Delivery man

Develop homes the wrong way on urban sites and you could find yourself barred from public land and subsidies; do it the right way and you could find yourself playing a big part in large-scale regeneration.

That is the proposition put forward by the review of housebuilding delivery John Callcutt has carried out for government, and whose findings are published this month. From the dry review brief – to examine the structure of the housebuilding industry, consider how these factors influence the delivery of new homes and make recommendations – Callcutt and his team have created a framework for urban housebuilding and regeneration. This framework is not only intended to deliver housing numbers, but regenerate urban areas, benefit communities and penalise those who don’t play ball.

It is a commercial reality that it is not always the housing provider that goes the extra mile in such areas as design and customer service that has the highest profits and share prices. The review sets out to level the playing field, creating what Callcutt calls a “fair and dynamic industry”.

Central to the framework is a partnership between local government and housing providers, whether private developers, housebuilders or housing associations, which aligns with another recent government proposal, local housing companies. Callcutt’s partnership is based on a pre-agreed rate of return for the housing provider and a drive for value. In Callcutt’s brave new world those who fail to meet quality standards are barred from receiving public money or land, of which he says bluntly: “Taxpayers shouldn’t subsidise jerrybuilding.”

Supporting that are more carrots and sticks, including a proposal to set aside a share of developable public land for small and medium sized businesses.

This focus on justice is appropriate for Callcutt, a man whose career began with the legal profession. But does he think industry will welcome what he is offering? “I think there will be a great deal of enthusiasm for this. There’ll be a lot of housebuilders that will think they had better change their business models.

“This is such a big market that you ignore it at your peril. If 60% of development is brownfield, there could be nearly 150,000 homes a year in urban areas. It wouldn’t all be partnership, but there are sufficient numbers to make it very attractive.”

Callcutt says his review has produced a “market-driven solution.” He continues: “There’s corporate analysis behind this. This brings a new degree of commercial acumen to viabilities.” The approach has a few potential sticking points, like market downturn or politicking in local authorities. Callcutt accepts them but argues, “there is every political incentive to work in town centres. There is an inevitable reality about this”.

Callcutt is no stranger to the public sector, having headed English Partnerships. After nine months working on the review, he says he comes away with “a much better idea of the interface of government and industry. At EP I started to learn but this has been intense private tuition. Better understanding of each by the other would make us each more effective. This has put paid to a few stereotypes.”

If he were returning to housebuilding, knowing what he knows now, Callcutt says he would practise what he preaches. “I’d go into regeneration and be even more dedicated to quality. I’d re-engineer my business.” As it is, he has no plans after the review, but adds, “my instinct is that if I think I can make a difference to society and people, I’ll do it.”

This is such a big market, you ignore it at your peril. There are sufficient numbers to make it very attractive

Callcutt on the Callcutt review

Can housebuilding numbers be increased?

To get to 240,000 net additions to the stock per annum will mean an increase of 4.5-4.75%. Provided there is an adequate land supply, it is within the capacity of the industry and supply chain to deliver. Historically, it has delivered that and more. The pre-condition for it happening is a supply of developable land and we believe PPS3 is a sound policy framework. However, the numbers from the regions in allocations must aggregate to 240,000 in good time to enable capacity to be ramped up.

Where will the land be?

Our view is that there is an obligation to make the best possible use of the capacity in cities and towns, and on previously developed land. After that come edge-of-town sites, transport corridors and new settlements. There is an order of precedence and the proposition is to E E develop in the urban fabric to prevent unnecessary development of the countryside and also so we can regenerate. This is not simply a volume issue; there is also the question of bringing regeneration to those who need it most.

Should all urban sites be developed through the framework?

Many sites will be dealt with by the marketplace, but there are significant areas that are not easily viable. The challenge of our time is to drive viability into these areas much more than we have done in the past. These are areas of low land value and high costs for physical and social regeneration.

How would the relationship between local authority and housing provider work?

The proposition is to tie in the fortunes of local authorities and developers with a mutuality of interest. At site identification stage, and before values have been created, the housing provider would enter a partnership with the local authority to drive up value. That preferred partner would take development through to delivery – for a city, a large section of that city or a defined area.

Local authorities may have land to put into the partnership, but they may not. They may facilitate. The developer will work to a pre-agreed rate of return on an open-book relationship. The local authority will set out its shopping list – for affordable housing, Code for Sustainable Homes, and so on. The developer will value that shopping list, see what the scheme will support, see whether grant will fill any funding gap, then see how to get more return, how to drive the value out of it.

There should be a marketplace where those who deliver high quality in design and customer service are recognised more than those who don’t. We don’t believe there are sufficient incentives for developers to deliver

It is a viability test. The developer may say more density will be needed or that it would be beneficial to develop a part of the site nearest to a high value area first.

The two will enter into viability agreements that commit them to fulfilling the package. What will be critical is how local authorities set out their requirements – there should be economic outputs (like rates of sale) and social outputs (like house price growth, or health, education or crime figures). That will drive value.

What’s in it for the partners?

Under the criteria for PPS3, there has to be a five year supply of land that is deliverable, and that means economically viable. If sites in that supply are not market appraised, then they can be subject to appeal. What better way of defending your land supply than by having a partner committed to delivering the site – and that will drive value. It gives local authorities a pretty strong defence against any attempt to knock sites out of their five-year supply.

Those that deliver should have the opportunity to share in the upsides – they may make a better rate of profit or more profit. Asset growth could double from, say £150 per square foot to £300 per square foot in five years – that creates an attractive investment model. At the moment we know there is virtually no large-scale institutional money invested in shared ownership because the returns are not seen as secure or satisfactory. Once investors have confidence in the returns, they will invest.

What measures are there for small and medium-sized businesses?

We recommend a percentage of public sites is broken out for small and medium businesses so they can make a land supply. Large housebuilders with large sites tend to swap sites with each other or sell them in large chunks so it can be difficult for smaller companies to get them. That percentage could be 10% or 20% or 30% the public sector needs to exercise commonsense.

What other sticks and carrots are there?

Under fair competition, there should be a marketplace where those who deliver high quality in design and layout, build and customer service are recognised more than those who don’t. We don’t believe there are sufficient incentives for developers to deliver.

The survey of customer satisfaction should be carried out by government or an independent body. It would have more weight and credibility. Customer satisfaction targets should be set and companies given two years to reach them. If they fail to make the threshold, they shouldn’t be eligible for government subsidy or to buy government land. I believe all housebuilders should meet that target as it will be a pressing issue for shareholders.