing so address confusion around its relationship to the planning assumptions to be made on such assessments.
Julian Boswall, pictured, is a partner and Alex Minhinick is a senior associate with the planning unit at Burges Salmon