At the time of writing, homebuilding is fast becoming one of the key political battlegrounds, with Labour stepping into the fray and announcing the promise of sweeping electoral reforms that will potentially uproot the 1961 Land Compensation Act and allow Councils to buy up land at the agricultural value rather than the inflated uplift premium that planning permission adds. These potential reforms will enable land to be dispersed for public and private sector development and are being touted as a radical way to reform the system. However, one of the critical challenges for smaller developers is obtaining affordable sites to build on; as the land bankers have been making hay while the sun shines for decades, could these radical reforms turn their gold back into mere soil? Or will lack of political will render the plans fallow? We unpack the details below.
Lisa Nandy, the Shadow Levelling-Up Secretary, has announced that councils across the country subject to a Labour election victory would be given powers to issue CPOs or Compulsory Purchase Orders, to force landowners sitting on unused development land to sell their assets at the market rate less the planning uplift value, the premium hope value that where a chunk of the profits sits. The difference between agricultural value and value per hectare once planning permission is achieved can be several hundred times inflated, according to a recently published article in the Financial Times, where it was stated that "Land worth £22,520 per hectare as agricultural land can on average be worth £6.2mn per hectare with permission — 275 times more" and currently under existing legislation, councils would need to be paying that premium to get people building.
Private-sector homebuilders, particularly in the SME market, will play a considerable role in unlocking the benefits of these types of reforms. If this scenario plays out, we anticipate further accompanying reforms, incentivising the sale of public land into that market, given that opening up affordable sites is a crucial factor in what's currently stalling the nation home building progress. Any business working closely with that sector will know that smaller, hungrier developers are solely focused on growth and will be traditionally based in the community they are building in, looking to move from site to site in that area as their business develops, adding value to the area, rather than a corporation that may choose to hold the land over a much more extended period on a balance sheet. If the goal at this point is to build as many quality homes as possible, by process of deduction, the logical answer lies in supporting the people whose motivations align with the nations.
The secondary topic addressed in this latest set of 'talk on the tape' from Westminster is exploring further Green Belt development. This will potentially be a political chess match, with both parties wrangling to get on the right side of a debate where both sides are equally problematic. If you seem to be inactive or not reacting to the housing issue, it's the accessible political capital, with the government branded as "blockers" protecting their "Nimby constituents" and "killing the dream of homeownership", to quote Labour leader Sir Keir Starmer. Still, in this game of rhetoric, you must be careful not to delve into the inconvenient truths of countryside development, or suddenly the paradigm flips, and you're the party that paved paradise and put up a parking lot; hence the Prime Minister taking up the opposing corner to become a perceived noble defender of our green fields.
So what is the answer? Well, it's a lot more nuanced than the media will portray; the reality is meticulous identification process needs to take place on a local level between local authorities, homebuilders and residents, and these inevitable encroaches onto green spaces need to be identified as having substantial benefits to local communities and business so that they follow the path of least resistance. So, for example, with brownfield developments, there is usually an easy consensus that abandoned warehouses and polluted land needs to be regenerated. Still, in the countryside, it will be much harder to find that consensus, so we predict that in the end, rather than damaging and aggressive reforms, areas that are subject to real redevelopment needs, areas of rural poverty that require job and community creation, and areas of high immigration, will welcome a certain level of increased development, and that will be the focus, rather than a forced debate between the nations needs v wants.
At Invest & Fund, we continue to support the kinds of residential property developers that are at the epicentre of these changes, offering enhanced development facilities from 5.30% plus the cost of borrowing. So if you currently represent clients with these requirements, let's talk soon.
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