The costs to developers of providing Affordable Housing & also paying the Community Infrastructure Ley (CIL) will inevitably filter through to the final sale price of any new property on their development

Many Councils will not grant planning permission for a new development unless they are given 35% of the houses built in ‘consideration’ of being granted planning. Furthermore, on top of that, Councils then propose to charge a CIL of approximately £180 per square meter on the free market housing in the development

Naturally all this adds up to quite a significant value in 'freebies' for Local Councils and these additional costs will undoubtedly have to be borne by the eventual purchaser. This in turn results in any new ‘market’ house buyer actually paying a far higher house price than necessary to purchase a house on these new developments

So just how much is this additional buyer’s premium to underwrite Affordable Housing and CIL?

Here are some rough figures, relating to a one hectare development:

Figures per ha Total Market Affordable
Houses 35.00 22.75 12.25
       
Land cost - average 1,275,000.00 828,750.00 446,250.00
Build cost 2,882,250.00 1,873,462.50 1,008,787.50
Contingency 144,112.50 93,673.13 50,439.38
CIL charge 368,550.00 368,550.00 0.00
TOTAL COST PER HA 4,669,912.50 3,164,435.63 1,505,476.88

These figures have been taken from an actual assessment of one Councils situation and for the sake of simplicity ignore matters such as - the loss of 'builders profit' (20%) as well as a number of other things. However, they do provide an indication of the level of the significant windfall receipts by the Local Councils under the banner of Affordable Housing and Community Infrastructure Levy

Is this level of premium on a new house justified? Maybe it is, but just put yourself in the shoes of a young couple, just starting out, who have struggled to find the deposit necessary to purchase a house.

How would you feel having a premium levied on your purchase price because the Councils have sold their existing housing stock, spent the money and now wish to replenish it at your expense to house a future generation of potential benefit claimants? So not only are you paying your own way but are also expected to fund the life style of others as well

As for the new Government Help To buy initiatives - is the purpose of this scheme really to get the private sector (house purchasers) to fund Council House replacements by taking on more debt than absolutely necessary; or possibly more than they can afford?

An individual house that would have had a build cost £123,000 without the impact of Affordable Housing and CIL

Now has to absorb the costs of Affordable Housing and also the CIL levy

Resulting in a revised build cost of £205,000

An additional £82,000 per house OR 66% premium

Tags: , | Categories: UK Local Councils

The Thatcher era championed the principles of selling council houses and property ownership by introducing the idea of the 'right to buy'. Whilst the underlying reasoning was sound and born of the best intentions, this was a deeply flawed policy that simply depleted a national asset by transferring it into the hands of the private sector with no mandatory replacement rules in place

All that happened was councils 'trousered' the proceeds and failed to build new council houses to replace those they had sold

One of the underlying reasons behind selling these houses was the run down state of the existing council house stock and the potentially huge costs of refurbishing all the properties.

However, what no-one could have foreseen at the time was the enormous subsequent housing price boom affecting just about every property in the UK; with houses becoming a very profitable tradable asset class in their own right (i.e. buy-to-let et al)

Unfortunately, even though the problems must have been obvious to successive Governments along the way, not one of them had the political courage to put a stop to selling the national housing stock. Furthermore, it was not unusual for 3rd parties or non-residents to offer residents funding to purchase council houses on their behalf. One of the prime areas for this was children purchasing their parents council houses, which is all well and good but, deprives others in need of a home in the future

Coming to the present time

Councils now realise that they have insufficient social (council) housing stock to meet their obligations because vast swathes have already been sold and they have long ago spent the proceeds without providing replacement houses

This is their present dilemma and they need some way of addressing the problem without funding it themselves - enter 'affordable housing' and note the name change. We no longer call these properties by their traditional name of 'council houses' because of a possible stigma; so in this world of spin doctors let’s call them 'social', 'affordable' or any other sanitised name we can come think of to change people’s perception

However, the concept of affordable housing gets even more interesting - with local councils thinking up ever more ingenious ways via their planning departments

  • If you are a land owner or developer then the local council will refuse to award planning permission unless a certain percentage of the development is allocated to affordable housing. This inevitably degenerates into a bartering process between the Council and the land owner or developer - pretty similar to a market bazaar
  • Who pays for these affordable houses - initially the developer, however, the costs are inevitably passed onto the subsequent purchasers of other houses on the development. Therefore, this becomes a tax on house purchasers to subsidise the welfare system
  • Any new mixed housing estate with affordable housing means that those purchasing 'market' priced houses are paying a premium to the developer to underwrite building affordable houses. Presumably this is simply another covert Council tax to make up for their mistakes of the past?
  • Is it right that youngsters who have saved for years to try to purchase their own (barely affordable) first home, have to effectively underwrite the costs of affordable housing for others who contribute nothing on the same development?

The planning system would seem to be holding landowners and developers to ransom (blackmailing them) because:

  • Planners have stated that they will not give planning permission unless they obtain a 'kick-back' to the tune of 25%-35% of affordable houses built for them at no cost to the local Council
  • It has been stated that local Councils are only prepared to pay agricultural prices for building land and not the going market rates. The reason for this is because they control the planning system and without their approval planning will not be granted - ergo they have capped the land price at agricultural levels unless they get what they want (i.e. cheap or free land). Therefore the planners artificially depress a free market for their own benefit
  • Furthermore, Local councils have the powers to approve their own affordable housing developments that would not otherwise be granted planning permission if a free market development was requested. So the same development can be refused to the private sector but still gain approval if put forward by the Local Council (with the accompanying 'back-handers' of course)

Could someone therefore please explain how these potentially corrupt planning practices of blackmail and artificially depressing land values in the UK is any different from similar corruption in 3rd world countries?

Surely it is very simple, authorities insisting on baksheesh in any form are actually employing either bribery or blackmail. Interestingly, the UK has recently introduced The Bribery Act 2012, so why does it not apply in these circumstance to Councils in the UK?

Quote

The Bribery Act 2010 creates a new offence under section 7 which can be committed by commercial organisations which fail to prevent persons associated with them from bribing another person on their behalf.

 

Finally we have the introduction of the Community Infrastructure Levy (CIL) - which is a sound idea, provided that the Local Councils do not become too greedy in their implementations of the levy. Also can we be assured of CIL fund 'ear-marking' - i.e. if funds are raised for infrastructure, then they can ONLY BE SPENT on infrastructure and not hijacked to cover some shortfall in another area

Does the CIL actually have to have some basis on fact or is it an arbitrary additional tax pitched at a level the prevailing Local Council thinks they can get away with? For instance is there a standard infrastructure cost calculation that applies to all Councils throughout the UK?

Oh! ... and let's not forget that Local Councils are themselves exempt from CIL on affordable housing. This implies that this type of housing does not have any impact on the local infrastructure. Is it really feasible for affordable housing to have a zero infrastructure footprint?

Tags: , , | Categories: UK Government | UK Local Councils