Examination of Witnesses (Questions 120-139)
MR JOHN
SLAUGHTER, MR
PAUL PEDLEY
AND MR
ANDREW WHITAKER
28 NOVEMBER 2005
Q120 Mr Betts: Would it be fair to say
that the increase in your land bank values has been one of the
significant reasons why your profits have done so well in the
nineties?
Mr Pedley: Yes but unfortunately
it is a quoted company. The City's perception is that that land
profit is not sustainable and that is why the PEs of the major
home builders have been sitting at six and seven. It is only now
that we are demonstrating sustainability going forward that they
are beginning to adjust.
Q121 Mr Betts: You have answered a question
about share prices rather than profits. Your profits have done
quite well, have they not?
Mr Pedley: Yes, but it is a quoted
company. Profit is only valuable to your shareholders if it is
translated into your market capitalisation.
Q122 Mr Betts: The dividends are quite
good as well for shareholders, but never mind.
Mr Pedley: If your profit is not
sustainable going forward because it is driven by inflationary
land elements, it is not benefiting anyone.
Q123 Mr Betts: Are there any problems
with the structure of your industry in explaining why we do not
build sufficient houses?
Mr Slaughter: No.
Q124 Mr Betts: There are no problems
at all? We have a perfect arrangement?
Mr Slaughter: The industry has
proved to be very efficient. All the evidence is there to show
it. The skills study I referred to earlier has looked at that
to some extent recently. That study showed very clearly that the
basic structure of the industry, although we have major national
companies such as Paul's that are operating, is comprised in practice
of a number of regional business units, so a lot of the detailed
activity is around regional business units in the industry. The
industry can gear up to increase the scale of operations very
efficiently by increasing the number of regional business units
as well as having the necessary corporate structures to support
those. There is not in essence an issue in terms of the number
of companies or the structure of the industry. In that sense,
in terms of growing output, that is not the case.
Q125 Chairman: The Barker review suggested
that the Office of Fair Trading should have a close look at the
operation of the housing market if the builders did not improve
their performance. How are you responding to that recommendation?
Mr Slaughter: We have initiated
a lot of work on that including the first house builders' customer
satisfaction survey which is ongoing at the moment. We are heavily
engaged in discussions with government and the OFT themselves
about how we can address the customer satisfaction aspects of
Barker's agenda. We are doing a lot of work in other areas as
well. We have facilitated a discussion with 50 or more stakeholders
about what are the obstacles to better take-up of modern methods
of construction, what is an impediment to more viable investment
decisions in that area. We have a lot of work going on on skills
and we are actively involved in discussions with CABE on the design
agenda. From the industry perspective we are doing a great deal
with very many stakeholders to address the issues that Barker
raises.
Q126 Chairman: Would greater competition
drive standards up still further?
Mr Whitaker: It is not about competition
in the industry per se. It is about competition in land and that
is what Kate Barker was referring to when she was saying that
the planning system creates monopoly on land in particular areas.
The moves we have seen in the planning system to move towards
local plans or development plan documents which are vision and
objective based will lead to competition in land. Therefore, that
will allow house builders to compete in quality of product because
effectively you will establish a beauty parade, if you like, because
you have competition in land. By creating a monopoly in land via
the old planning system, that was what led to some of the problems,
according to Kate Barker.
Q127 Alison Seabeck: You talked about
land with outline planning permission and I suspect we all have
in our constituencies sites which have had outline planning permission
for years and years and they may well have been passed or sold
on with that. I acknowledge there are problems with the planning
system. There is value to developers in holding land with outline
planning permission. What circumstances or conditions would lead
you to reduce the land supply or would lead developers to reduce
the land supply they hold and go on to develop it?
Mr Whitaker: Can I dispel the
myth of the picture that you paint? The way the planning system
works is that you have a planning consent that has a life to it.
In the case of an outline planning consent, that used to be three
years and you had an extra two years to put in the details. If
you wanted to extend that planning consent beyond three years,
you would have to reapply for outline planning consent.
Q128 Alison Seabeck: Which people do.
Mr Whitaker: Absolutely, but it
is still open to the planning authority to impose further conditions
on that consent. You cannot just perpetuate an old consent that
did not have any requirement for affordable housing and did not
have a section 106 package on it because at the time of renewal
the local authority could reconsider that application. I think
you have been a bit disingenuous.
Q129 Alison Seabeck: I am trying to tease
out not only your role in all this but the planning authority's
role. If you are saying that after two or three years the planning
authority then has to look at it again, I suppose our questions
will be are they performing as they should, but I want to see
it from your perspective.
Mr Whitaker: This brings me back
to the answer that I gave to Mr Betts which is that there is a
responsibility on the local planning authority to ensure that
the permissions that they are granting are realistic, are realisable
and will be delivered in a particular timescale. It is not good
enough to sit back and say, "We did our bit. We made provision
for land to come forward. It did not come forward and we do not
know why." The one thing I remember about the old five year
land availability surveys was that local authorities would talk
to developers about when they were going to bring those sites
forward and would be able to encourage them to bring those sites
forward and do things that were needed. If somebody said, "I
cannot bring it forward until that particular junction has been
changed", they would say, "Okay. We will get that junction
changed" or now, "We will require you to put a section
106 agreement in place which gets that junction changed."
This liaison between developers and local authorities should be
seen as a very positive step.
Mr Pedley: There is no benefit
to a developer sitting on a site with outline planning permission.
You are just tying up capital unnecessarily.
Q130 Anne Main: Section 106 is germane
now to a lot of planning applications. You are meant to have affordable
housing or improvements to junctions and so on. Do you think the
planning gain supplement which could be announced next week could
work alongside 106 contributions? If so, where do you think the
money will go? Will it go centrally? To what level will it go?
Mr Whitaker: Let us not try to
speculate what is going to be announced next week because we have
not seen what is in that document. There would be some benefits
to some models of planning gain supplement. One of the key concerns
the industry has is where does that money go. Does it stay locally
as suggested by Kate Barker it should, or does it go into a central
pot and is it then redistributed?
Q131 Anne Main: That is what I am asking
you. What are your views?
Mr Slaughter: Our views are not
very well formed because we have not wanted to take a very detailed
position precisely because we have not seen the government's proposals.
In high level, principle terms, we think there is a big issue
potentially about transparency. The current section 106 arrangements
I do not think we feel work well from any party's point of view,
certainly not from the developer's point of view and probably
not from the community's and local authority's point of view either.
If we had a more transparent system where, for the sake of argument,
we knew publicly what the agreed list of local requirements was,
whatever the financing arrangement was, where we had perhaps at
least a proportion of the money going back to the local community
to be spent on those agreed objectives, we might be a lot better
off than we are now. It is not necessarily clear where the money
is going. The community does not understand that. There does not
seem to be an incentive or a local benefit from development. If
we could move forward from that in a positive way, that would
be a step forward but we have to caveat that by saying that there
is a long history to trying to do something about this through
the last century. There have been a number of attempts to have
a form of development land tax, none of which has worked. Given
the context of what we are talking about in this inquiry, the
absolutely critical requirement is that whatever route we go down
here is going to not have the effect of disincentivising land
from coming forward. That certainly was the experience with previous
attempts.
Q132 Anne Main: Previous attempts with
the development land tax? It disincentivised bringing land forward?
Mr Slaughter: Yes, it did.
Q133 Anne Main: Why?
Mr Slaughter: One of the reasons
was around the political context, where there was not necessarily
a political consensus for going forward in a particular direction.
Landowners held back from making land available in the hope and
expectation that the situation would change in the future, which
is indeed what happened. From our point of view and from the industry's
point of view it is extremely important that whichever route we
go down here is one we are clear there is a political buy in to
because if that is not the case we are going to end up prospectively
in similar problems to the ones we have had in the past.
Q134 Anne Main: Going back on what you
said about 106 money but also developments where you have, for
example, affordable, key worker or small unit housing, quite often
it means that you have five bedroom houses on the other side of
the estate or even with the estate to be able to afford to do
those. Do you think this is skewing the market? One house builder
I spoke to a few months back said, "What we want to build
is three bedroom family homes but we end up having to build five
bedroom houses over the year to make one or two bedroom units
affordable for the local council." Is that a problem?
Mr Pedley: I do not agree with
the statement.
Q135 Anne Main: Do you think it is a
problem?
Mr Pedley: I do not think there
is any problem in providing affordable housing provided that is
what your objective is. There is a far too narrow definition of
what affordable is all about. If you look at a planning permission,
you can either build traditional housing at £170,000 or you
provide some form of subsidised housing, be it shared equity or
for rent at the other side of the spectrum. What we have to achieve
is a far more integrated approach to housing where we look at
all the markets that have to be delivered so we can create sustainable
communities.
Q136 Anne Main: Can you expand on that?
Mr Pedley: There is nothing to
stop you building affordable homes for the first time buyer. You
will largely generate a very similar land value as if you were
building a traditional £170,000 development with what you
would call a section 106 affordable alongside. You are rebalancing
the financial equation when you look at a piece of land. That
is totally feasible. What we tend to do with planning permissions
is we get the traditional development. I will sell you a house
at £170,000 and then we will talk to an RSL about providing
the affordable. We miss out a huge gap which is the first time
buyer.
Mr Whitaker: This has been skewed.
I agree with you that hitherto the market has been skewed or the
production of affordable housing has been skewed because of local
planning authorities getting confused with their local authority
housing hat targeting subsidy to the bottom end of the market—i.e.,
social, rented housing. We have provided a lot of social, rented
housing because the local planning authority will only accept
that form of affordable housing as the correct contribution on
a section 106. When we come in with the explanation that Paul
has given you, which is, "Look, can we build a mixed development
applying all types of tenure to this development?" a lot
of local authorities will say, "No. Our priority is for social,
rented housing. Therefore, we want you to focus on the provision
of social, rented housing." That is what has led to the polarity
of the market.
Mr Pedley: You are looking quizzically
at me. We have just bought a site in Castle Vale in Birmingham
in the open market in competition with all our peer group. The
whole site of 140 units is targeted at the first time buyer. Prices
will be between about 55,000 and 110,000 because that is what
the first time buyer in that locality can afford. There is no
section 106 affordable accepted but the whole scheme, by its very
definition, is affordable and is targeted purely at people trying
to take that first step on the housing ladder. We bought the land
in the open market. Therefore, it is totally viable and we will
make the normal development returns that we seek to achieve. There
is no reason why we cannot do it.
Q137 Chairman: Would you sell those houses
individually? I have had experience in my constituency of exactly
such a scheme and all but one house was bought by one investor.
Mr Pedley: They are all sold on
a 125 year lease and the number one covenant is you cannot be
an investor. You have to be an owner/occupier to live there.
Q138 Martin Horwood: Whose initiative
was it to introduce that?
Mr Pedley: Ours. We looked at
the housing market 18 months ago and said that there was a huge
gap in the market. If there are 1.4 million transactions in the
UK housing market each year, somewhere around a third should be
first time buyers and that number had dropped to about 200,000
so therefore there was a huge gaping opportunity for any developer
who wanted to go down that route.
Q139 Anne Main: It is not a mixed community
as the government envisages though, is it, a whole community of
one bedroom or small units.
Mr Pedley: They are not one bedroom.
They are both one and two bedroom. If you look at the area around
Castle Vale, a lot of it is for rent anyway. What we are providing
is the owner/occupation element.
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