Examination of Witnesses (Questions 440
- 459)
WEDNESDAY 21 JULY 2004
MS KATE
BARKER
Q440 Paul Flynn: I am sure, Ms Barker,
that your review will be providing us here with information in
this area for a long time to come. Your work is greatly appreciated.
You state in your report that "an unrestrained housing market
could lead to significant negative externalities". You also
state that "decisions made by individual players, without
co-ordination, would not reflect the social optimum", and
yet are not many of the points that you have just debated with
the Chairman in the proposals you have on planning likely to ensure
that these things will happen and that negative impacts will take
place?
Ms Barker: Not surprisingly, my
answer to that question would be no, but it might be helpful if
you could be more specific and say what leads you to have this
concern.
Q441 Paul Flynn: You say that the
planning system should be more sensitive to market forces. The
whole point of the planning system is that it is a long term basis
on which to look at prospects. The whole prospect that it would
become more sensitive to market forces is very much shorter term
and looking at commercial factors.
Ms Barker: I have tried very hard,
and this again is another point that is very difficult to understand
in the review, to draw a distinction—in fact, a difficulty
of this in practice is that this will not be an easy thing to
do—between the long term trend of prices and the cycle.
For example, we have had an extremely rapid house price rise over
the last six or seven years. It would not be consistent with the
review to say that that should have been resisted because there
are certainly very strong cyclical reasons why that has taken
place, and indeed reasons in terms of the structure of the economy,
the nature of the move to independence of the Bank of England,
lower inflation, why you should expect house prices to rise in
those circumstances. You are in the difficult position of thinking,
"Yes, but they seem to have risen more than that. How far
is this due to a long term trend in under-supply?". I do
not think it is correct to say that this is about responding to
every short term movement in the market. It is about trying to
distinguish where you think the long term movement of the market
has got out of kilter. My view is that, given the deterioration
between this cycle and the last housing cycle and people's ability
to access housing and the ability of young families to access
housing, the long run message given by that system is that we
are not building an adequate amount. That is the way in which
I would describe it. I take the opportunity to make this point:
I am not trying in the review to move away from a plan-led system.
The system you will get out of this review is still be a plan-led
system but I am suggesting that the planners themselves should
be more informed by market forces than they are today.
Q442 Paul Flynn: One of the proposals
that has caused the greatest controversy is this requirement for
the over-provision of housing land of 20-40%, and I understand
that this land would be released automatically following certain
market triggers. Some people have argued that this is a regressive
step and is a direct threat to local democracy. How do you respond
to that?
Ms Barker: In the first place
it would be the local authority, in conjunction with the regional
institutions, which would have been responsible for discussing
the original release of land in their area and the local authority,
of course, would identify the sites. Also, if you look at the
review, it is clear that the only change it would make in terms
of whether or not that particular site was released was the argument
that the local authority would not be able to use, that they have
met their housing targets, because you suggest that the evidence
of the market implied in those housing targets had not been high
enough to meet the outcomes that the local authority was supposed
to be committed to. Of course, if there are other things that
come along with regard to that particular site, environmental
considerations or, of course, if there are other material problems
with the proposal that has come forward, they would indeed be
able to deal with it. To turn the question on its head, if you
are concerned with the adequate provision of housing in an area
and you have a number of sites that you have already fulfilled
but there is still clear evidence that the housing supply and
demand in your area is out of kilter and an application comes
forward that meet, your own criteria: design, environmental sustainability,
and it is a site you have identified anyway, it is not clear to
me that that is a threat to local democracy. You could say, reasonably,
why would the local authority turn that down?
Q443 Paul Flynn: I am sure there
is an answer to that. Under your proposal all the allocated land,
as I understand it, including the buffer, will have the same status,
and local authorities would not have any control over that on
this land which is designated. Can you not see a free-for-all
developing on this which would make sure it was not a development
that was coherent and desirable?
Ms Barker: Yes, I think there
is a slight risk of that. The first thing I should say is that
the review also says that the opening out of the land should not
put a threat on the 60% brownfield target, so that if all the
developments that came forward in the first year were on greenfield
the local authority would continue to be correct to reject them.
The other point is that, given the costs which tend to fall on
the developer if he starts suddenly to open up an entirely new
area of land, it is unlikely that you are going to get wild applications
that are very out of kilter to the sequential approach. It is
difficult to get the balance right here and it is one of the difficulties
which may be held in this going forward that people will find
it desirable to go back towards the sequential approach. However,
on odd occasions what can happen is that the very dogged approach
about what you want to develop first can sometimes prevent development
going ahead altogether and I wanted to try and have a counterbalance
to that.
Q444 Paul Flynn: In your final report
you highlight the fact that people want to live in larger homes
with larger gardens, and you also suggest that where there is
a demand the policy planning guidelines should allow development
of lower density. Is this not completely contrary not only to
sustainable development but also to government policy which is
aiming to build houses at very much higher densities?
Ms Barker: Every development is
done in terms of averages, but if you look at some areas, for
example, which are being regenerated at the moment, sometimes
the sense of what is needed in that area is actually larger housing
because the existing stock is not very big. Also the value of
land in different areas is rather different. I simply tried to
reflect that. I do not have any feeling against a general proposal
that we should try and build at higher densities, nor, as is clear
from the review, that we should make the best use of brownfield
land.
Q445 Paul Flynn: But is this not
an example of the dangers of allowing market forces to rampage
red in tooth and claw, leading to lower housing densities which
are undesirable?
Ms Barker: The review certainly
does not allow market forces to rampage red in tooth and claw.
A lot of the recommendations and policy proposals that were sent
to me would, I think, have moved in that direction. I started
this off with a very open mind but on the whole it struck me that
it did not take much thought—and the sentence you read out
earlier reflects that—to realise that that would not be
the right way forward for housing. In term of this it would not
be the developer who would make the point about density. This
would be something that the planning authorities would want to
do, for good planning reasons. Perhaps they find that it comes
up, after all, in the context of affordable housing where we know
that there are big problems with overcrowding in some areas and
what is needed is additional larger affordable homes. I am just
making the point that there can be good reasons for diverse densities
and national policy should not be so dogmatic that it prevents
that happening. It will certainly come from the planning authority
itself for good planning reasons and not in this be purely market
driven. I agree with you, that if you allowed the market to run
riot in this area you probably would get too low a density.
Q446 Chairman: One of the things
that has attracted comment is the difference between your interim
report and the final report, and it is particularly striking in
your approach to house builders. Your interim report seemed to
be very critical of house builders for the way that they operate
within their market and on grounds of quality of development as
well, so they all held their breath and then your final report
came out and you let them off the hook completely, making it much
easier for them to build wherever they want. You turned from being
a stern critic to being the house builder's friend. What happened
in between?
Ms Barker: I can truthfully say
that I was genuinely surprised by this comment. The analysis of
the interim report is that it talked about the house building
industry as not delivering for customers, and I have to say again
today that I think the house building industry does not deliver
as well for its customers as it should and in my report I reiterated
some of the points about customer satisfaction that were made.
It also pointed out that one of the reasons that the house building
industry does not deliver very well for its customers is that
it is subject to a great deal of risk. It has to face market risk,
the risk of volatility, and this of course in a sense is one of
the issues that the review, alongside the David Miles review into
corporate finance, is supposed to be addressing, and it also faces
a considerable amount of regulatory risk. They are very uncertain
about what is going to happen in terms of planning guidance and
certainly in terms of the planning regulations that may arise
in a particular development. Therefore, house builders are very
concentrated on issues of land, getting land through the system.
They then have a market which, because it is constrained, is not
very difficult to sell new houses in, so they are inadequately
focused on the issue of quality of build. They vary; some of them
are rather more focused on it than others, and on what the customer
needs. The intent of the review is not to make house builders'
lives easier. The intent of the review is to make it difficult
in a different way, i.e., in a sense when you have a weak supply
in this very constrained market—and this is a bit of a caricature—house
builders can sell what they like. In a market that was working
better that would be harder for them and they would have to look
at selling houses which responded much more to people's needs
and requirements and I think that is a very important part of
the focus. The review also lays down for builders and developers
more widely the proposal that they will need to think very much
harder about whether or not the development of skills in their
industry is sufficient. It draws attention to the low rate of
apprentices in house building relative to other countries, and
draws attention to the rather poor record on productivity. It
is very clear that what the government ought to be hoping for
from the building industry is that they come forward with some
very concrete proposals to address these issues in order to be
able to go forward. I do not think in that sense the industry
has been let off the hook.
Q447 Mrs Clark: If I can turn to
the much fabled north/south divide, in your report you conclude
and indeed advocate that development should be focused on where
there is greatest demand, with areas of abandonment being demolished.
But in fact would you agree that there are many government policies
in place as we speak which are aimed at achieving quite the opposite
when it comes to regenerating many areas? Which, if any, of the
measures you propose will have a positive impact on housing abandonment?
Ms Barker: I think that has described
the report rather brutally with regard to that. I think nobody
would disagree that there are some areas where demolition is the
answer which takes people forward either because—
Q448 Mrs Clark: What sort of examples
can you give me of that?
Ms Barker: I mentioned earlier
the example of an area where you want to achieve regeneration
and you decide that you will regenerate by demolishing the least
desirable housing with the aim of moving the rest of the area
up and improving it. There are examples of that—
Q449 Mrs Clark: In terms of social
problems as well, of course.
Ms Barker: Yes, because you are
trying to address all those issues. I went a couple of weeks ago
to speak at a conference on the Northern Way where I certainly
heard examples of that kind of approach being adopted in areas
of Manchester, and I think that is absolutely right. Is there
anything in my report which encourages it? I offered very significant
support for the work of English Partnerships in terms of their
ability to assemble land and move it forward and there are also
proposals in the report which are supposed to encourage the use
of brownfield and in particular contaminated land.
Q450 Mrs Clark: In your view is the
money and effort being spent by the government in tackling this
north/south divide being well used or is it being wasted?
Ms Barker: I would frankly find
it difficult to answer that question. I have not spent enough
time looking at those areas to know whether it is being wasted.
Q451 Mrs Clark: Surely it is worth
doing that though?
Ms Barker: If you are asking me
if it is worth doing, yes, absolutely it is worth doing because
you would not want to have areas that presently have these difficulties
being simply left. The waste of infrastructure would be terrible.
The point that I would want to make alongside that is that just
to think you can achieve this through changes in the housing market
is clearly not right. They have to sit alongside the original
economic strategies. That was one of the points that I tried to
bring out in the review, that the housing market to some extent
will have to follow the regional economic strategies. If you supply
lots of houses in areas where there is not very much economic
activity I think you would agree that that is not going to achieve
the right answers.
Q452 Mrs Clark: Yes indeed. If we
look at the growth strategy, and I am speaking as somebody whose
constituency in Peterborough is part of that, is it really a very
sensible idea just to go entirely focusing all our house building
in the south east for the next 30 years? Is this not really badly
balanced? Will it not be detrimental to the housing market and
also to our more general economy?
Ms Barker: You will know that
my report does not make any particular recommendations about where
we should put the weight of development.
Q453 Mrs Clark: Where should we put
it? You must have formed some views.
Ms Barker: There are quite a lot
of areas in the review where I wish I had had lots of time to
form views. Yes, it would be detrimental. It would not seem to
me to be sensible to do all the building in the south east. You
are asking me to comment on the policy of the government. I do
not sit here as an apologist for the government but I would say
two things. One is that the existence of the Northern Way strategy
is clearly an attempt to counterbalance the suggestion that everything
should be done in the south east, and the second thing is that
the recent spending review set out proposals to have development
elsewhere. These will not all be in the south of the country and
that must be absolutely right because it is following what has
been quite successfully done (and done to some extent by the RDAs)
in terms of attracting greater economic growth to the other parts
of the country and the housing market must respond and support
that. These strategies must go alongside each other.
Q454 Mrs Clark: I certainly take
that, but in that case surely government is not getting the holistic
message across because if you pick up any national newspaper it
is all about heating up in the south east, building in the south
east, nothing at all about these wider strategies of the north
west or whatever, or indeed what came up in the spending review.
Ms Barker: That is a question
for government as to why, if those messages exist, it is not getting
them out.
Mrs Clark: I think we might put that
in our report.
Q455 Mr Challen: You obviously believe
that if the measures in your report were implemented that would
reduce house price volatility. That clearly must follow.
Ms Barker: Well, I am not—
Q456 Mr Challen: How can we be sure
that is your view?
Ms Barker: There are two things
to be said here. The review was trying to do two things. One was
to try and achieve a more adequate housing supply in the long
term. The key focus of the review was not so much on house price
volatility. I did mention house price volatility but I mentioned
it alongside the David Miles review because I think the David
Miles review was much more an attempt to address house price volatility.
My review was really an attempt to address the long-run underlying
trend of house prices. In terms of volatility it is absolutely
clear that the key drivers of volatility in the short term are
the demand side factors and that is why I referred to the David
Miles review. I think that more explicitly addresses the demand
side matters. How does supply fit into volatility? I think it
fits in through this old friend, expectations. Because we have
this long term trend in supply there is a culture and belief in
this country that investment in housing is a good long term bet.
Over recent years, I think rather undesirably, this has been increased
by people's lack of faith, rightly or wrongly, in the more general
pensions investment system. Consequently, as house prices started
to rise, primarily because of demand side factors, this perception
about long term supply and the weakness of long term supply and
how that affects people's long term expectations of the market
has then rather unhelpfully come in on top of the demand side
factors and exacerbated the volatility we have had.
Q457 Mr Challen: Your report would
make more land available. That would be a consequence if these
measures were implemented. How would we go about preventing builders
developing their land banks purely for speculative reasons rather
than for house building? You cannot force somebody to build on
land they have bought with permission for housing developments.
Ms Barker: No, that is true. In
terms of the house builders having land banks, this was an issue
that we looked at in some detail in the interim review, and the
conclusion that was reached there was that, in terms of having
great banks of permissioned land, builders do not have enormous
banks of permissioned land that they are ready to go ahead on.
I hasten to add that I do not think there is no instance where
they will have a piece of permissioned land that they could be
building on that they are not. Although I have to say that no
such convincing case has been drawn to my attention, but that
does not mean it will not be in the future. Part of the trouble
is the way in which builders deal with land and how they speculate,
and in the present cycle they have often been accused of holding
back. The weight of evidence in the present cycle is that builders
have not necessarily been reluctant to build but that the nature
of the planning process—and this is not a criticism; it
is just a factual comment—has meant that adjusting to PPG3
has been difficult for everybody. It has been difficult for planners
and difficult for builders. I am relatively sure that that is
one of the reasons why 2001 and 2002 were not easy years. If you
look at 2003 you can see rates of applications and permissions
picking up again, so to some extent that problem is out of the
system. The difficulty is that volatility cuts both ways. Indeed,
at the moment, at the top of the cycle you are starting to see,
because there is a lot of discussion about what is going to happen
to prices over the next few years, that builders rightly will
start to become rather more cautious about what they do. This
is referred to as a backward bending supply curve. In some sense
having a market that is volatile and has this upward trend is
more difficult for builders as well. It adds to their risk and
that is really the fundamental point about the way in which the
market works, adding to builders' risk. What I hope is that if
there is a better functioning market, from the review I propose,
and the David Miles review if adopted, you will see less volatility
and less of a tendency of builders to respond with their land
banks in this way because the market itself would be functioning
better.
Q458 Mr Challen: In my constituency
there is some anecdotal evidence that builders are buying land
which has not got permission because with their local knowledge
they can see where the likely trend is and they can sit on that
land for ten, 20 or 30 years just waiting for it to fall into
their lap, and at the moment, I suspect, they will be building
on whatever they have got permission for because they can derive
more profit from that than if they let it sit there. You mentioned
the possibility of a windfall tax on land profits. This is something
that is very worthwhile looking at but would you also consider
perhaps a house builders' profits windfall tax worthy of consideration?
Just to expand on that, I have recently looked at the five-year
profit summaries of several building companies which show a profit
increase in that period of up to 300%. Their executives are getting
paid more and more and compared with the FTSE 100 clearly house
building has shot up dramatically. Should they not also face,
in the absence of any other measures, a windfall tax on their
profits as well so that they are prevented from speculating on
the future in a way which is to the detriment of customers?
Ms Barker: There are a number
of questions rolling around in that. It is not inconsistent with
the nature of house builders' business for them to acquire land
which in the future may get planning permission, and, of course,
we all know that sometimes it does and sometimes it does not and
they can incur losses on a piece of land. In terms of the question
you asked about windfall profits, no, I do not think that would
be a sensible way forward. There are certainly windfall profits
that are earned in the system and the review is pretty clear about
that and draws attention to the very large nature of those profits
in terms of certain pieces of land. Sometimes these profits accrue
to the house builder or developer, sometimes they accrue directly
back to the land owner. The proposal in the review is that these
windfall profits should be taxable. My opinion is that that is
the best way to do it.
Q459 Mr Challen: Could I ask where
the proceeds would go from that taxation?
Ms Barker: Can I just finish my
previous answer and then go on to that, which is another rather
difficult question? In terms of house builders' profits themselves,
house builders' profits are very cyclical if you look at the last
five years. Let us be blunt about the last five years. If you
were a house builder and you were not making profits in the last
five years your shareholders would have wondered what the devil
you were doing. If you look over the longer period house builders
have not always made such very large sums of money and if you
look at their standing in the market in terms of where they stand
in terms of P/E, it tells you that the financial market has worries
about what is going to happen to those profits and frankly does
not expect them to see such good profits growth as the rest of
the market. This is back to the question about risk. There will
be years when house builders will make some money and there will
be other years when they will not. Clearly, I do not think that
windfall profits existing simply on the basis of planning permission
should simply rest with the people who own the land. That is clear
in the context of the proposal for the planning gain supplement.
Where do I think the receipts and planning gain supplement should
go? Certainly some of the receipts from planning gain supplement
should rest with the local authorities that granted the planning
permission. How much they should rest there though is a question
that is not answered in detail, because part of the purpose of
the planning gain supplement will be to raise money from planning
permissions given around the country for infrastructure projects
which are large, or run wider than one particular local authority,
and which will require central government funding, so to that
extent they should go either to central government or, more probably,
to the regions and deal with some of these big infrastructure
issues which may be connected with transport or even with water
supply.
| 
