Examination of Witnesses (Questions 89-99)
GEORGE WIMPEY
AND CREST
NICHOLSON PLC
18 JANUARY 2006
Q89 Chairman: Gentlemen, welcome, can
I start by apologising for the fact that you have been waiting,
which was partly our fault, but only partly, because there was
a division in the House, unfortunately, just as this meeting was
due to start, just after half past two, which set us back a bit.
It was not our intention to be discourteous and we are grateful
to you for coming in, both companies. You are here because you
have been identified as market leaders, as you are well aware,
in the second annual review of listed house builders conducted
by Insight Investment and WWF. Welcome to the Committee and thank
you for your time. Can I kick things off with a very general question
to both companies, as to why you have committed your businesses
to sustainable housing, what the decision-making process was and
what the factors were that led you to make that decision?
Mr Callcutt: Good afternoon. We
decided to go into sustainable housing and to make a large commitment
to it because we actually believed that at some stage in the future—we
made this decision in about the late 1990s and we felt that there
was a great deal of resistance against poor quality development,
unsustainable development, communities that fell apart a few years
after the physical process of building was finished, and we thought
that if we made a very large investment in it, produced something
better—not just a physical product but a product that was
better managed, better organised, had the facilities for long
term sustainability, or at least started that process—it
would give us a significant market lead against the competition.
As, of course, time unfolded, these things have come more and
more to the fore—I would just add as an appendage that in
fact we have been quite disappointed that it has not delivered
the commercial results, that such a huge investment that we have
made really has not paid commensurate dividends.
Q90 Chairman: It has not done so?
Mr Callcutt: No.
Mr Redfern: I have a lot of commonality
with John's perspective. There are two real reasons why in the
first place we have gone down this route, the first is a point
of principle. We started off as a business, probably five years
ago, taking a very, very serious look at our health and safety
performance, and that has led us down almost a cultural route
of how we believe it is right to run the business, and very much
our sustainability agenda has grown on the back of that point
of principle about how the business ought to be run. From a more
practical commercial angle there is also a perspective that it
differentiates us in our land acquisition arena, particularly
with Government bodies and other major land sellers. Those two
elements, one principle and the other practical, are what have
been behind it. I would agree with John though on the latter,
it is very frustrating that when you are genuinely trying to do
the right thing you do not always get the reaction that you desired
or expected in the first place.
Q91 Chairman: Why do you think that
is? Are people just not interested?
Mr Redfern: There are two reasons.
There is one group of people who are not desperately interested
and there is one group of people who are cynical about the industry,
almost any industry, but particularly perhaps the construction
industry across the board, so do not really want to try to differentiate
between companies that are trying to do and can prove that they
are doing the right thing and companies that are not necessarily
making the same sorts of efforts, so there is that element of
you are just a developer so you are not really interested in this,
and that cynicism can be frustrating and quite a barrier. It is
very difficult to differentiate yourself and what is published
often does not really help to create that clear differentiation
that some things do.
Mr Callcutt: Can I add onto that?
It is at several levels: first of all there are the issues on
the Insight/WWF analysis of social responsibility, and then in
addition to that we have what is called the quality and service
of the product you are producing. I actually find it quite difficult
to know how you can produce a social responsibility report without
including quality and service in the product, but that is another
issue. The main points however are that landowners of course want
the highest value for their land, and unless what you are doing
drives through to a higher selling price and you are able to recover
that, then of course you are at positive disadvantage on costs
of production and on overheads. The second point is that increasingly
we rely on the public sector as the source of land. They control,
we think, about 60% directly or indirectly of development land,
and whilst having the credentials gets you in to a point in terms
of buying land from the public sector, sadly, of course, we have
all got pressures and it will go for the highest buck in many
cases, and so there is not a follow-through in terms of, as it
were, making sure, if I can put it like this, that the good guys
get on top, and I do include my friend here within that definition.
Q92 Chairman: You have a lack of
consumer interest or consumer cynicism, plus a cost factor, which
are both against you.
Mr Callcutt: Yes, indeed.
Q93 Chairman: Are there any other
factors that are actually an obstacle to trying to achieve greater
degrees of sustainability? Are there any planning or building
regulations or anything like that that is an obstacle?
Mr Redfern: Probably the biggest
practical area—and I suspect that John would say the same
thing but I will leave that to him—is the sheer complexity
of the regulation in the area as a whole. You mentioned building
regulations, and one of our biggest frustrations is the disjoint
between building regulations, ecohome standards, the code for
sustainable buildings and a hundred other regulations of a local
and national nature, all of which try and achieve broadly the
same thing but in subtly different ways. Effectively you cannot
quite meet all of them, or not without a very significant cost
impact with very little value back, even from an environmental
point of view, let alone from a customer's perspective in terms
of value of the house. That complexity of regulation is quite
a major barrier to actually doing the right thing rather than
just ending up with a box-ticking exercise to hit a particular
target that has been set by some particular group.
Mr Callcutt: I am sure we are
going to fall out violently soon, but at the moment we are in
harmony. What we have is a problem, we have as it were a regulatory
confusion. We have such a varied number of regulatory advices
and directions, all the way through from NHBC to building regulations,
through to ecohomes, soon CSB, then we have statutory services
and everyone is also pushing out informal advice. We have now
local authorities with sustainable building checklists—if
we are not very careful it will fragment to the local level. What
we really need, if I could suggest, is that somebody needs to
look at the very beginning and to drive a consistent approach
to the entire consolidated regulatory environment, and then perhaps
you only have one regulatory environment for building. That standard
is, say, one star, and beyond that you can go to appendix one,
two, three and four if you want to as it were get up to five stars.
That is really what I call logical, and you also have to actually
work out not just what you want to achieve but the buildability
and the way that the regulatory environment interfaces with your
ability to have efficient production. This means that you have
to have a really big, technical research know-how base to do all
these things—harmonise it with EC regulations coming through
and with other regulations, make sure it is buildable and also
have a science and technical base as it were to evaluate, for
example, long term impacts, carbon impacts, carbon equivalents
to measure all the various regulations for both building quality
and sustainability. This is conspicuous by its absence.
Q94 Mr Vaizey: I was going to ask
about the sort of environmental systems you can put in your home.
You may have read over the New Year that the Leader of the Conservative
Party is planning to have an eco-friendly home, but it is going
to cost thousands of pounds to have water butts and so on. In
fact, I have got Thames Water coming round to my home to look
at it; but all these things are very expensive. If everyone had
them, would the costs fall dramatically? If everyone had solar
panels on their roofs would they be pennies or pounds or thousands
of pounds?
Mr Redfern: There are a number
of questions in there. If you look at solar panels, there is a
very specific issue there with costs and if there was an enormous
mass demand the cost would drop, but the evidence that exists
today is still that it is not an economically viable source of
energy, purely because of the cost of producing the panels full
stop. It may get to that point, but it is a long way off and it
is not about mass production at the moment, it is about technology.
There are other areas where a significantly high take-up of a
particular issue will actually bring the costs down quite significantly,
so there is not one black and white answer. It is certainly not
the main solution, the main areas that will impact on environmental
performance, particularly the energy generation, are more to do
with technology development than they are to do with scale of
production. We would look quite closely at wind generation and
solar energy, but we feel it is still some way off being viable,
even if there was the scale of production.
Mr Callcutt: There are two sides:
first of all there is the cost of it per se, as to whether in
fact it is cost-effective in energy terms, whether the embodied
energy in the component is ever going to be repaid in the savings
and that, once again, makes you fall back on real, high quality
science research and what have you. In a sense the other part
of it is that what developers really are concerned about and what
my gripe was at the beginning is when you are relatively disadvantaged,
in other words when company A is carrying out one set of standards
and is not getting the return, or has them imposed and does not
get a return, then, frankly, you under-perform, your investors
get angry with you, your chief executive loses his job ultimately.
I did retire actually, so I managed to hang on in there. If in
fact you have, however, a level playing field, then you find in
fact, that provided the costs are the same for everybody there
is a greater acceptance of them. Clearly you want them to be inherently
sustainable as products, but provided that is so it is a much
better way to raise the regulatory bar than it is to hope that
you are going to get some pioneers, at the moment putting themselves
forward and not getting a return.
Q95 Mark Pritchard: In the WWF report,
obviously, you are listed there; can you tell the Committee what
measures you are putting in place to ensure that you keep your
places on that listing?
Mr Redfern: The point I would
start from is that we are not putting any measures in place to
make sure that we keep on that listing because that is completely
the wrong philosophy for approaching this whole area, and one
of the things that you do in reality have to battle against in
a business is a degree of initial cynicism from people within
your own business on a particular issue. We set out, when we started
down this road, with a clear statement that we were doing it because
we felt it was right; in some areas for commercial reasons but
not for presentational reasons, and one of the things that continually
frustrates is the need to present something rather than actually
do it. So we are looking at areas where we can improve our underlying
performance, but the report and our CSR report comes on the back
of what we do, not as we sit down and think what do we want to
write in next year's report? It may be a strong reaction, but
it is quite a fundamental point of principle about how you run
a business rather than how you actually report externally. In
terms of a practical answer to the question you are really asking,
what are we actually doing about it, we are looking at a number
of areas. We have never had as a business a specific statement
that we will hit a particular ecohomes standard; that is likely
to be replaced by the Code for Sustainable Buildings and we are
looking at whether we actually say we see that as being the level
we should aim for across the board, with a general stance of,
where practical, we will aim for a higher level. That sort of
question is what we are going through at the moment, should we
set minimum standards rather than improvement standards. There
is quite a big cultural shift to get from one to the other.
Q96 Mark Pritchard: Just out of interest,
when WWF are compiling this list do they actually come along and
discuss things with you, or do they do it remotely on paper?
Mr Redfern: They do normally discuss
it, but there are two stages: a remote stage based on paperwork
and then a visit and a conversation about the process.
Q97 Mr Hurd: Could I just ask you
to expand a little bit on consumer attitudes. I picked up that
there was some cynicism about your motives as an industry but
can I ask you to say a little bit about consumer attitudes towards
the product? Do they want it? Do they understand it? Are they
prepared to pay a premium for it? Are there specific environmental
additions that you have detected really do chime with buyers,
do engage with the public?
Mr Redfern: In general consumers
want it, probably if you asked that question now rather than 12
months ago you would see an increased desire to look at environmental
issues because of world events. Do consumers want it or will they
pay for it? The answer is generally no, almost exclusively, almost
to the point of saying most house buyers will not pay anything
for it, not just will not pay very much. As John said to begin
with, that disappoints us because we have been looking both for
a practical advantage and for an ethical position that that was
the case. In reality, however, it is not what we find. If I could
give an example—it is not a UK example—we have a US
business as well as our UK housing business and we put together
on one particular development a package of environmental measures
that people could choose as an option. It is one of the ways in
which we work out and test what people actually will pay for certain
things. There were, I think, roughly 100 houses on this development
and the cost of the package was about $2,500. In the scheme of
the cost of a house, it was not enormous, but a significant cost.
The real underlying costs of providing solar energy, drainage
systems, in the US a different air conditioning system, those
sorts of things, we have one person take it up on the development,
who was the person who had actually designed the package. It is
a silly example that makes a point, but unfortunately our experience
in the UK is generally the same, that consumers do not want to
pay for it except in very extreme circumstances, very unusual
circumstances.
Q98 Emily Thornberry: Could you just
tell us what measures you are talking about, just so that we understand?
Mr Redfern: It is fairly clear
it is the whole range. We have tried in different developments
quite a range of different measures, but you could be talking
about solar or wind energy, you could be talking about will customers
pay for a different drainage system within a development, even
if you educate them, energy efficiency in housing, do SAP ratings,
for instance, make a difference to consumers' perception of the
value or quality of the housing? I would say almost across the
board the impact of that, except in a small number of niche markets,
is that there are areas and types of consumers who will, but they
are very small, and our business is a volume business. We have
tried a lot of different things and have struggled to get any
identifiable value from that. I do not know if your experience
is the same?
Mr Callcutt: It is exactly the
same.
Q99 Emily Thornberry: Of the ones
that there are, what is the most popular? Okay, they are not popular,
but of these unpopular measures what are you saying?
Mr Redfern: Without doubt waste
separation is probably the area where consumers see the most practical
advantage for themselves because they can see it in the show home,
they can physically see it.
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