Examination of Witnesses (Questions 183-199)
MR RICHARD MCCARTHY, MR DICKON ROBINSON, MR DAVID COWANS AND MR DAVE POWER
TUESDAY 25 JUNE 2002
183. What are the main factors limiting the supply of affordable housing? What is making us not deliver the goods to people?
(Mr McCarthy) I would say it was an issue of not building enough new homes, full stop. We are not providing sufficient public subsidy to enable the production of new affordable homes. We are not releasing land at the level and in the way that we should do for development, and I think that really links to my next point, which is that we are not proactively assembling land for development. We talk about the frustration and desire for more brownfield land development, and it sits there, but we are not actively and proactively seeking ways to actually create value on those sites to produce the whole range of homes that is needed, including the provision of affordable housing. Our argument is that that requires extra subsidy, but on top of that, and far more importantly almost, is the new strategic partnerships of organisations like ours. Too often these dialogues are focussed on "How can we get the best for the public sector and for the private sector?" We do not focus sufficiently on the not-for-profit sector, the way that we can capture and generate value on large brownfield sites in a way that does not see that value lost to shareholders whose mouths we have to feed. Too often we are the last point of the supply chain; we come in at the endyou were talking about 106 agreementswhen actually if we were there at the beginning, working with both existing public sector land and with public sector agencies who could use their CPO powers, for example, with regard to the land owned by the former utilities, land assembly, master-planning that to create really integrated, sustainable neighbourhoods . . .
184. You think you could do the job of the developers better?
(Mr McCarthy) Yes, and we could bring developers in, but they could come in later on, having captured the value and created the value. We come in the wrong way round.
(Mr Cowans) The real issue here for me is about the quality of the neighbourhood, and the real fear I have with so much debate about the numbers is that we will lose the whole essence of quality. We have been here several times before. In an understandable desire to create a living space for everybody, and with the pressure on public finances, there is almost an inevitability that people start building £45,000 boxes because you can do a lot of them. I believe deeply that we would be failing people if we did that. If we are not going to do that, we have to do something different, and what we have to do therefore is to access a lot of cash. Who has got the cash? The land owners and the developers. How do we access that? We start to develop some of the skills they have. We as a group have gone out and head-hunted an entire team of private sector house building people, who actually quite enjoy the notion that instead of making money just for shareholders, they are actually building good places and they can bring their skills to that. That sounds awfully corny, but I happen to believe it. It is that sort of philosophy that lies behind the thoughts that ourselves and Peabody are developing about how we can bring in a radically new dimension to start tackling this problem.
185. It is not just about affordable housing; it is an issue about supply of housing in general.
(Mr Cowans) That is right. Unwittinglyand we have done this as a nationwe disadvantage those people who happen to be poor by labelling them that they live there, and everybody can see they live there, and the quality of the housing is demonstrably worse than everybody else's, and that is just morally wrong.
186. What the Government has done is to double the funding to the Housing Corporation. Are we starting to see any benefits from that yet? Is it the right approach, or is it a measure that is welcome but not really sufficient?
(Mr Cowans) One of the questions I noticed you asked other witnesses was, if the amount of cash available is increasing, why is the supply not increasing? If land increases in value at the rate it is, and building costs increase at the rate they are, and you have a very competitive market, that public sector cash just disappears, and in effect it goes straight through the land out to the shareholders. My private sector colleagues will not like me for saying this, but I happen to believe there is a lot of truth in that. The big issue is a re-casting not only of the amount of public money that is available but of the way in which it is spent. We would arguewe have a similar view about thisthat it would be better, for example, for subsidy to go into land acquisition, and the master-planning of the land acquisition, and then tendering on that land to a mix of developers, because to a degree, as long as the right controls are in there and the right design is in there and the right planning process is in there, it does not really matter who builds it. Some of the approaches we see happening in Dublin are very interesting, where the Urban Development Corporation in Dublin do exactly that; they acquire the land, clean it up and tender it on, but with a very prescriptive master plan of exactly what they want to see there, what design, what standards, and then people bid against that and they have got to build that because that is the deal. The skill is how to make money out of doing it. That sounds to me a much more coherent and a much better use of state financing than, as Richard says, funding people to come in on the tail-end of someone else's process.
187. So you do not agree that what the Housing Corporation is doing is sufficient. Could you indicate how much more money your own organisation has had since 1997, and is it actually delivering any more units?
(Mr Cowans) It is interesting, but we have actually pulled back our social housing programme because we do not think we can build at the quality that we feel comfortable building. That is the truth of the matter. Our amount of ADP has reduced. A good example of this is a scheme at Chilwell Gardens in Watford, where we as a group went to the local authority and said, "Here you have 7.8 acres of land, a very high-demand area, normally you would put it on the market and probably get £1 million an acre for it." No doubt that is true. "But that is not really what you are after, are you?" We had a very good discussion with the local authority. They then prescribed what they wanted on that site, and we said, "Yes, we will deliver that for you. Of the £2.8 million that we are going to make in profit from outright sale of nine properties, £2 million of that is going back to provide affordable housing, a nursery on the site, but it will be mixed in, and the properties that are affordable will be exactly the same design as the for-sale, so there will be no visual stigma." They could not get anybody else to do that. That is a microcosm of what could happen. The grant rate of £12,000 a property in a traditional way of developing that site would have developed very poor, box-like properties, probably right at the back of the site for the affordable housing, and that is not right.
188. Mr Cowans, could the Dublin model that you refer to be used to make more brownfield land available for affordable housing? For example, should the urban regeneration companies which have now been set up in a number of cities be doing what you have said?
(Mr Cowans) My own view is yes. I am sure Richard and Dickon have views as well. I think however in this country we have too much of a divergence between the regeneration industry on the one hand and the housing industry on the other. Maybe the Irish are more pragmatic than we are, but they do not have that difference at all. They have a sense about what they want to achieve there, what sort of economic uses, what housing uses, and they just put it into the market. It is a very interesting model that at least bears consideration.
189. Have any regional development agencies shown any interest in doing it?
(Mr Cowans) Some of them have. One North East, SEEDA and Yorkshire Forward in our experience.
(Mr McCarthy) The problem about the Regional Development Agencies is that they feel very directed towards economic growth. Their line of reporting is through the DTI, and it is very important that we enhance their housing role. They have significant CPO powers. Anything that we would want to do would be on at least a mixed tenure basis. Frankly, in the context of London, when we have tried to develop on any kind of scale, we are talking about mixed use developments. So I think we are not getting value from the RDAs in terms of land assembly and planning for the production of housing as part of their economic role.
190. The Housing Corporation is now supposed to be targeting funds on areas of very high demand for housing. Is that actually helping to increase the supply of affordable housing in the South East?
(Mr McCarthy) It will have a marginal impact because of cost.
191. Why is it so marginal? How is it that we have doubled the amount of money given to the Housing Corporation and we are not getting more affordable housing? I heard what you said. You said it is the developers, but it cannot just be that, can it?
(Mr McCarthy) No. Fundamentally, it is a problem about cost, and you have to go back to the point that David was making. It is about land. Land is incredibly expensive, as you know, particularly in areas of high demand. We are developing and acquiring a 10-acre site from British Gas in West London, we have had to do that on the open market, and it is very expensive.
192. When you say "very expensive", can you give us a figure?
(Mr McCarthy) We are going to be paying in the region of £12-14 million. There is an overage arrangement that cuts in that will see that price escalate and finally be capped off at some point later this year. We are going to be building 100 affordable homes for rent and around 100 affordable shared ownership and low-cost home ownership homes on that site as well as a range of commercial and outright homes for sale, and we need those to subsidise the significant amount of corporation funding that we need for a modest number of homes. This is the point about land. If we can increase the land supply significantly, that will cut into cost. If we can get land to us earlier, that will cut into cost.
193. So what you are saying is the Government doubled the amount of money coming in, but the price of land has gone up by more than double; it has gone up perhaps tenfold.
(Mr McCarthy) It has not removed it altogether, but it has significantly undercut what people's expectations were in terms of the production of new homes, and alongside that you have rising building costs.
(Mr Robinson) There is another issue, which is about urban intensification and density. As you build more intensive, dense developments, actually the cost goes up. You have to build to a higher standard, they need lifts and so on. Often if you are building on very urban sites, there may be noise, and you need higher performance windows, and all of these kinds of things are eating into that Housing Corporation budget.
194. If the Chancellor did decide to open his coffers and put massive investment into social housing, can I ask you two questions? The first is, could organisations like yours actually meet the demand? Do you have the capacity and the skills to do that? Secondly, how are we going to avoid the mistakes of the Sixties, of stack-them-high, pack-them-in? How are we going to provide affordable homes that are of quality and meet the higher standards? I would be interested in your comments, Richard, because I know Peabody have been looking at prefabrication.
(Mr McCarthy) Yes. Dickon is our prefab expert. I am afraid I come back to the central point. We have skills and we can enhance those skills. If we do not get the land, the money will find itself funding more and more expensive housing. It is crucial that we focus on the delivery of land. We have the skills. I have to say the construction industry desperately needs to resource up and skill up to actually meet the demand for levels of construction, and that is one of the drivers for the point that we are making about modular housing. The second thing I would say in response to your second question is that we know from our experience, some of it bitterwe know from the experience we see around usthat if you cut corners on design and quality, particularly when you are building to density, you will only regret it in literally 10-20 years' time. We know from our inheritance at Peabody that good design pays off. We have housing over 140 years old that is highly attractive and highly desirable and high-density in sought-after locations.
195. Is that really the design, or was it much more to do with the management of it? It can be argued that some of the 1960s housing which went wrong did not go wrong because of the design but because of the appalling maintenance and management of that housing.
(Mr McCarthy) I am afraid it is design, it is management and maintenance and it is location, and I think it is concentration as well. Some of the very large single tenure sprawling estates captured a problem that got worse as we have seen public housing become a residualised sector. We have location because of where we are in central and inner London. Actually, our estates, although large, are nothing like the thousands of estates you see in the local authority sector. They are hundreds of homes, and therefore they fit in in terms of very mixed neighbourhoods. They are well managed, but we have courtyards, for example, with a very traditional feel, for people in Victorian estates, and we invest in those courtyards, so we create an attractive public realm around the estates as well as investing in the dwellings. So it is the whole combination.
(Mr Robinson) Briefly on construction, if you look at the Mayor's London Plan, talking about 10,000 affordable homes, it is probably a doubling or trebling of output, and it is difficult to see how the construction industry could cope with that. This is one of the reasons why we have done a lot of work developing off-site, prefabricated forms of construction, and we have done that because we wanted to improve the quality, which you have already alluded to, and we wanted to improve the timeliness of delivery, and in the long run we want to drive down costs, because obviously costs are under such great pressure. At the moment we can demonstrate that we can meet the quality and the timeliness, and we are beginning to see now that perhaps the quantity that will be there will bring the prices down, but unless there is a general investment across the social housing world, but obviously also in the private sector, we are not going to meet the sort of targets which are around, so our problems will simply continue. The second question is about management, crucially. I do not think it matters how well-designed something is or how well built it isfor example our early Peabody estates were very solidly builtif they are not effectively managed and you do not maintain them, they will not provide decent homes.
196. Can I move on to the Government's initiative on key workers. Is it going to work?
(Mr McCarthy) The problem about the Government's initiative is it is actually about, again, funding people to buy from existing supply. It does not enhance supply, and it focuses purely on home ownership. So it has a role, but I think it is relatively minor and in itself may contribute to demand and house price rises in some locations. I would not want to over-state that. We think the government should be facilitating greater supply of intermediate housing for key workers, and it should broaden its definition of key workersI am afraid key workers are just about anybody who is needed to keep an area and local economy effective. So it is about public service workers, but it is about more than that, and we would like to see that provision as part of a mix of housing for rent and housing for sale.
197. Do you have any idea how many key workers we need in London?
(Mr McCarthy) The London Plan published by the Mayor last Friday has picked up on the Housing Commission's report, which recommended 5,000 new homes a year for key workers, and for want of something else, we feel quite comfortable about that as a target.
198. I think you heard the earlier witnesses talking about the fact that shops and others were getting rid of their hostel accommodation. Ought employers to be doing something to actually come up with some of the key worker housing?
(Mr McCarthy) I think there is an issue about employer-led housing in terms of both its supply and its delivery by organisations that fundamentally are not housing organisations. Secondly, there is the desirability of it. People want to live in mixed neighbourhoods in mixed developments. So I think they have a role, which may be facilitating, which may be at times providing financial support. In the case of the NHS, we are looking at a strategic partnership, at long last, where we may get some land leased to us at a peppercorn rent where we will try out some modular housing schemes to see whether the land supplied there by that particular employer in attractive locations will allow us to produce rented homes for key workers without any further subsidy. I think there are significant employers who have a role, but actually I have to say that, with the nature of the economy and the nature of work these days, with changing employers, I think we should focus on the person rather than the employer.
199. The Government thinks it is going to solve some of this problem of affordable housing with planning obligations. Do you think that is going to work?
(Mr McCarthy) It will contribute, but it has to be clearer and more robust. Current planning rules are insufficient as they currently exist.