Cameron’s Plan to Revive U.K. Housing Hit by Regulations

U.K. Homebuilding Veteran Says Planning Stifles Rivals’ Rise
Homebuilding starts have dropped by more than half since their peak in 2005 and completions are 39 percent below a March 2007 high, according to the Department for Communities and Local Government. Photographer: Paul Thomas/Bloomberg

At 21, Steve Morgan borrowed 5,000 pounds ($8,100) from his father to start a business that would become U.K. homebuilder Redrow Plc. Four decades later, he says he couldn’t repeat the feat in Britain.

“Where are the young Tony Pidgleys and Steve Morgans?” the 59-year-old Redrow chairman said in an interview, referring to the founder of Berkeley Group Holdings Plc, one of his biggest competitors. “They’re not coming through and the reason is twofold. One is planning and the other is capital and lack of finance.”

Prime Minister David Cameron has tried to stimulate the homebuilding market to help lift the U.K. out of a recession. The government passed legislation designed to ease planning approvals last year and introduced several initiatives to help buyers get mortgages. Housing starts fell 10 percent in the three months since a new planning framework was approved in March, according to government data.

Like Morgan, 65-year-old Pidgley founded his own company. Redrow, based in the Welsh town of Flint, is the smallest of the U.K.’s seven publicly traded homebuilders, while Berkeley is No. 2. When they started out, the companies could normally get planning permission for new projects within two months, Morgan said in the September interview. Now, he says, it’s much harder. Pidgley wasn’t available to comment.

The government’s decision to increase local control over planning approvals as part of a larger decentralization of power sparked criticism from homebuilders, who said it would hinder development. The Localism Act, which received final approval in November 2011, scrapped regional homebuilding targets that were used under the preceding Labour government.

Council Incentives

To encourage local planners to approve projects, Cameron’s government offered financial incentives such as matching local taxes paid on new homes for six years. It also whittled down more than 1,000 pages of regulations to 52 to simplify who can build what, where and how fast. In March, amendments were added including changes to improve environmental protection.

Redrow’s plan to redevelop a derelict paper mill in Sudbrook, Wales, into 300 homes was rejected by the Monmouthshire County Council on Oct. 2, a planning document shows. The council cited an increase in traffic, inadequate infrastructure to support such a large development and “an adverse impact on the historical form and character of the village of Sudbrook” as reasons for turning down the project.

Kate Logan, a Redrow spokeswoman, didn’t respond to an e-mail seeking comment.

Little Effect

Barratt Developments Plc, Britain’s largest homebuilder by volume, said last month that planning and regulation are becoming increasingly complex.

“Although planning reform was introduced via the National Planning Policy Framework, it is unlikely that this will have a material short-term effect on the group,” the London-based company said in an earnings statement.

The U.K. Department for Communities and Local Government didn’t return e-mails or calls seeking comment. The department is responsible for implementing housing policy.

The government took further steps to encourage housing development in September, removing requirements to include low-income and state-subsidized residences in building projects. It also eased restrictions on extending existing homes and businesses. Cameron expressed frustration with local planners prior to introducing the measures.

Planning ‘Paralysis’

“A familiar cry goes up: ‘Yes we want more housing; but no to every development -- and not in my back yard,”’ the prime minister wrote in the Mail on Sunday on Sept. 1. “The nations we’re competing against don’t stand for this kind of paralysis and neither must we.”

The Campaign to Protect Rural England rejects the idea that looser planning controls are needed to boost the economy. The lobbying group says encroaching on the undeveloped “green belt” between cities would lead to U.S.-style urban sprawl and damage to the countryside.

“The countries with the most deregulated planning systems in the European Union are Greece, Spain, Portugal and Ireland and the countries that have the tightest regulation on planning include Germany and the Scandinavian block,” Jack Neill-Hall, a spokesman for the organization, said by phone. “So saying that planning is our greatest block on the economy simply isn’t the case.”

The U.K.’s planning process has been a drag on building long before the current government took office, according to the Home Builders Federation, an industry association.

Slow System

“We went from a fairly market-responsive system in the 70s and 80s to a bureaucratic plan in the 90s and 2000s, where local authorities ultimately control the supply of land,” John Stewart, director of economic affairs at the federation, said by telephone.

Homebuilding starts have dropped by more than half since their peak in 2005 and completions are 39 percent below a March 2007 high, according to the Communities Department. Housing starts totaled 21,540 in the three months through June. About 60,000 new homes are needed each quarter to keep up with the growth in households, the Office for National Statistics estimates.

Though the government’s efforts to simplify the planning process will help boost approvals, they’re not enough to counter the decline in lending, according to the Home Builders Federation.

“Until mortgage availability comes back and builders can sell homes, they are not going to be putting in the volume of planning applications that they are required for the number of homes needed,” said Steve Turner, a spokesman for the group.

‘Conservative Borrowers’

Mortgage approvals in August fell 9.1 percent from a year earlier to 47,665, according to Bank of England data. Gross mortgage lending fell 1 percent in August from the previous month to 12.6 billion pounds, the Council of Mortgage Lenders said on Sept. 20.

“People are acting conservatively in this weak economic environment, maintaining debt repayments and building up deposits,” British Bankers’ Association statistics director David Dooks said in a Sept. 25 statement. “Household mortgage approvals are improving slightly, but unsecured borrowing continues to be subdued.”

U.K. banks have reined in lending to comply with stricter capital rules even as interest rates retreated to record lows. Lenders typically require deposits of 20 percent to 25 percent, compared with zero to 5 percent before the financial crisis, putting homes out of reach for many first-time buyers.

Lender Protection

In the last year, however, U.K. banks have showed increased interest in financing real estate development projects on expectations that Britain’s economy will recover more quickly than elsewhere in Europe, according to a study published today by construction consultant EC Harris.

Since the second quarter, the government’s NewBuy program has helped buyers get mortgages with a 5 percent deposit. The loans include a guarantee shared by the state and the homebuilders that protects lenders from some of the losses they would incur in a default.

Purchasers of 250 homes used NewBuy in the second quarter, the communities department said on Sept. 27. That’s not enough, according to John Hitchcox, chairman of residential real estate developer Yoo Ltd.

“Getting housing moving is about easing the supply of credit and about getting the market moving,” he said in an e-mailed statement. “If you sort out housing, you fix a myriad of social issues: education, disengaged youth, health and crime.”

Redrow has sold about a quarter of all the homes purchased through NewBuy in the 12 months through June, according to its annual results statement on Sept. 19.

‘Disappointing’ Interest

“The take-up so far has been disappointing, with just 63 customers choosing to use the scheme and many more discouraged by the high interest rates charged by most of the participating lenders,” the company said.

Morgan is leading a takeover approach for Redrow that would value the company at about 562 million pounds. A U.K. Takeover Panel deadline to make a firm offer or withdraw has been extended to Oct. 18 following a request by the company, Redrow said yesterday. The shares closed at 158.90 pence in London trading yesterday, higher than the 152 pence price indicated by the group on Aug. 31, a sign that shareholders expect an improved bid.

Redrow’s legal completions fell 6 percent to 2,458 homes in the year through June 30. The company, which has the capacity to double the number of units it builds, will constrain its volume while planning slows down development and restricted mortgage lending deters first-time buyers, Morgan said at the Celtic Manor Golf resort in Wales.

“Anything that slows down development, particularly when the principle has already been agreed, is a barrier to jobs and economic prosperity,” Morgan said. “We build less houses, there’s less jobs, less stamp duty. We would like to be doing a lot more than we are.”

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