The public sector isn’t known for risk-taking or innovative thinking, but that’s what is required to release enough land for housebuilding
Selling public land to build more homes is not a new idea to help resolve the country’s housing crisis. The government has been talking about it for years while pledging various tranches of funding to help speed up the disposal of such land for development.
There have been a number of projects successfully getting off the ground. For instance, Orchard Hill Hospital, a 40-acre greenbelt hospital site, delivered a secondary school and family housing for the London Borough of Sutton, and achieved “best value” for the NHS by disposing of a redundant asset.
In some cases, the Homes and Communities Agency has been providing interest-free loans to the NHS to bring forward redundant sites for development - so long as the sites could deliver housing by 2015. This has allowed NHS Trusts to deal with issues and site constraints prior to going to market to secure unconditional deals to release land earlier than expected. The loans are repaid out of capital receipts.
But alongside these occasional highlights, many developers are frustrated and there are some clear ways the process could be improved. There are five key problems preventing further movement that need urgent action from the government and the wider public sector.
The first problem is fragmentation. The public sector is not joined up. Local authorities and, for example, the NHS could and should work together, but many councils’ planning departments put barriers in the way of the delivery of housing from redundant NHS sites, as they have differing priorities.
By thinking a bit more entrepreneurially, councils can support dwindling state grants by getting a foothold in development right at the start of a cycle
The answer is for more central co-ordination. While it may be unrealistic to suggest reuniting the NHS into one body, there has to be some central figure to begin taking responsibility for banging heads together and adding more certainty to proceedings.
The second issue is how Section 106 obligations and affordable housing requirements can make projects unviable. On single-phase developments, requirements will affect the value of land and concerns over this tend to worry developers, therefore delaying capital receipts for public sector landowners.
The solution is for councils to deliver their obligations under the National Planning Policy Framework (NPPF). Councils first must have a local plan and then must be more realistic about how this can be delivered.
The third is an old favourite: the OJEU tendering process required for any land deal that involves public sector procurement (for example, building a new school on part of a site while the rest is released for development). The regime is regarded by many as a real barrier to development due to its cost and complexity, although many developers should realise it does not have to be that much more onerous than a normal bidding process.
To deal with this, companies must find cleverer ways of dealing with the tendering and procurement process to minimise the upfront effort required to get shortlisted. Once shortlisted, options such as an “entry price” (wherein the successful bidder covers the losers’ costs) should be considered to maximise competition where it counts. This will make it easier for public bodies and developers to deliver on these types of deals.
Fourth is planning, which inevitably hinders the whole process of public land deals, too. While development should be controlled, there are constant conflicts, whether it is nature groups seeking injunctions over a bat’s nest or a local free school demanding their right to council land, even though they won’t pay the market price. The quagmire of numerous stakeholders frustrates the planning process, slowing everything down.
What is required here is for councils to use powers in the NPPF to encourage development even where they do not have an adopted local plan. They should do this more often and more bullishly.
Finally, the last major issue is the appetite for risk and innovation in the public sector. Many local authorities, faced with cuts and fearful that any capital receipts will be spirited away by central government, have been looking at alternatives to straightforward land sales, such as through taking a stake in developments. For example, we are currently advising the London Borough of Hackney on a deal in Shoreditch wherein its land will form part of a wider scheme including a residential tower to be known as “The Stage” (the first Shakespearian stage was discovered there). The council will take income from the completed scheme rather than exit the site, leaving it with a sustainable revenue stream.
By thinking a bit more entrepreneurially, councils can support dwindling state grants by getting a foothold in development right at the start of a cycle.
Maximising partnership frameworks they already have and aligning themselves with trusted advisers can usher this along, minimising risk.
While any kind of risk-taking mindset among local authorities will always prove the exception rather than the rule, an increasing drive for homes and growing public demand for economic growth will hopefully combine to force the hand of the public sector. The easier we make it for them, the better off we’ll all be.
Samuel Blake is director of development and residential consulting at BNP Paribas Real Estate
BNP Paribas Real Estate is an exhibitor at RESI 2013, for details go to www.resievent.com