Carney’s Prairie Planning Solution Won’t Prevent Housing Bubbles

Mark Carney’s appearance before the Treasury Select Committee this week, and especially his Guardian interview today. clearly shows what is one his mind.

The right way to do policy – to protect against the boom and bust cycles – is to act early in a graduated, proportionate way and that reduces the probability of having to act in a bigger way later.”

He said that Britain was building half as many homes a year as Canada despite having a population twice as large, and added: “It is widely acknowledged that there is a very large supply-side issue here.

“I fully recognise that Canada is the second-biggest country in the world. It’s easy to build housing as it’s easy to find places [to build]. But it does give you a sense of the issues around the constraints on supply and the movements in prices you see as well. They all reinforce that sense that there is a supply issue. And there’s nothing the Bank of England can do to change that.”

Well Canada has 35 million population,  England 53 million.  Canada builds (annualised seasonally adjusted) around 196,000 units a year, in England we build around 106,000.  So clearly the message from Carney to Osborne is there is nothing more I can do so you need to undertake measures to increase housebuilding, and top of Osborne’s list is liberalise planning.  He has already had two rounds of this.  Round one the NPPF, round two liberalising changes of use.

Late in 2012 Carney took measures to cool the Canadian housing market which by some measures is the most overvalued in the world.  He clearly is using the same measures designed to achieve a ‘soft landing’. So far this has been successful in Canada, the property has cooled without crashing, though with declining inventories it is still high risk territory.

The fact that the Canadian market is experiencing a housing bubble despite a much more elastic housing market and planning system suggests that planning alone is not the cause of housing bubbles.  Although it is easy to sprawl or go tall in most Canadian cities Toronto and Vancouver have housing markets which are probably the most overheated in the world.  Vancouver for example has a shelter cost to income ratio of over 89% the worst in the world.

Throughout history we have seen housing bubbles explode to devastating economic effect in countries with no or weak planning systems (Melbourne 1870 for example).  So planning by itself is not the cause of bubbles.   Cities are constrained by geography such as the Sea or the fact that central locations are intrinsically in short supply and that supply cannot be increase (there is only one central Toronto).  This is essentially Homer Hoyt’s theory of housing bubbles.  The popping of housing bubbles always occurs first in the most overpriced markets and national statistics can conceal this. Rather a plentiful supply of housing has two consequences.

1) It lengthens the upside of a housing boom.  So countries which have plentiful supply ride that wave longer, in the same way that countries that take measures to extend credit (such as Australia) can extend booms.  But this does not prevent them eventually bursting, and because of the prolonged growth they may burst more spectacularly

2) Low housing affordability makes economies extremely sensitive to rises in interest rates.  Carney

“Think about the mortgage you are taking on, the debts you are taking on,” Carney said when asked what his message was to those aspiring to get on the housing ladder. “You are taking at least a 25-year mortgage, maybe a 30-year mortgage.

Here we have a problem comparing Canada and England in terms of housing affordability.  For England has terrible statistics.  If one looks at house price to earnings ratios England does not look too bad compared to Canada.  However this is comparing a flow (income) to a stock (house price).  Canada on the other hand uses shelter-cost-to-income ratio, flow of housing payments compared to flow of income.  The importance of the difference comes when we consider the sensitivity of the economy to a rise in interest rates.  House prices to incomes ratios (which should be median house prices compared to median incomes) don’t show the increase in housing service costs when interest rates rise.  Then the shelter-cost-to-income ratio shoots up and the most levered households with the most precarious incomes can default, flooding the market with repossessed properties and causing debt-deflation.  Much of the crisis in England’s housing supply situation has been concealed by very low interest rates increasing housing affordability despite low supply.

Another problem of comparison is that many in Canad to maintain affordability have been forced out to further and further remote locations, with lower incomes and higher transport costs, transport costs subsidized through the short term fall in oil prices caused by shale.

All of this illustrates that an extreme neo-liberal response to planning will not prevent housing bubbles of their bursting.  The best way of avoiding a housing bubble is to build public housing at low rents for those who would otherwise take out highly leveraged loans (sub prime) or fuel a buy to let bubble in those seeking to supply for generation rent.

Does it Matter how Late a Local Plan is in Green Belt Housing Appeals? – It Appears Not

Sorry no chance before to comment on the 14th Nov Recovered appeal decision in Nuneaton and Bedworth – A green belt site proposed for 150 homes + 150 permanent moorings.    Planning says this is the ‘ the first such case to come across his desk following a pledge this summer to take action against inappropriate development in the green belt.’ slightly misleading as that statement drawing attention to para. 83 of the NPPF that boundaries should only be altered in exceptional circumstances through the review of a local plan has been referenced privately to MPs on many occasions by Pickles as being implemented in a previous recovered appeal decision at Thundersley.

Pickles has a problem though in that that appeal has gone to JR.  One of the grounds being that this reference to the para/ 83 was faulty.  One problem is that this para refers to altering plan boundaries, the ‘exceptional circumstances test’ wheras for planing applications it is the the ‘very special circumstances test’ and an application for housing in the Green Belt doesn’t not have to alter its boundary.  Though arguably it can be of such a scale as to render the previous boundary meaningless at that location.   Also at Thindersley the SoS did not properly weigh up the benefits of the proposal against the length of time likely to get a new plan.

In this case the SoS avoids any such arguments by not mentioning the likely time to produce a new plan.  It is decided solely on vanilla and familiar very special circumstances tests.  What does this mean then for Pickles ref to Para. 83, well its not worth the paper its written on.  This appeal, the Exhall appeal, does indicate though little comfort for other major schemes in the Green Belt hoping to set a precedent, such as the well known Hunston site at St Albans.    As here even if the recent JR fails the SoS would be likely simply to state that ‘on balance’ the Green Belt test is not met as the benefits (including new housing when there is not a 5 year supply)  don’t outweigh the harm to the extent necessary yo meet the VSC test.  Whereas of course outside the Green Belt the opposite almost always applies.

Cotswold Case on the Definition of Persistent Underdelivery

Planning Resource  here is the Balli ref.  The only thing I would add is that in the ‘other case’ referred to the Inspector used a method of calculating the 5 year supply that was found unlawful in the Hatcham/St Albans case – which itself goes to JR this week.  So as many predicted the vagueness of the NPPF is leading to endless JR’s

Cotswold District Council took the case to court after its decisions to reject two housing proposals at Tetbury in Gloucestershire were overturned on appeal by the government in February.

Councillors were upset that the 289 houses are planned for Highfield Farm and Berrells Road, both in areas protected for their natural beauty.

But after hearing the local authority’s challenge to the decisions, a High Court judge yesterday effectively gave the schemes the go-ahead.

Mr Justice Lewis said the decisions on appeal to reverse the council’s refusal of outline planning permission in the two cases were “lawful”.

The court heard that the Regional Spatial Strategy for the South West had pinpointed a need for 2,022 houses in the area over the next five years.

But the planning inspector considered the council had persistently failed to deliver enough houses and added a 20 per cent buffer, making a total of 2,426.

And, because the council was only able to show it had enough land available for 1,711 over the next five years, that left a “very serious shortfall”.

Due to that shortfall, the policy restricting housing outside existing development boundaries had to be considered out of date, the inspector found.

And due to a “severe” shortfall in housing in the council’s area, the developments were in the public interest.

Lawyers for the council argued at the High Court that the inspector had misconstrued the meaning of “persistent under delivery of housing”.

The secretary of state, Eric Pickles, in allowing the appeals on the inspector’s recommendation, had also failed to take into account an important consideration.

The council argued that, in another case in the Cotswolds, a planning inspector had not added the 20 per cent buffer on the grounds he was not convinced there was a persistent record of under-delivery.

But giving judgment, Mr Justice Lewis said that, whichever way it was looked at, there had been under-delivery of housing land which could be characterised as “persistent”.

And since the decision on the other case had not been drawn to the secretary of state’s attention, he did not need to take it into account.

“The decisions of the secretary of state in the Highfield and the Berrells Road appeals are lawful,” the judge continued.

“The inspector, and hence the secretary of state who adopted her reasoning, correctly interpreted the relevant policy and reached conclusions that were open on the material available.

“The secretary of state did not fail to have regard to a material consideration.”

Malthus’s Silver-Corn Model and the None-Neutrality of Money

The reader will recall from a previous post on Ricardo’s criticisms of Bentham’s argument that the production of paper money would lead to increased output.  Ricardo’s argument was based on what he himself called his key economic principle – the purchasing power of money was regulated by its cost of production.  Although we often now talk of the ‘classical dualism’ of prices of goods and prices of money being determined by different laws this is reality is a monetarist dualism as Ricardo was very clear that the same principles of value theory determined both.

It struck me after writing the last letter that Ricardo missed a very good example which showed a serious weakness and necessary correction in his argument.  This arose from Malthus’s well known ‘silver gathered on a sea shore’ argument in his letter to Ricardo of the 10^th Sept 1819   , answered here , leading to a debate which continued to the end of Ricardo’s life.

Malthus

If we suppose half an ounce of silver on an average to be picked up by a days search on the sea shore, money would then always retain most completely the same value. It would always on an average both cost, and command the same quantity of labour. The money price of labour could never permanently either rise or fall.

 This scenario is oddly similar to Keynes parable of digging for money hidden in bottles and I guess was probably its source.

What Malthus was doing here was deliberately contriving a model with no fixed capital, no rent and no capital advances, other than the need to provide food to feed the laborer one day in advance.  This was designed to produce a scenario where the money wages of labour was the same in Malthus’s measure of value (labour commanded) and Ricardo’s (labour embodied) to take these arguments out of the discussion and solely consider the issue of how the rate of profit and price of wages goods was regulated.

Ricardo called Malthus’s assumptions ‘extreme’ and ‘contrived’.  The arguments subsequently took as read that the ‘value’ of the money produced would be of the same value and that any price effects would be due to the shifting of labour from production of wages goods to production of money.  Both authors also occasionally touched on the nominal and real issues involved and the consequences to prices of the variations in production of money.

Its seems however that both missed something important.  That given that prices are expressed in the nominal unit of exchange any increase in production of money would have a denominator effect on the purchasing power of the money produced.  Take an extreme example of 10 labourers  producing corn the other 2 gathering silver.   If silver is rare to begin with and the quantities of silver gathered high then the circulation of money would rapidly increase and prices would rise.  Labour would be attracted from corn to silver gathering further increasing the production of money, and leading to diminishing returns and further increasing the price of corn due to reduced supply.  Eventually the profits from producing corn would rise to the same as those from producing silver and we would have an equilibrium.  On the way though we have a disequilibrium process caused by increasing the stock of money.  We also have an strong incentive to invest capital in corn to increase productivity due to increased corn wages.  Hence the value of money in the short term is not simply to be measured in terms of cost of production but the cost of production discounted by the increase in circulation.  Ricardo is right however that in the long term if we get to equilibrium the real economy adjust (and in our terms the discounting vanishes) as production changes and rates of profit are equalised.

Here we can see a fundamental modification to the law of markets which I think is equivalent to Keen’s Schumpeter-Minksy law if we break down algebraically the components of change arising from income from production and income from the effect of the change in the circulation of money.

Of course today we don’t have metallic money but money has a cost of production, and that cost is the opportunity cost, either from Crusoe type savings or from reductions in future income to pay back debt.  Therefore you can extend the same silver-corn model to todays economy between those producing to increase the production of money to pay off debt and those producing for consumption.  The effect is the same.  The more we produce for the former the higher wages rise but always offset by the reduced purchasing power of those wages due to higher prices of wage goods.   This assumes free entry.  If we allow for rents from those holding the resources producing the unit of exchange real wages will not necessarily stay the same.  Also if those producing for paying back debt and those producing consumer goods are the same people for different part of the working day wages will not rise but prices would, so we have a business cycle  as real wages would be squeezed more and more as debt rises until debt becomes unpayable.

Malthus’s response in producing his ‘constant value of labour’ theory to rescue as he saw it this labour commanded theory deserves its own post no least because it was highly influential to Sraffa.

Regular readers of this blog will also know that it was discovered after Ricardo’s death that introducing fixed capital into the equation makes no difference (the Mill-Longfield recalculation approach – acknowledged by Torrens and JS Mill to remove objections to the theory of value).  If I have time I hope to write an extended piece on what to may mind was possibly the key discovery of classical economics after the death of Ricardo was almost completely forgotten.

So the New Homes Bonus is Not a Bonus for Delivering New Homes Minister Admits!

A desperate attempt to get the policy, and Bungalow Bob Kerslake,  off the hook after the recent PAC savaging of the policy.  If it is simply a reward for what would be built anyway then judged against this money shredding criteria for success the policy can never fail.

Gaurdian

When MPs sought to discuss the government’s exciting new homes bonus initiative, Kris Hopkins, the housing minister, seemed just the man to allay any fears. But by the end of Monday’s debate, things were as cloudy as the view through a dirty window. This scheme seems to be a bit of a turkey, complained David Lammy. “I am sorry, but the honourable gentleman clearly does not understand the scheme,” said Hopkins. He rightly told MPs that “the bonus itself is not for building homes”. It is a sweetener for those local councils that allow more housebuilding. But Hopkins went further. He also said: “I am afraid the new homes bonus is not about encouraging people to build homes.” Which had many MPs scratching their heads, because if one turns to the website of Hopkins’ Department for Communities and Local Government, it says: “We’ve introduced the new homes bonus. This is a grant to local councils for increasing the number of homes and their use.” In February Mark Prisk, Hopkins’ predecessor, said: “This country needs to build more homes, and that’s why the government is giving communities a reason to say ‘yes’ to growth through the new homes bonus.” And in 2010, Grant Shapps, then housing minister, wrote to local authorities promising that: “In April 2011 we will introduce the new homes bonus, a powerful fiscal incentive for local authorities to deliver more homes.” All of which might qualify as encouragement, you might think?

Tandridge May Need to Nearly Quadruple Housing Targets in Core Strategy Review

Interesting report from Tandridge.  They adopted their plan, subject to an early review, whilst the SEP RS was in operation.   Now they reckon in the review they will have to increase their targets from 120 or so a year to around 450 or so a year,  Tellingly the report says that no tone of the authorities will be able to meet its needs without loss of Green Belt.

No Surprises that Pickles Solar Decision goes to JR

This was the worst decision in years.  This isnt an issue of whether or not you are pro- or anti the type of application,  In Planning the decision maker has to sit in a quasi judicial role and play by policy and the law and not make it up as we go along.  We first suggested this case was challengable here.

Planning Resource

The developer behind plans for a 24MW solar farm in Suffolk has confirmed that it is launching legal proceedings against communities secretary Eric Pickles over his decision to refuse its project against the advice of a planning inspector.

Lark Energy took the case to appeal after it was refused by Waveney District Council on landscape grounds in February. The size of the proposal had been reduced from 30MW following objections from local residents.

In his report, the inspector said that harm to the character and appearance of the landscape was “limited”.

However, Pickles later ruled that the damage that would have been caused to the local landscape outweighed the benefits from renewable energy generation.

His decision letter stated: “The secretary of state agrees with the inspector that the harm to the character and appearance of the area would not amount to significant adverse effects but, nevertheless, considers the effect on the character of the site, although limited, would be adverse.”

The council had already approved a solar farm to the north of the appeal site, Pickles noted. This project would have less landscape impact than the appeal proposal, he said. The project at appeal would also harm an agricultural landscape character area, he judged.

Lark Energy managing director Jonathan Selwyn said that Pickles’ decision had caused great concern in the renewables industry. He said: “It is very rare for the secretary of state to overturn an inspector’s recommendation and this was not a borderline case.

“If the secretary of state decides to ignore an inspector it clearly has serious implications.”

It was only the second solar farm project to be decided by the secretary of state, the other being a 3MW project in South Northamptonshire. But in October Pickles pledged to intervene in more renewable energy planning decisions.

Labour Pledges to Build Five New Towns Starting in First Five Years of Office – They Will Need More

Observer Note however that unless Labour raises its target of 200,000 a year they will rather than avoiding creating a shortage of 1 million homes they will raise the shortage from 1 million to 1.75 million given household growth of over 240,000 a year and the current backlog, assuming the increase in house-building occurs gradually rising to around 200,000 over 5 years.    This means we will need more like 10 or 20 new towns rather than 5.  Assume for example that there were 5 new town of design size of 200,000 – the design size of Milton Keynes in the original masterplan, which took 25 years to reach.  So even if started after say three years they will probably only yield around 500-1,000 units a year each in the last two years, around 10,000 units.  It is only over 25 years that new towns/garden cities have a significant yield.    Given thus likely build out time, the increase in the backlog over the 5 years and the inevitably slow build up in number from the current 130,000 or so units a year the scale of the backlog will have grown to the extent that we will need at least 8 and possibly more if the new towns are smaller than 200,000.

New shadow housing minister unveils plans to head off projected shortage of a million homes by 2022

Five new towns will be built in the first five years of a Labour government under plans being drawn up by the party, its new shadow housingminister has claimed. Emma Reynolds said the towns would be built in those areas of greatest need in a bid to tackle a projected shortage of a million homes by 2022, which experts say would force many young people to live with their parents well into their 30s.

The Labour MP for Wolverhampton North East added that in finding sites for the new urban centres the party was aware of the benefits of locating them near the proposed high-speed railway from London to the north-west, known as HS2.

A spokesman for the Home Builders Federation told the Observer that the assumption within the industry was that most new towns would be built within easy reach of London to satisfy those with jobs in the capital but who were unable to live there.

Outside London, the local authorities with the greatest need for new homes due to rapidly rising populations are East Cambridgeshire and Welwyn Hatfield in Hertfordshire, according to government figures.

Reynolds said she understood concerns about the potential for urban sprawl blighting the countryside and the sensitivities of those living in what are now quiet villages. But the shadow minister, a former special adviser to the then minister for Europe, Geoff Hoon, said she believed that the frenetic housebuilding of the postwar years – in which, among others, Basildon in Essex and Stevenage in Hertfordshire emerged – should be a model for Labour.

“The last time there was a massive increase in housing supply was in the postwar period and we want to recapture that spirit,” said Reynolds. “I don’t think we will do as well as the Attlee government, with 11 new towns; I think that is quite a lot. I would love to think we could deliver four or five, and that would still be significant.

“At the moment we are building less than half of the houses we need to keep up with demand, and that is why the market is so dysfunctional.

“I think there is enough land in the country to meet housing need and have a fantastic countryside. Of course, we want to protect that and have green spaces. This isn’t just about numbers, and that is why the garden city model is interesting. We want quality new towns.”

The number of affordable houses and flats built in England fell sharply last year, according to government figures released last week, highlighting the pressures facing first-time homebuyers. Just 107,950 homes were built in 2012-13, well short of the 250,000 to 300,000 extra properties that experts believe are needed every year to keep pace with growing demand.

Reynolds said the government had done next to nothing to promote housebuilding, but that Labour would create an incentive for local authorities to hand over large swaths of land to development corporations.

The Treasury would then act as a guarantor for the corporations when they borrowed money on the private markets to fund the building of the new towns. Labour plans to build 200,000 new homes in every year of a new administration.

Reynolds, who owns a home in Wolverhampton which she bought when she was 30, and rents a flat in London, said the coalition government had merely promoted demand with its help-to-buy schemes, under which the Treasury offers a loan to buyers of up to 20% of the value of their property purchase if they have a 5% deposit. She said: “They have done next to nothing on supply”.

Reynolds also revealed plans to clamp down on a growing trend within London, in particular, of foreign investors buying properties, but leaving them empty. She said London was being hollowed out and that those buyers were doing little or nothing for the British economy.

Local authorities can currently charge those who own empty homes 50% more in council tax. Labour, Reynolds said, would give local authorities the power to charge even more and the ability to do so after a year or less. She added that currently investors could avoid additional council tax by furnishing their property with a table and chair, but that this loophole would also be closed.

A former lobbyist in Brussels who was shadow Europe minister until her promotion in October, Reynolds said: “I don’t have any problem, as an internationalist, with people coming here to work, renting or buying and paying into the economy. I do have a problem when people are just buying property and not paying into the system.”

St Albans Finally Publishes Independent study into Housing Needs

Regular readers of this blog will have followed the saga of St Albans which at the last minute pulled away from the fatal decision of going to submission without ba proper SHMA or Strategic Green Belt review.

The SHMA has now been published.

Hunston Green Belt Case in High Court this Week

St Albans

Council seeks leave to appeal to the Court of Appeal on Green Belt planning issue

 

St Albans City and District Council is seeking the Court of Appeal’s permission to appeal against a 5 September High Court order quashing a planning inspector’s decision.

The case refers to an appeal by Hunston Properties Ltd related to land in the Green Belt to the rear of 112-156B Harpenden Road, St Albans.

Notes for editors

Background:

Hunston Properties Ltd (Hunston) applied to the High Court for an order quashing a decision of a Planning Inspector.  The Inspector had dismissed Hunston’s appeal against the Council’s refusal to grant outline planning permission for a site to the rear of 112-156B Harpenden Road, Sewell Park, St Albans.

The planning application in question is for the construction of 116 dwellings, a 72 bed care home, a new road access, two tennis courts and open space.

The site is in the Green Belt.

The Inspector, in dismissing the Appeal, had awarded 20% of the Council’s costs of the Planning Inquiry.  Hunston also asked for Judicial Review of that cost decision at the Hearing.

The Hearing took place in Manchester on 1 and 2 August 2013.

His Honour Judge Pelling QC, sitting as a High Court Judge, quashed the Inspector’s decision to dismiss Hunston’s appeal.  He upheld the Inspector’s decision to order Hunston to pay 20% of the Council’s Inquiry costs.

The full Judgement given on 5 September 2013, can be downloaded at the link provided below.

The case concerned, principally, interpretation of paragraph 47 of the National Planning Policy Framework (NPPF).

Hunston challenged the Inspector’s assessment of whether the planning application in question demonstrated the existence of “very special circumstances” necessary to warrant development in the Green Belt.

The Inspector’s conclusion was based on St Albans needing to meet a target of 360 dwellings per annum, the same as the revoked East of England Plan.

The Council’s case was that at 360 dwellings per annum, its 5 year housing land supply could be accommodated on sites identified by the Council.

Hunston argued that by adopting the 360 figure, rather than a need figure of 688 per annum, the Inspector misconstrued and misapplied relevant parts of the NPPF.  The 688 per annum figure comes from the Department for Communities and Local Government 2008 based household projections.

The Judge considered (in paragraph 30 of the Judgment) that the Inspector’s approach was “wrong in law” and the proper course involved assessing housing need for the district, “then identifying the unfulfilled need having regard to the supply of specific deliverable sites over the relevant period. Once that had been done it was necessary next to decide whether fulfilling the need in fact demonstrated (in common with the other factors relied on in support of the development) together clearly outweighed the identified harm to the Green Belt that would be caused by the proposed development.”

The grounds of appeal are that the High Court erred in law by wrongly interpreting paragraph 47 of the NPPF as requiring the housing requirement figure in calculation of 5 year housing land supply to be the objectively assessed housing need figure without any potential reduction through achieving consistency with other parts of the NPPF.

 

Contact for the media:

Claire Wainwright, Principal Communications and Marketing Officer

St Albans City and District Council

Tel: 01727 819572

E-mail: claire.wainwright@stalbans.gov.uk

http://www.stalbans.gov.uk