The seventh Duke of Westminster should read Southwark Council’s 166-page report on why it last month rejected £800m plans to build 1,343 flats and a new school in Bermondsey. The council wanted 35% of the homes to be rented at 25% below market rent, rejecting Grosvenor’s 27.5% final offer.
Hugh Grosvenor should aim one of his well-polished brogues at the pants of those in his business who wasted millions over five years trying to prove they could build homes for poorer folk, but only succeeded in making a 28-year-old billionaire look like Scrooge.
The refusal rested on more than a difference of opinion on the homes’ affordability. When Grosvenor paid Workspace £51m for the 12-acre biscuit factory site in 2013, the site had permission for 800 homes and a one-acre park. Well-regarded housing architect Karakusevic Carson was appointed and moved offices to the site. Grosvenor basked in a philanthropic glow. But Karakusevic Carson was soon replaced by US skyscraper specialist KPF. An extra 543 units over the original permission were included in the October 2017 application. The BTR homes rise to 28 floors.
Southwark’s non-financial objections include: packing in 832 habitable rooms per hectare, above 1,500-unit site guidelines of 700; only 55% of the flats had windows on more than one wall; a quarter of 500 living and living/kitchen/dining rooms tested failed to meet theoretical average daylight factor criteria. If Grosvenor were just another London developer, these things would not merit comment. The Duke’s people will argue, correctly, that the scheme is designed to higher standards than those of Cheapskate & Throwup. But this is missing the point: you are Grosvenor for heaven’s sake.
Grosvenor’s consultant DS2 says only a 7% internal rate of return is possible at 35% affordable, not the 12% Grosvenor wants. Southwark’s consultant, GVA, says the Duke can squeeze a 10% IRR. DS2 says the gross development value is £765m based on rents Grosvenor believes to be achievable, but GVA says if you charge more, the GDV is £873m. Grosvenor says OK, if we do, let’s talk. They say financing BTR will cost £137m. GVA says that’s ‘not relevant for IRR’. Grosvenor has produced a robust public defence of its position. No matter. The public will think, ‘for heaven’s sake, the guy’s worth £9bn’.
The evils of CIL/section 106
Money twists and corrupts the planning system. The government is trying to reform the Community Infrastructure Levy (CIL) and section 106 obligations, asking for councils’ negotiations with developers to be made more transparent. The National Audit Office last month attacked the way developers “renegotiate lower contributions through section 106 agreements on the grounds of financial viability” and suggested that “some local authorities are unable to negotiate effectively with developers”. Not Southwark, clearly, but the propensity for scandal at a less robust council is high.
These moral hazards are so commonplace that nobody raises an eyebrow
What happened to capitalism and its democratic check, the planning system? Developers take risks and reap rewards – or losses? Councils ensure their bailiwick is not overbuilt based purely on planning criteria? Cash long ago poisoned this compact. A sub-industry has mushroomed to justify what can be an unspoken exchange of planning permission for cash. Developers routinely plead poverty to chop contributions. Councils depend on developers’ money to fund local improvements – and their planning departments. These moral hazards are so commonplace that nobody raises an eyebrow.
Fifteen years ago, at the conception of what became CIL, the Big Idea was to supplant section 106. No need for complex negotiation if councils published tithes per square metre of the gross development area. So, will section 106 be replaced by a higher CIL? Not a chance. The NAO reported last month that only 47% of authorities have implemented CIL. In 2011, the government expected that figure to lie between 82% and 92% by today. For years to come, everyone will rub along unhappily with a system that compromises relationships and embarrasses pauper councils and rich dukes alike.