Once again house prices are in the news, but this time it’s because the Business Secretary Vince Cable is talking about raising interest rates to help keep them under control.
Cable was speaking primarily about the overheating in the London and south-east housing market, introducing the spectre of London becoming a city populated by wealthy foreigners working in high-paying jobs.
Sadly this is another example of the London centric view that policy-making seems to be adopting increasingly at the moment. While it is true to say that London is attractive to many wealthy overseas buyers, the one thing that is self-evident is that house prices are not a problem to those people. Increasing interest rates will have the most on anyone apart from who is already struggling or in marginal position when it comes to their monthly mortgage repayments. Cash buyers and those with plenty to spend don’t inhabit this part of the market.
The other self-evident fact is that it is a problem of London and the south-east. The implications of the Bank of England raising interest rates go far beyond house prices for the rich and famous in London. The help to buy scheme introduced to assist in providing deposits for purchases up to £300,000 has been a runaway success and it’s now made victims of its success by inflating house prices across the country.
Straightforward supply and demand economics is what is driving as prices up. While our developers build less than half of the required number of houses the problem is not going to go away, no matter what happens to interest rates. Until planning and development policies relieve restrictions on building the new family homes that are in the greatest demand, the prices of those houses will continue to rise by more than the rate of inflation.
Vince cable may not want to put up house prices but there’s little point in espousing on interest rate ideas unless it’s on the table or it’s an elaborate precursor to some other measure. In the past he’s been a keen proponent of land and property taxes based purely on the value, in other words, carpetbagging. While this may seem a politically expedient and to some extent a populist move, it puts the needs of government receipts above the needs of business and industry to create wealth and reinvest in their product and customers. It will be the small customer (first-time buyers, young families, retirees) who pay for any government property value grab, which will do nothing to provide the quarter million new homes a year needed to prevent market busting house price rises.
In September a House Builders Federation survey reported that the number of planning consents issued by local authority planning departments had risen by 49% year-on-year. The first six months of 2013 reported 77,686 residential permissions granted.
On the face of it these are encouraging numbers. It is undoubtedly good news for the building industry and the wider UK economy, but it also highlights the parlous state of the industry over the last few years.Back in 2007 the government calculated that around 240,000 new homes were required every year by 2016 to keep pace with the increasing new household being created in the United Kingdom. Environmentalist Jonathan Porrit though that it was more like 270,000.
The shocking reality is that even in 07/08 (which most agree was an unsustainable housing boom) only 207,370 new homes were started. Contrast that with the highs of the late 1960s when almost half a million houses a year were being built.
We are now faced with the triple challenge of ever-increasing numbers of households requiring homes, low housebuilding volume, and a National Planning Framework which local authorities find difficult to implement responsibly because of the pressures placed on them by communities and local politicians who don’t want greenfield development near them.
Even if the current huge rise in planning permissions is sustained, the UK can still expect a shortfall of at least 50% of the minimum need once the last few years doldrums are taken into account. There is no way that the past and current shortfalls can be made up any time soon so the natural laws of supply and demand will trump efforts to price control the marketplace.
An argument often put forward is that land owners land bank their sites so that it goes up in price so that they can make more profit. This doesn’t make any sense because land is a developers stock. It is the same as the Mars Bars in the newsagent’s store room – it has to be sold to make a profit, and house builders build houses to make their profit, just as newsagents sell Mars Bars to makes theirs. Every manufacturing business needs a stock holding otherwise business grinds to a shuddering halt, but that’s not the same as pernicious land banking running rife.
The start of the solution lies in planning departments getting to grips with the supply of available housing land in their area. These days, NIMBYs rule the roost in planning committees, but short term thinking won’t put a roof over their children’s heads. All across the country planners are setting targets for new homes to satisfy local demand but those targets are being missed by enormous margins.
The market isn’t failing, the market just can’t get its hand on enough stock (land) to operate efficiently. The national targets are being missed because there isn’t enough land being allocated for new homes. Land owners and developers are being forced to take planners to task at planning appeals for the failure of local authorities to fulfil their statutory duty to meet the market needs.
Without an immediate upturn in the number of sites allocated for residential consent we will see house price inflation climbing once again to unsustainable levels, and planners will be under increased pressure to justify any negative decisions at expensive appeals. Unusual and extraordinary measures are already being suggested to solve the problems of the housing market, none of which address the root issue.
The solution to avoiding meltdown is simple and obvious, but whether with communities and their elected representatives have the stomach for a longer term view is very uncertain, so I predict a house price boom.
Enniskillen is the focus of at least some of the world’s attention as the G8 summit meeting hoves its not inconsiderable caravan of politicians, advisers, security, protesters and lobbyists into the news this week.
The economy of the tiny Northern Irish town with a population of only thirteen thousand has suffered more than many in recent years, but they have adopted a novel solution to mask the blight of vacant shops.
The Department of Social Development provided a £200k grant to help building owners improve the appearance of their frontages with the Shop Front Improvement Scheme.
Although the grant is available throughout 2013, those who completed the works by 31st May could receive 100% of the cost rather than the maximum 75% available for the remainder of the year.
The solutions included applied graphics that represented working shops, giving the impression of busy shops full of customers. The scheme has not been without criticism that it’s papering over the cracks to make Enniskillen look tidy for the G8 meeting, but this investment seems unlikely to have been offered if the G8 wasn’t coming to town, and as such is a welcome move.
Enniskillen Shop Front Scheme guidance notes
The investment announced by Communities Secretary Eric Pickle is intended to help enterprise zones attract business and create thousands of local jobs.
Thirteen enterprise zones have been green lighted to receive the new money for 18 projects to build service roads, car parking and other infrastructure, transforming ‘shovel ready sites into job ready sites’.
The fund, originally £60 million, is designed to help zones reach their real growth potential faster as economic engine rooms of local economies. Following a competitive bidding process the successful proposals will now undergo further testing to ensure value for money for the taxpayer.
Enterprise zones have already created 3,000 new jobs, attracted 126 businesses, generated 105,000 square metres of new commercial floorspace and secured almost £229 million of extra private sector investment.
In addition to this 5 enterprise zones are also receiving £24 million to tackle traffic bottlenecks and road congestion near their site through Department for Transport funding.
The £104 million made available for enterprise zones includes £45 million from the Homes and Communities Agency in addition to the £59 millionLocal Infrastructure Fund announced at the last Autumn Statement.
The list of shortlisted enterprise zones include:
Aerohub Business Park, Newquay, Cornwall: the investment would support the creation of a new Business Park adjacent to Newquay Airport, assisting Cornwall Council and local enterprise partnership bring to the market the sites needed to develop new aerospace related employment
Enterprise West Essex at Harlow, London Road: this project is to develop a new Life Sciences Medtech Innovation Centre alongside the existing Nortel Campus. The investment could support enabling infrastructure and site preparation works at the ex, London Road enterprise zone to enable 22,000 square metres of high grade office space.
Solent enterprise zone at Daedalus Airfield: the investment will enable the design and construction of a new 3,000 sq m business incubation centre for small and micro businesses seeking a flexible presence on the enterprise zone. It is hoped that these businesses will expand into new units being built as part of the wider regeneration project.
Masshouse – Birmingham City Centre enterprise zone: this scheme requires support for high quality public realm works together with essential public car parking in order to build major city centre office employment space.
Kirkeatham Business Park – Tees Valley enterprise zone: investment is sought to fund a new service road to support approximately 4 hectares of commercial land for development. The local authority are in the process of acquiring the land with the intention to sell smaller parcels to companies, particularly small and medium sized enterprises in the advanced manufacturing sector, who want to build their own premises on a piece meal basis.
Queens Meadow Business Park – Tees Valley enterprise zone: this scheme requires investment support for a new service road service approximately 4 hectares of commercial land for development. The intention is to improve the takeup of sites by selling smaller parcels of land to companies, likely to be small and medium sized enterprises in the advanced manufacturing sector, who want to build their own premises.
Sheffield City Region enterprise zone – Waverly: the Waverley site is the region’s largest mixed use – employment and housing – site and is planned to provide 140,000 square metres of commercial floorspace. The investment could be used to support infrastructure and site preparation works to unlock the development.
Logic Leeds – Aire Valley enterprise zone: the investment is required to accelerate the delivery of the Innovation Health Hub (IHH) on the Logic Leeds site through an access road and supporting infrastructure work. The infrastructure works will tackle drainage and flood risk for the site and bring forward the site preparation and servicing, including utilities, for initial development platforms for the new buildings.
Tower Road South, Wirral Waters enterprise zone, Liverpool: the scheme’s vision is for a ‘jobs driven’ international city waterfront on the Birkenhead and Wallasey docks, creating over 20,000 jobs and 14,000 new homes in the area. Investment is sought for site preparation and remediation infrastructure works to prepare a key element of the Tower Road South site, a planned mixed use quarter including a college or university technical college for maritime engineering.
Brough, Humber Green Port Corridor enterprise zone, East Riding of Yorkshire: Bridgehouse and BAE Systems are planning to transform a single manufacturing facility into a site suitable for many new businesses to start up. The site currently needs remediation and infrastructure work to meet environmental compliance, as well as carrying out flood risk mitigation work and installing data infrastructure.
Discovery Park, Dover: the 220 acre, former Pfizer site at Discovery Park, in Sandwich, Kent, is one of the largest research and development facilities in Europe. The enterprise zone is bidding for investment to refurbish and redesign three buildings, which were originally built for a single company. Once completed, the buildings will offer a range of offices and labs to conference space and meetings rooms.
Manchester Airport City enterprise zone: funding is being sought to upgrade and install roads and junctions, services and public realm for 2 sites at Manchester Airport providing more than 230,000 square metres of employment floorspace. The northern site will focus on office, hotel and leisure, while the southern area will provide logistics and warehousing.
Sheffield Business Park Phase 2, Sheffield: Sheffield Business Park is one of Yorkshire’s largest business parks, providing more than 2,000 jobs for the area. The Sheffield City Region enterprise zone has bid for investment to support a new road and related infrastructure work for Phase 2 of development of more than 83,000 square metres of general or bespoke offices, business, manufacturing and warehousing opportunities.
Daresbury EX/East Runcorn, Halton: the Sci-Tech Daresbury enterprise zone is bidding for funding to build 2 new bridges over the Bridgewater canal to enable development of the new homes on the site. The enterprise zone will create 10,000 high quality jobs across several hundred technology companies and developing over 1 million square metres of specialised office, laboratory and technical space.
Poulton Road, Beaufort Road, Wirral: Wirral Waters is planning to transform 500 acres and more of Birkenhead docklands and surrounding area from a deprived, under-used, environmentally poor area to a successful, mixed-use, high density place to live and work. The enterprise zone has bid for funding to remediate the West Float site as well as improve local highways to link the development to the nearby International trade centre and the advanced engineering automotive park.
Arena Central, Birmingham: Arena Central is a 9.2 acre regeneration site in the heart of Birmingham City Centre. The enterprise zone has applied for investment to demolish the remaining buildings on the site, including a registry office, exhibition hall and TV studios. The investment will also fund a new pedestrian link between Broad Street and Holliday Street and help create ready development plots on Bridge Street and Broad Street.
Argyle Works, Birmingham: the Greater Birmingham and Solihull local enterprise partnership are upgrading the city’s digital infrastructure, bringing ultra-fast broadband to the area and boosting business. The local enterprise partnership are bidding for investment to convert a warehouse into a new data facility on Great Barr Street, in an area which could act as gateway to the Digbeth and city centre enterprise zones.
Lancashire enterprise zones Samlesbury, Ribble Valley: to make this enterprise zone area, which sits within the current BAE Systems site, attractive to investors and tenants a new access road and utilities is required. The site will build on the aerospace capabilities in the region and cater for the specific requirements of an advanced manufacturing facility.
On 31 May the Department for Transport announcement the second tranche of funding from the £170 million Local Pinch Point Fund. In total, 5 enterprise zones benefited from £24 million to tackle key bottlenecks:
Birmingham City Centre enterprise zone has received £5.9 million for 2 projects: enhancements to relieve congestion and safety concerns on the city’s ring road, and expansion of facilities at 3 park and ride locations into Birmingham City Centre, including provision for car sharing bays, electric vehicle charging points and cycle hubs
Great Yarmouth and Lowestoft enterprise zone has received £9.4 million for 2 projects: a new link road to unlock significant housing development and employment land immediately to the west of the enterprise zone, and for phase 5 of the Lowestoft Northern Spine Road. The scheme will provide a 1.1 km new single carriageway and shared walk/cycleway between the Millennium Way/Bentley Drive roundabout and north of the Blundeston Road junction on the A12.
Science Vale UK enterprise Zone in Oxfordshire has received £5 million for the provision of an innovative ‘hamburger’ style roundabout enabling the junction to operate effectively within planned levels of growth for the area and helping to manage traffic onto the A34. This funding is subject to further clarification on design/technical issues, with the Highways Agency and the council working on the details.
North East enterprise zone received £1.8 million for improvements at 3 strategic junctions required to support the development of the Sunderland Low Carbon Zone. The 3 junctions are located at the intersection of principal routes (A1231, A183 and A690) with the A19 at Sunderland.
Black Country enterprise zone received £2.5 million to improve the standard of the road from Headway Road to Patshull Avenue. An additional right turn facility at Pendeford Business Park will also be provided to reduce delays to ahead traffic.
The benefits to business of enterprise zones is that they are good on taxation, planning restrictions and IT capacity – the 3 things most often cited as new business deterrents:
- significant tax breaks – full business rate relief for 5 years, worth £275,000
- smart and simple planning rules with automatic green lights for particular businesses mean fast-track development and rapid start-up potential
- infrastructure designed with business in mind: excellent transport links and superfast broadband for global business too
Additional enterprise zone benefits for business include:
- Britain now has the lowest corporation tax in the G7
- each zone was carefully located in a major business cities or place set to become commercial or hi-tech business hubs
- each zone has a specific focus so potential customers and suppliers can easily see where like-minded businesses, supply chains and workforce expertise are
- local councils are committed through new financial incentives from government
- ‘soft landing’ packages with pre-agreed developer deals, accountants or estate agents make it even easier to set up a business
Examples of progress
A recent Deloitte report described Bristol zone as a ‘magnet for investment’ with the “enterprise zone at the heart of this growth”.
Sheffield and Birmingham were recently listed in the top 50 global enterprise zones.
Royal Docks just announced a £1 billion deal with a Chinese investor to build a 3.2 million square feet state-of-the-art business park for Chinese and Far East businesses.
Ashok Leyland, India’s second largest commercial vehicle manufacturer recently announced that they will be opening a research and development centre at MIRA Technology Park in Leicester’s enterprise zone.
Northampton, home of the Waterside enterprise zone, was recently cited as making the best economic recovery in the UK by the Centre for Cities. Only in May Freefoam Building Products announced that over 40 jobs will be created as the company expands in the enterprise zone.
Renewable energy company, Estover Energy, has announced plans to develop a £65 million biomass plant at Discovery Park enterprise zone that will supply renewable heat and electricity across the 220-acre park and create 160 jobs.
Vantec, the Japanese logistics firm completed their new logistics centre at the North East enterprise zone at the start of February and expect to more than double employment (to 230) on the site. Due to the ongoing success in attracting investment, they have been have granted a 40 hectare extension to the zone.
Manchester’s Airport City enterprise zone has a planning application for the development of a £100 million World Logistics Hub that will generate more than 1,800 new jobs over the next decade – in addition to construction jobs.
