Written evidence from Berkeley Group Holdings
plc
EXECUTIVE SUMMARY
The Berkeley Group Holdings plc is a leading
urban regenerator and residential property developer operating
mainly in London and the South East of England. The Company has
an unrivalled understanding of the land development market and
has become an expert in creating sustainable, attractive and high
quality mixed use communities in towns and cities. The Berkeley
Group develops sites ranging in size from around 10 residential
units to long term regeneration projects delivering 4,000 residential
units over 20 years or more. In 2009-10, the company sold over
2,200 units and 45,000 square feet of commercial space on nineteen
mixed use developments. Group turnover for this period was in
excess of £615 million.
Berkeley has always embraced the sustainable
development agenda. It has produced an annual sustainability report
for the past nine years and in 2008 became the first housebuilder
to make pubic a Climate Change Policy. The principles of sustainability
are embedded in Berkeley's business practices at both a strategic
and project level. In recognition of this, the Group was granted
a Queen's Award for Enterprise in the Sustainable Development
category in 2008.
Berkeley welcomes the opportunity to provide
evidence to the inquiry into Government Assistance to Industry.
In providing this evidence to the Committee, Berkeley has consulted
with experts from each of its operating divisions; Berkeley Homes,
St George and St James. Berkeley's response to the Select Committee
has identified three specific Topics raised by the Committee.
Berkeley believes it worthwhile that the Committee gains an industry
view on the issues which affect Berkeley and the housebuilding
industry. These are:
1. The effectiveness of Government assistance
programmes:
— Recognition of developer costs associated
with the provision of affordable homes in the planning system.
— Withdrawal of Kickstart housing programme
and grants for affordable housing.
2. The role of Government in encouraging
the supply of credit to small and medium sized enterprises:
— Supply of mortgage finance.
— Inward investment from overseas buyers
and investors.
3. Government policy as set out in A
Strategy for Sustainable Growth:
— Greener, sustainable development.
The current economic conditions and future public
sector spending constraints highlight the requirement for targeted,
sustainable and creative proposals. I hope that the suggestions
which follow will assist the Committee and facilitate the creation
of a portfolio of ideas for consideration.
In addition to this written evidence, I would
be happy to provide oral evidence to the Committee summarising
the Group's thoughts. Please contact me should you wish to discuss
this further.
1. EFFECTIVENESS
OF EXISTING
GOVERNMENT ASSISTANCE
PROGRAMMES
Over the past three years, the Government has
invested a combined £607 million into the Kickstart programme
which was targeted at supporting the development of high quality
mixed tenure housing developments on sites that would otherwise
be stalled. This has succeeded in increasing activity in the market
for newbuild homes with the building of over 16,000 new homes
including over 8,000 affordable homes which would not otherwise
have been put into construction. There are no longer any programmes
targeted specifically at housebuilders.
The second issue is that in the current fiscal
environment there is likely to be a reduced level of grant funding
available to registered social landlords for them to acquire affordable
homes from developers. The delivery of affordable housing will
fall almost entirely to the developer. The current panning policies
do not take account of this financial burden.
While reduced levels of funding are understandable
given the current economic climate, there is no recognition for
these costs in the planning system (or elsewhere). The inevitable
outcome is that certain planned developments have become unviable
due to the high levels of subsidy required. These projects provide
regeneration, employment (during and after construction) as well
as places for people to live in. The knock-on effect of these
developments not proceeding could be enormous to an economy beginning
to make a sustained recovery from recession.
We are proposing a joined-up approach which
would offer the local authority more flexibility to recognise
the developer funded costs associated with the provision of affordable
housing. This will be incorporated as part of the pre-planning
process. That is:
— identification, agreement upon and assessment
of costs to take place prior to planning application;
— any new costs funded by the developer
to be reflected in the planning process:
— offset against Section 106 obligations;
— private rental properties in lieu of
affordable;
— reduced levels of affordable homes; and
— flexibility to provide affordable units
offsite which is more cost efficient.
2. THE ROLE
OF GOVERNMENT
IN ENCOURAGING
THE SUPPLY
OF CREDIT
TO SMALL
AND MEDIUM-SIZED
ENTERPRISES
We have slightly expanded this aspect of the
inquiry to include the supply of mortgage finance (credit to the
end user) and the continued promotion of inward investment from
overseas buyers.
Supply of Mortgage Finance
The current situation with regard to mortgage
availability is quite serious:
— according to the Council of Mortgage
Lenders' announcement this week, mortgage lending in the UK is
at a 10 year low;
— there are currently 1.4 million households
who aspire to owning property but are unable to do so because
of house prices and mortgage availability (per Housing Minister,
Grant Shapps);
— the average age of independent first-time
buyers (ie those who do not receive help from family members)
is 37 (per Housing Minister, Grant Shapps); and
— it is the availability of mortgage finance
rather than affordability which remains the issue:
— banks approval criteria increasing;
— loan-to-value rates are falling, meaning
higher deposits are needed from buyers; and
— many mortgages have a policy of drawdown
within six months of the date of approval—this does not
match the average build programme of 12-18 months meaning either
developers have to build speculatively and attain sales in final
six months of a build programme, or purchasers agree to purchase
properties with no certainty that a mortgage will be available
to them when they close on their home.
There is an urgent requirement for government
intervention to ensure that creditworthy borrowers are offered
fairly priced and appropriate mortgages.
We would like to see increased levels of mortgage
lending from the banks, in particular for new build properties
in order that the first time buyer market be re-invigorated. The
Berkeley Group proposes the following incentives:
— The introduction of early stage financing
would eliminate the 6 months drawdown requirement by allowing
homes to be purchased through stage payments. Reduced banking
regulation would be required to achieve this.
— The establishment of government backed/secured
mortgages for qualifying purchasers should be considered. This
would overcome LTV issues as the government would act as a guarantor.
— Tax incentives to stimulate the market
(reduced council tax, mortgage interest relief scheme etc).
Inward investment from overseas buyers
The UK (and London in particular) has always
been a world-class destination. As a result of this, there will
always be international investors who purchase properties in the
UK. Conservative estimates would value this inward investment
in excess of £2 billion per annum. As this investment is
discretionary, any draconian changes to Stamp Duty and Capital
Gains Tax could have a major impact on the attractiveness of the
UK for inward investment.
3. GOVERNMENT POLICY
AS SET
OUT IN
A STRATEGY FOR
SUSTAINABLE GROWTH
From our review of the paper, we have identified
two areas upon which we would like to comment, these are:
(a) Greener, sustainable development; and
(a) Greener, Sustainable Development
As a previous winner of the Queen's Award for
Enterprise in the Sustainable Development category, the Berkeley
Group has a deeply-ingrained passion and commitment to sustainability.
In 2009-10, the Berkeley Group saw the certification
of the first homes to Level 3 of the Code for Sustainable Homes.
Indeed, since 2008, when the Berkeley Group became the first housebuilder
to commit to Level 3 of the Code, over 17,000 homes have now been
submitted for planning that will meet this level. This is a significant
achievement and an industry leading position.
Berkeley has always embraced change head-on
resulting in an adaptable, energetic and entrepreneurial organisation.
The Group is constantly advancing its sustainability agenda and
work practices to ensure that our developments offer:
— safe and secure places to live and work;
— access to a range of services and amenities;
— spaces which enable interaction between
people;
— good environmental quality and efficiency;
— opportunity to access facilities to enhance
health and well-being; and
Berkeley supports the Government in its policies
and targets for sustainability. However, we believe that there
should be a better match between targets and (sometimes ill-conceived)
regulation. As the industry is much better placed to design the
solutions to meet the Government targets, therefore it should
be left to the industry to do so.
It is our belief that there is often little
scope for objectivity and, in some cases, sustainability targets
which would normally be controlled by building regulations are
impacting upon planning decisions.
If we consider, for example, the introduction
of onsite power and heat generation; the objective is to reduce
carbon emissions and planning would only be consented provided
that a combined heat and power (CHP) plant is installed. In some
cases, this CHP plant may not be required due to the overall energy
efficiency of the building and the minimal requirement for heating.
The counterproductive result of such a situation means that some
buildings are overheated (due to efficient heat retention and
district heating being distributed throughout the building). This
results in additional expense / carbon being consumed through
air conditioning installation and use. In this case, the local
authority achieved its result (of a CHP plant) but did not take
into account all the relevant details.
Increased objectivity
In considering the above example, The Berkeley
Group would suggest that an objective based approach be introduced
whereby the stated objective is outlined to the developer (eg
reduced carbon heating systems). The developer then must design
a build solution which marries the requirements of the local authority
to the needs of the developer (compliance with build regulations
etc). Such a system could permit a local authority to focus on
the enforcement of regulatory changes and the achievement of same
easier.
Range of incentives to stimulate market for sustainable
products:
The worldwide market for sustainable development
products and practices is growing constantly. Britain needs to
become a producer of these products, not merely a consumer. This
new industry could create employment and promote inward investment
and exports.
In recognition of this, we are proposing that
a series of incentives be offered to stimulate the growth of this
industry. Among these schemes are:
— Qualifying products to receive zero VAT
rating—the effect of this would be to promote procurement
of UK manufactured products.
— Recognition of and flexibility on how
the construction industry can recover the cost of sustainable
development—further tax incentives for qualifying research
and development into sustainable construction procedures and products
should be made available.
— Stricter rules and penalties—as
there are currently few penalties for non-compliance and few incentives
for compliance—how can one expect change? The enforcement
policies should be mindful of creating a target-based rather than
regulation-based environment.
Continued investment in public transport
A key element of any effective, low-carbon community
is the transport system which services it. Transport is a keystone
to community; investment in transport and infrastructure can be
used as a catalyst for further economic growth. The Berkeley Group
recognises the requirement for continued investment in infrastructure
and is supportive of the following projects:
— London Underground upgrade;
— High speed rail line between London and
Glasgow; and
(b) Planning
An efficient, effective and user-friendly planning
structure is vital to the economic recovery. The Berkeley Group
submits circa 70 planning applications per year. We wish to bring
the following observations to the attention of the Committee:
Section 106 Reform
Another specific area which often delays development
(and in which more innovation is required) relates to Section
106 agreements. Sustainability involves much more that a simple
number. We believe we should recognise that the greatest benefits
to the community of significant regeneration schemes do not lie
in the Section 106 contributions paid by developers but in the
physical regeneration itself. This can include the opening up
of new areas to the public such as canal walks, new parks etc.
We would suggest that local authorities be encouraged
to look at the overall benefit which a new development brings
to a community (jobs, open spaces, regeneration) before determining
any Section 106 contributions.
Open Source Planning
The current uncertainty surrounding the potential
introduction of the Open Source Planning legislation should be
cleared up for the benefit of the industry. The Berkeley Group
recognises the need for reforms to the current planning structures
and would welcome the opportunity to offer its views on Open Source
Planning. We believe the key areas to be addressed are:
— removal of bureaucracy;
— creation of a consistent, efficient planning
structures;
— clear and precise guidelines to local,
regional and national authorities and stakeholders;
— government policy on social housing to
be finalised and communicated; and
— schedule of changes and timelines for
delivery.
23 September 2010
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