Communities and Local Government CommitteeWritten evidence from Professor Michael Ball

I should like to thank the Committee for the opportunity to clarify the results of my research on planning delays, as requested in your letter to me of 11 November 2011. There seem to be two issues: (i) to what does the £3 billion planning cost figure refer and (ii) is it a reasonable estimate? I shall take both in turn:

1. To what does the £3 billion figure refer?

The £3 billion figure is specifically the result of an estimate by me as part of a study of housing supply and planning delay, commissioned by Communities and Local Government, through the then existing National Housing and Planning Advisory Unit, and published by them in 2010: Housing supply and planning controls. The impact of development control processing times on housing supply in England.

The Impact Assessment of the draft NPPF clearly differentiates between Kate Barker’s work and mine:

“Kate Barker’s Review of Land Use Planning estimates the cost of the associated planning delay to the economy at between £700 million to £2.7 billion. However, these figures do not differentiate between reasonable and unavoidable delay. More recently, a report for Department for Communities and Local Government by Michael Ball suggested that the transaction cost of development control for major housing projects development ‘may be up to £3 billion a year’. The major components of this relate to ‘more than £750 million annually in consultant and legal fees’ and ‘financing costs of holding onto land and other assets whilst their projects are being evaluated’ (estimated at £1 billion per year).” [p 10. Their emphasis].

The other reference to my results in the impact assessment is more general, but still clearly refers to my research alone:

“As described earlier the annual cost of development control to the economy is estimated at up to £3 billion, of which a major component was the financial cost of holding onto land and other assets whilst projects are evaluated (Ball, ibid). An increase in the probability of being granted planning permission (ie an increased approval rate) may reduce these costs as the uncertainty is reduced.” p 17.

Draft National Planning Policy Framework: Impact assessment, Communities and Local Government, 25 July 2011.

http://www.communities.gov.uk/publications/planningandbuilding/draftframeworkimpact

I only make passing reference in my report to the Barker Review figure. It comes directly after a one and a half page analysis leading to my own figure, which concludes that:

“Although other land-use activities require development control, the transaction costs of development control for major housing projects are likely to be of the order of £3 billion or more annually.” (Ball ibid, p17).

Yes, the rounded £3 billion numbers are coincidentally the same but the context makes perfectly clear the fact that the one of relevance in my report refers to my own calculations. I put no great weight on the Barker figure in my report, focusing unsurprisingly on my own research.

I was not party to the government’s discussions; only finding out that my estimate had been used on publication of the Impact Assessment.

In view of this evidence, I am perplexed and disappointed that Trudi Elliott of the RTPI can state to the Committee that my report “does not have evidence about £3 billion”. At no time, I should add, has anyone at RTPI contacted me with concerns about the sources of these figures. A quick conversation or correspondence would easily have cleared up any confusion.

The Committee may also be interested to know that I gave a presentation of my work to members of the RTPI mentioning my estimate of £3 billion in March 2010 and that the slides I produced for that talk are still available on the RPTI’s website.

2. Is it a reasonable estimate?

I cannot agree with the view expressed by the RTPI that there are concerns about the quality of my research. They are unsubstantiated by them and without foundation. I am an independent academic of high standing; whereas the RTPI is the representative body of the planning profession with a self-interest in discrediting reasoned argument about the costs of planning, as part of a so-called “myth busting” exercise (as termed on its website).

To allay any fears regarding research quality, I should also like to point out that my research report was peer reviewed by the NHPAU Board, which contained some highly distinguished academic members, has been published by CLG, and been in the public domain since early 2010. The research project also developed out of a similar earlier research stream with colleagues at the University of Reading that was peer reviewed on behalf of the Economic and Social Research Council, and had resultant publications in three refereed academic journals. Furthermore, an academic conference presentation of that research was awarded a prize.

With regard to the £3 billion figure itself, my estimates refer to the overall costs of development control for major housing projects. The calculation is rather complex and its details are given in the boxed text at the end of this memorandum. Inevitably, such exercises are approximate. With that in mind I erred to the low side in the final estimate.

The purpose of my estimate was to assess the annual transaction costs of development control for major housing developments, which are the direct costs to the public sector and developers of development control. This is not the true economic cost of this aspect of planning: that would, instead, be the public and private resource costs of the development control process (ie items 1, 2, and 4 below); plus the value of the housing delayed, using my delay estimates; and, in addition, the value of the housing not built because of the costs of delay and risks associated with obtaining planning permissions. The value of delayed housing alone is the present value of two years of the implicit annual market rents of the houses built, plus an estimate of the lost consumer surplus. Therefore, the resultant economic cost would be a much higher than the transaction costs approach I adopted. In other words, the true economic cost of planning delay includes the cost of the housing foregone, and that would result in a much higher “cost of planning” figure than the one given in my report.

Overall costs clearly depend on the level of housebuilding and associated planning applications. My study was for circa 2006–07, when over 170,000 homes annually were being built in England. The numbers of new homes being built are far lower now, but the 2006–07 period is more likely to be representative of housing supply pressures when the market fully recovers again.

The RTPI continues to claim that housebuilders hold large stocks of land with planning permission (Top 5 Planning Myths, Sept, 2011). Obviously, given the depth of the current housebuilding recession, there are going to be some permissioned sites owned by builders that cannot currently be built upon for want of demand, but in normal housing market conditions thorough research has dealt comprehensively with this matter already and shown that builders do not horde land. For example, the OFT’s 2008 study of housebuilding concluded that: “The homebuilding industry, which owns a significant land bank, does not appear to systematically hoard land with implementable planning permission …” (para 5.91).

Other building and development activities also incur planning costs, and plan-making itself absorbs significant resources. I have not estimated them myself but a large and growing body of analysis and literature suggests that those costs are likely to be high as well. So, it seems reasonable to conclude that the overall economic cost of planning is considerably above £3 billion a year.

I think it is not fruitful to engage in detailed disputes about the overall costs of planning but rather to accept that they are high and act as a potential barrier to development. On the other side of the equation are the benefits of planning. I do not think that my research gives any grounds for suggesting that planning should be abandoned because of its high costs. Instead, it highlights the scope that exists for beneficial reform.

The main purpose of the research project being discussed here was actually not to put a cost on planning but to investigate the time it takes housebuilding sites to pass through development control. Data were collected on over 900 sites in 45 English local authorities. Examining the experience of development sites—rather than simply looking at individual planning applications—reveals a slower, more uncertain system. Even developers of small schemes must expect the planning process as a whole to last at least a year and face the risk that it could take far longer. As my Housing supply and planning controls report concludes, development control bottlenecks are likely to slow housebuilding recovery and to limit any further desired increases in housebuilding once recovery has occurred. In my opinion, they remain issues of major concern.

CALCULATING THE ANNUAL COSTS OF DEVELOPMENT CONTROL FOR MAJOR HOUSING PROJECTS

Calculation was based on referenced sources plus my own estimates and is outlined below (see pp16–17 of my report):

1.Local authority development control costs. In 2006, the cost of local planning service work was estimated to be £1.2 billion (Planning Costs and Fees: Report, CLG, 2007). Perusing the items in their Table 3.2, I estimated that £750 million was attributable to development control, noting “It is difficult to know how much of those development control costs are attributable to major residential developments but the share is likely to be substantial.”

2.Other public costs. Statutory agencies, such as the Environment and Highways Agencies, are involved in development control as well and incur substantial costs. There were approximately 500 staff in Planning Inspectorate involved in appeals in 2006; the Environment Agency employed 250 planners to scrutinise around 50,000 applications annually; etc.

3.Planning applicants’ fees. The information was taken from the same source as in the first point. Local authority fee income was £232 million (£40 million from private households), which goes towards funding their costs (ie net off local authority costs and add to those of developers).

4.Developers’ costs. Apart from paying planning fees, they face their own costs of submitting an application and, according the Killian and Pretty Review: Planning applications—A faster and more responsive system: Final Report CLG 2008 p16, incur £750 million in consultants and legal fees. No data exist on developers’ own administration costs in applications and appeals but it may be reasonable to assume that they are of at least the same order as their external administrative costs.

5.Developers’ land holding costs. Developers and landowners face further financing and opportunity costs in holding onto land and other assets while their projects are being evaluated. I estimated these to be of the order of £1 billion a year for the sites in England that successfully achieved permission. There are further substantial holding costs associated with the land banks required by the uncertainty of development control and for sites that were rejected, which push those costs to over £2 billion. The calculation was based on the following: In 2005–06 approximately 4,500 hectares of land were used for new housing and the average cost of that land was £1.8 million a hectare, excluding London, according to Valuation Office data. The time estimates in my report suggest that sites are in development control for an average of 1.25 years, while other studies suggest that pre-application discussions and discharge of conditions add at least a further 6 months. At the end of 2006, bank rate was 5% to which should be added 2% to reflect developers’ likely extra cost of finance.

Michael Ball

is Professor of Urban and Property Economics in Real Estate and Planning, Henley Business School, University of Reading.

Lead Panel Member, Expert Panel Housing Markets and Planning Analysis, Communities and Local Government, 2007-10.

Joint Chair of the European Network for Housing Research Housing Economics Group.

Other recent policy reports

Author of annual European Housing Review, Royal Institution of Chartered Surveyors.

Landlord returns, taxation and the future of the private rented sector, Residential Landlords Association, November, 2011.

Housing markets and independence in old age: expanding the opportunities, M Ball, R Blanchette, A Nanda & P Wyatt, REP, University of Reading, 2011.

The UK private rented sector as a source of affordable accommodation, Joseph Rowntree Foundation, Nov., 2010.

The Housebuilding Industry. Promoting Recovery in Housing Supply, Communities and Local Government, 2010.

The Credit Crunch and Regeneration: Impact and Implications. An independent report to the Department for Communities and Local Government, M Parkinson, M Ball, N Blake and T Key, Communities and Local Government, 2009.

Recent relevant academic journal articles

“UK planning controls and the market responsiveness of housing supply”, Urban Studies, 48(2), 349–362, February, 2011.

Ball, M, Meen, G & Nygaard, A. “Housing supply price elasticities revisited: evidence from international, national, local and company data” Journal of Housing Economics, 19.4, 255–268, December, 2010.

“Critical Commentary. Cities and housing markets: changes and continuities in the aftermath of the 2007–08 World Financial Crisis”, Urban Studies, 2010, 47, 931–944.

Ball, M., Allmendinger, P. and Hughes, C. “Housing supply and planning delay in the south of England”, Journal of European Real Estate Research, 2009, 2.2, 151–169.

Allmendinger, P and Ball, M. “Explaining the paradox of performance improvements in delay in development Control”, Urban Design and Planning, 2009.