Alex Morton: We need to boost our brownfield developments. But that doesn’t mean a zero greenfield approach.

21 Jul

Alex Morton is Head of Policy at the Centre for Policy Studies, and is a former Number Ten Policy Unit Member.

You don’t need to live in a town or city to know that Covid has had a shattering impact on their commercial spaces. Offices and shopping centres that once buzzed with activity have been shut down for months on end. Even once we are past the pandemic and pingdemic, it is still not clear how much activity will return.

This represents a profound challenge to the Government’s plan to build back better. Even before the pandemic, many of our high streets had started to look like ghost towns. And the problem is worst in those areas that are most electorally important to the Conservatives: as I point out in a new report for the Centre for Policy Studies think tank, there was a clear correlation between higher rates of retail vacancy and the number of new seats the Tories won in each region in 2019.

If the Government is to revive high streets, a clear and bold approach is necessary – and if that revival is to be in full swing by the next election, it needs to start now.

The Government has already made it significantly easier to convert unused commercial space to residential. This would not only bring new life to commercial spaces, but help tackle the housing crisis. Our new report, Reshaping Spaces, calculates that even before Covid-19 there was space for at least 500,000 homes from recycling surplus retail space into homes and flats.

This is a likely underestimate, since in the wake of the pandemic there will be an opportunity to regenerate entire commercial centres (often at higher density), and since as home working and hybrid working increase, there may be surplus office space that can also be converted (although it is too soon to know if this is true).

Reshaping Spaces makes a series of recommendations to make it easier to regenerate commercial centres. For example, we argue that business rates are no longer fit for purpose and are damaging commercial centres. At the very least, Government should reform the incentives to hold onto vacant commercial space: currently the business rates retention system penalises councils for recycling buildings more than keeping them vacant.

But arguably the most important recommendation is that, as the first step in the new local plans, all councils should put a commercial needs assessment in place by 2022, assessing levels and location of commercial space. Councils should receive additional funding to pay for this, and see a small incentive payment made when this is completed. Where the local council does not do this, Government should step in and complete it, working with local employers and landlords to create such a plan.

Thus by the time of the next election, probably in 2023, every area would have a plan for its commercial centres – the high streets and business districts, the retail parks and out of town office hubs. People could see that there was a plan and action underway following on from it. But, crucially, councils would be able to use this assessment as the foundation of the wider local plan: in essence, the first step would be to reassess the level of brownfield land available, before moving on to the green.

The political advantages of this approach are obvious. There is nothing more frustrating than brownfield sites remaining unused with no plan of action in place, whilst new homes on greenfield are pushed through on appeal. This is partly why the CPS has called for planning permissions to be turned into delivery contracts, so that permissions are actually built out (see here) – something many SME house builders have welcomed.

But there is also a political danger. One of the more seductive myths in the housing debate is that there is enough brownfield land available to satisfy our housing needs.

It is true that there are things that can and should be done to reduce the amount of greenfield development that is needed and to boost home ownership without building more.

As we have pointed out at the Centre for Policy Studies, it is a scandal that, in the decade after the financial crisis, buy-to-let landlords essentially snapped up all of the extra housing stock that was built. Rebalancing the housing stock in favour of owner-occupation should be a crucial priority for Government – hence our proposal for long-term fixed rate mortgages for first-time buyers (see this excellent report), which was taken up in the 2019 Conservative manifesto. The Government could still go further, perhaps by introducing a CGT cut for landlords who sell up.

We also recently published a briefing note that showed how net immigration has a significant impact on the level of new homes needed, particularly in London and the surrounding area. The South and London see high levels of international immigration, indeed without international immigration London’s population would have fallen by 700,000 in the past decade, which in turn would start to relieve pressure on the wider south as fewer people are pushed out by London’s high housing costs. (see here and here).

However, even if immigration falls, there will still need to be greenfield development in England. Even in the South, only 40 per cent of household growth is due to net immigration.

As the planning debates return later this year, there will once again be those who argue that we can do without greenfield development, that high housing costs (particularly in the South) are just caused by low interest rates. They will argue supply has no impact because this is convenient politically.

One of the key misunderstandings is when people argue because there are 23 million households, whether you build an extra 100,000 or 300,000 homes a year makes no difference to overall housing costs – in either case it is just one per cent of the total housing stock and so a negligible increase in supply.

But it is not just total households that matter in terms of house prices. It is the total number of transactions in terms of homes bought and sold. So you should not measure new build homes against total households but against annual transactions. In recent years, transactions ran at around one million to 1.2 million a year (see link).

Assuming a market of one million sales, the difference between 100,000 homes a year and 300,000 homes a year, or 200,000 homes, is an increase in supply of 20 per cent relative to the same demand. Even 1.2 million sales give an increase of around 16 per cent in supply. So an increase in new builds does help to hold down house prices, all other things being equal, and will have a reasonable impact on prices. This is why supply matters and planning reform matters.

A “brownfield first” approach is very different from a “zero greenfield” approach. It is about actually developing on brownfield rather than just rejecting greenfield development. People will accept some greenfield development if measures to minimise it are in place, not if greenfield is seen as the first call.

Government needs to listen on planning reform – yes. It needs to be flexible – yes. The Housing Minister and No 10 are doing their best to do so. But neither Conservative MPs nor conservatives or liberals more widely should fool themselves – a brownfield first policy is both feasible and desirable. But a “zero greenfield” policy is not.

Alex Morton: Ministers can have more houses or higher immigration. But they won’t be able to get away with both.

21 Jun

Alex Morton is Head of Policy at the Centre for Policy Studies, and is a former Number Ten Policy Unit Member.

A very large part of the Chesham and Amersham result was driven by the shamelessly and ruthlessly NIMBYist approach of the Liberal Democrats on both housing and HS2.

As Ed Davey put it just before the election, “we are seeing a promising number of Conservatives switching to us, because they want to say no… we don’t want these planning reforms.”

This now-notorious Lib Dem leaflet sets out the strategy: no policies bar opposing development. MPs who campaigned state the issues on the doorstep were new housing and HS2. Pure NIMBYism is a powerful force in the South of England.

So how do the Conservatives tackle the issue? The Government certainly needs to adjust its course – but it cannot ditch planning reform altogether. Ultimately, we still desperately need more homes, especially in London and the South-East where pressures are greatest. The current reforms contain a great deal of good.

But the truth is another issue sits alongside planning, which Westminster is not focusing on, but which sits on voters’ and MPs minds when contemplating new homes: immigration.

The politics of new homes in London and the South is complicated

A critical political argument for new housebuilding is it will protect the Conservatives majority longer term. Homeowners vote Tory, renters don’t. The argument made to Southern MPs is more homes and more homeowners will secure their electoral base.

But, while correct on a macro scale, this argument is not necessarily so on the micro. Many MPs note that the new homes built in their constituencies are often most attractive to, and affordable for, those leaving London. But as London’s housing pressures spill over into the Home Counties, so do London’s political attitudes.

This helps to explain why commuter constituencies like Canterbury and Bedford are becoming marginals: internal migration drives up anti-Conservative ex-London voter numbers. While Brexit accelerated this, between 2010 and 2015 Outer London (the ‘doughnut’ that twice elected Boris Johnson as Mayor) swung from Tory to Labour, even as the rest of the country moved the other way.

In the North, nice new homes often bring Tory voters – as Peter Mandelson noticed revisiting his old Hartlepool seat.  But new housing in the south annoys existing Conservative voters without always bringing new ones.  The conversion process will still probably work longer-term, as new voters relax into home ownership and shed London attitudes.  But MPs understandably think in five or ten year horizans.

Making things worse, many Southern MPs face not Labour, but the Lib Dems or the Greens, boasting to middle-class voters they are pro-immigration (unlike ‘nasty’ Tories), while also shamelessly arguing they will block new homes locally. Labour cannot do this, as it knows that it must deliver if it wins.

Meanwhile, Tory-inclined voters are susceptible to another simple message: new homes are only needed due to migration. They feel the problem is hundreds of thousands of new arrivals a year, who need extra homes, meaning concreting over the South-East.

The current system of housing targets enables a dishonest political debate

So how do Conservatives tackle this problem? This, I am afraid, is where it gets technical. But it first involves admitting voters have a point about immigration.

Currently, Government housing targets are based on a 2014 estimate (using data from 2012-2014) that we are creating 214,000 new households a year. Various tweaks are done to turn this household number into a housing target, including adjustments based on affordability. The end result is a national target for new housing of 297,000 a year.

The 214,000 households figure assumes net international migration (i.e. the difference between those arriving and leaving) of around 170,000 people annually (see here). So, under current estimates, around 37 per cent of all new homes are needed due to net international migration (see here). So the anti-immigration lobby have a point. But even with zero net migration, we would need many more homes.

However, immigration is very clearly pushing up the numbers needed, and has a disproportionate effect in the South. For the key years 2012-2014, around 50-60 per cent of net international migration went to London, the South East, and the East. This pushed up their housing need most. Even pre-pandemic, London’s population would be falling without international migration, but international migration drives it back up, rippling out over time in terms of housing targets across the South.

Why does this matter politically? It shows it is logically absurd for any party to promise both higher levels of net immigration and yet lower housebuilding in the South. But that is exactly what the Lib Dems and Greens do. And they get away with it because of the current lack of transparency around housing need calculations.

We need to include net migration figures in the local plans

We’d need more homes even if with zero net migration – because we have not built enough for years. As I pointed out in my day job at the Centre for Policy Studies, the 2010s were the worst modern decade for housebuilding – and every decade has got worse since the 1960s.

But one way for the Conservatives to change the politics of planning – and show their immigration controls are crucial – is a clearer link between migration numbers and local housing need. The new Planning Bill should ensure that each local plan periodically adjusts housing targets and housing need in line with net migration. This would inject honesty into the housing debate.

As noted, current housing plans are based on net international migration of 170,000 a year. If net migration fell to 50,000, we would need 60,000 fewer homes a year (assuming roughly one home for two new people). If it rose to 350,000, it would mean 90,000 more homes each year.

If the Liberal Democrats, or the Greens, want to argue for more immigration nationally, it should be clear this means more homes in each area. This would fundamentally change the debate in the South. In Chiltern District Council, home to Chesham and Amersham, the difference between annual national net immigration going down to 50,000 or up to 300,000 would be several thousand extra homes in the next ten years. Pro-migration, NIMBY parties would have to choose.

The worst outcome would be higher net immigration and weakened planning reform

The worst outcome for home ownership is higher net immigration plus weaker planning reform. Yet in the wake of Chesham & Amersham, this seems very likely. Currently, annual net migration is running at 281,000 – or around 110,000 more people a year than 2014 projections. This means 55,000 more homes a year since the 2014 projections – more than the entire rise planned last year after the planning reform row.

Higher migration but no planning reform is also the worst possible result for the Conservative Party. It would exacerbate London and the South’s problems – creating new voters who don’t vote Tory through higher migration, annoying existing Tory voters with new homes, but not delivering enough home ownership to capture new voters.

Housing numbers and migration are an example of Morton’s political triangle. You cannot please everyone. Government policy is currently pro-migration (in numbers not rhetoric) and pro-housebuilding. Both positions put off voters in Chesham. Yet ditching planning reforms while keeping higher migration dooms the Tories in London and the South longer term. The best shot for the Conservatives in the South is more homes and lower immigration – and this, not ditching planning reform, should be their next step.

Alex Morton: Scrapping planning won’t happen. And increasing permissions won’t work. Why we need a new Housing Guarantee.

15 Apr

Alex Morton is Head of Policy at the CPS and a former Number Ten Policy Unit Member.

Today the Centre for Policy Studies publishes The Housing Guarantee, which looks at how to increase housing supply in this country to get it to over 250,000 homes every year.

The report does not go into the need for a sustained drop in net immigration, or policies to reduce inflated demand for housing, though I would agree these are needed too. But the report shows that housing supply is simply too low as well.

Some argue for simply scrapping the planning system, but this is never going to happen. Others argue for more reforms like those initiated by George Osborne in the early 2010s, but this assumes any increase in planning permissions means the same number of extra homes.

After the 2010 planning reforms, permissions soared to substantially over 350,000 a year – while new build numbers rose more slowly, to peak at around 200,000 a year. The increase in permissions took place entirely through an increase in large sites, which often are built out very slowly, and are often on green field sites, making them politically painful.

The CPS report takes a more pragmatic approach, by assuming that the local plan system will remain in place. It also sets out why another push to grant slightly more permissions will not get us to the levels needed, and what an alternative might look like.

Today, the large house builders have a dominant role in the land market, with their strategic land banks making up nearly a million plots – not far off the one to 1.25 million plots which the Government requires councils to make available ready for planning permission. Boosting the land available is unlikely to drive up supply much further as it will be captured by the larger house builders.

Meanwhile, unable to get land with permission, SMEs, who build out the land they can get faster, and often on smaller or brownfield sites, have been squeezed out of the market – with the smallest falling from delivering 40 per cent of supply in the 1980s to just 10 per cent now.

Some argue that the big developers ‘land bank’, meaning to amass huge amounts of land without any intention to build out. This is unfair in a sense. The large house builders build as fast as they can sell homes at the current market price, a ‘build to sell’ model. This means total transactions and new build market share are crucial – and is why Help to Buy, which pushes buyers toward new build homes is so important for the large house builders. It increases the market share of new builds for any given level of transactions.

It is important to understand too, the house builders do not just capture land with permission. They also generate permissions in line with demand. Over the 2010s, it was mainly the sales rate of new-build homes that determined both housing supply and boosted the total of permissions, as new plots were created to match demand by house builders drawing on the strategic land banks. Supply of homes and land related to total new build sales.

This build to sell model is coupled with a slow build out, a fact that puzzled the Letwin Review of build out. This slow build out rate is due to the low market share of new builds, related to the fact new homes are not attractive enough. Because of the need to recession proof their company, being able to lay off workers and terminate supply contracts in a downturn, the larger house builders cannot invest in modern construction methods, and usually rely on standardised products and a sub-contracted workforce and supply chains. This makes them recession-proof, while making it hard to drive up quality for new homes.

So we have the worst of all worlds – lots of pain, yet too few homes.

Our new report sets out proposals to help ensure each area meets local need – but does this through a genuine local plan process.

The first element is to turn planning permissions into delivery contracts, with permission granted in return for an agreed trajectory of new build homes (subject to economic conditions). So house builders have to agree with councils how fast they will build out – particularly important for larger sites.

Where house builders cannot deliver as promised, they would have to pass the land on at an agreed price to builders who could, making up any shortfall. This would turn permissions from a one-way bet into a mutually beneficial exchange – and mean that as land came forward for development, it was actually translated into new homes.

Councils could thus agree on brownfield sites realistic build out trajectories and know that these would actually be delivered, while blocking the most controversial – though not all – greenfield development. These changes would only apply to future planning permissions, giving house builders time to adapt, but revolutionising the system.

Allied to this should be a renewed emphasis on the Housing Delivery Test. This judgescouncils on whether they enable the building of sufficient homes. Currently houses are allowed on appeal where councils fail to have sufficient land – not where they fail to deliver. This should change. Sanctions should relate to failing to ensure delivery.

Planning should not be about a few large sites for large house builders, but about ensuring a mix of sites are available to a range of house builders with distinct market niches, including brownfield/greenfield sites, varying tenures such as retirement homes, and using more SME companies which offer different products to each other. This is how housing need can be met in each area.

We have spoken to multiple SMEs who would accept delivery contracts in return for greater access to land. On top of this we would also propose a review of council powers over development, to allow greater intervention by the Planning Inspectorate where councils are continually holding up sites, as well as separate reforms allowing action to be taken by house builders against statutory consultees and others who can hold up delivery. Just as builders would commit to build out their sites, the state would commit to enabling them to do so.

Finally, councils and Government need to ensure that public sector land, when sold, does not just end up in strategic land banks, but actually sees new homes being built on it – in a way that ensures the quality and diversity of local housing supply, and supports competition within the sector. We propose that there should be panels of local SME house builders that public sector land is sold to, with challenging, but realistic, delivery targets.

Planning proposals have to be politically realistic. The local plan process must remain at the heart of planning. We have to move on from simply assuming we can scrap the planning system, or just increasing permissions for larger house builders and expecting sufficient supply to emerge, and instead find a way to work within the existing framework.

We were heartened by the endorsement of the Minister for Housing for our report. Along with measures he and the Secretary of State are pushing on better quality design, then a more diverse mix of house builders, especially SMEs, alongside a focus on delivery can guarantee we get the homes we want in the places we want, while fixing our housing supply problem.

Alex Morton: How Sunak can save £30 billion a year

21 Oct

Alex Morton Head of Policy at the CPS and a former Number Ten Policy Unit Member.

Today, the Office for National Statistics will announce the provisional figures of Government borrowing for the first six months for 2020/21. They will be truly dire. We know because borrowing in the first five months alone were bigger than the previous annual total, and by August this year the national debt was larger than the UK economy, rising by over 10 per cent from 2019/20’s total.

Putting aside the ongoing – and crucial – debate about the nature of lockdown restrictions, it is clear even on the most optimistic forecasts, and with the best decisions, the UK will end the pandemic with a serious debt and deficit problem. Even assuming higher borrowing for years, something must give.

For that reason, the Centre for Policy Studies today publishes the paper Saving £30 billion: Nine Simple Steps, which discusses, on rough but plausible estimates, nine savings to cut £30 billion a year from the Government’s spending without jeopardising frontline services, or asking the politically impossible.

The Government is in the middle of a Spending Review, and we believe that now is the time for proposals to stop the threat of tax rises which will both hit growth and hard-pressed workers, companies and families. None of the savings would impact frontline delivery and none of them ask for MPs to vote through what would be political suicide.

Government efficiency

Despite the arguments made that austerity means no further reduction in spend is possible, we find significant potential savings across a wide range of areas, none of which impact frontline delivery. The first group of savings are thus about making the state more efficient.

  • We analyse the number of Government administrative staff versus the private sector and find initial convergence but significant disparities in reductions in recent years, with the private sector slimming down this group more effectively. We therefore propose benchmarking Government administrative staff totals to the private sector and reducing these in the public sector once a post-Covid recovery gets underway.

We also propose –

  • To abolish some quangos and to bring all quangos under the control of a relevant department. Each department should create a single body to manage HR, marketing, and other administrative functions for all quangos it oversees. This should also make bureaucracies more accountable and improve public sector productivity.
  • Pushing toward greater use of back office function sharing in local government, as occurs between Westminster and Kensington & Chelsea. There is no need for 350 councils to have distinct IT or press or procurement teams. The Housing and Local Government Department should publish data on the administrative costs for each council to push forward action. This should enable many of the savings around unitarisation without the massive political rows.
  • Improving e-procurement and data sharing, noting that other countries such as South Korea or Estonia have significantly improved productivity and reduced costs through this route, and agreeing with critics of the existing Government procurement systems.
  • Since the state owns land and property worth a staggering £1 trillion, we call for an inventory of all non-operational land followed by a sale and leaseback model across all this non-operational land, rather than past Spending Review’s top down land targets for each department. Just selling off the Network Rail arches gained £1.4 billion while boosting growth, and Covid-19 has changed office work patterns, so this should raise serious sums.

Ensuring a fair state

The second group of savings are about ensuring that the state does not give excessively to one or other group, and create a state focused on the core tasks of government. We propose:

  • Replacing the triple lock with a dual lock, which still gives pensioners the best of inflation or wage growth, and removing the tax anomaly of the Winter Fuel Payment and just treating as taxable income like other benefits.
  • Sell and replace high-value council properties when they fall vacant with a less expensive nearby equivalent. It is deeply unfair there are million-pound council properties in many parts of London and this is not what making sure people have a roof over their heads is about. This doesn’t even mean anyone has to move – just no more new expensive tenancies.
  • Roll child benefit into the child tax credit system with a further taper that reduces the top 10 per cent or so of households (essentially capturing those with two fairly high earners to bring them into line with a single high earner household).
  • Cut overseas aid to 0.5 per cent, still placing the UK in the top 10 donor countries and moving on from 2005 when this target was set at 0.7 per cent at a time when India and even China were legitimate UK aid recipients, not emerging economic superpowers. It would be both immoral and politically toxic to make the other savings while protecting a budget overseas that has nearly doubled in recent years.

Taken together, these savings would help bring down the deficit to an acceptable level. They involve some hard decisions and confrontation of vested interests, but not impossible ones, and all should pass through the Commons, even in its new rebellious state. The alternative, ever higher borrowing, or even worse, ever higher taxes, is unthinkable if we are to achieve what the CPS believes the number one priority post-pandemic must be – restoring sustained economic growth. We call on the Government to investigate and takes forward these ideas as part of the Spending Review process.