Peter Bill on planner gains and competition authority pain

Fine, maybe, as a marketing boast, but to go as far as demanding an overage payment for ‘planner-gain’ – or however the payment is dressed up in the contract – is wrong. This agreement seems to blur the line between being paid fees for delivering professional services and profiting from the nudge-wink suggestion of an over-close relationship with public planners. Councils can expose the practice by simply asking the right questions.

Meanwhile, perhaps the Royal Institution of Chartered Surveyors (RICS) Standards and Practice Board might like to mull the propriety of planner-gain – or indeed any ‘win bonus’ arrangements for achieving permission.

Supplementary question: should more planners be hired by councils? ‘Yes!’ scream those forced to wait interminably for a decision from some uncontactable junior working at home in their pyjamas – a premise based on the shaky assumption there are planners for hire out there at public sector wages.

Yet bigger developers have affected nonchalance following last month’s news that fees are set to skyrocket, by 35% for major and 25% for minor applications. Why? Because in return for a 35% rise, big developers are to be allowed to pay even more for ‘fast-track’ access, further blurring the line between public good and planning gain. Who says no to high-paying customers with a direct line?

As for minor developers, well, we can’t have them pestering our planners, can we? They would never get any work done for their bigger clients.

CMA market study

Should volume housebuilders be worried by the ‘market study’ being undertaken by the Competition and Markets Authority (CMA)? The 33-page ‘statement of scope’ published on 27 February makes it clear the CMA is going to swerve the false premise: ‘If only we fixed the planning system, 300,000 homes a year could be built.’ Thank goodness.

Instead, the plan is to look at how big housebuilders operate. How consumer harm “might be caused by land acquisition practices, pricing policy, profitability, quality and innovation”. The volume builders are presumably burning the midnight oil right now, putting together answers to the 69 questions they have been asked, as the deadline for responses is 20 March.

Here is one response: the land market is opaque and bears surgical examination. Tick. Pricing policy? New house prices are tied to old house prices – you can’t fix the price of old houses. Profitability? Er…we live in a capitalist society. Quality and innovation? What have they got to do with competition? Nothing.

But there is one little-appreciated practice that deserves examination: should volume housebuilders make money by lending money? In the case of major housing projects, which can take a decade to complete, interest costs can run into the millions over the first few years.

Development appraisals have a debit line showing the cost of finance, these days around 6% to 7%, plus arrangement and exit fees. Volume builders generally tend to generate piles of cash. So, why would they need to borrow to finance their next big development? The answer, of course, is they don’t; they lend their own money – currently at about double the rate of interest they’d get elsewhere.

One member of parliament who sits on the All-Party Parliamentary Group for housing seemed pretty cheesed off when he mentioned it to me the other week. Not that he thought much could be done.

Maybe not. But landowners selling to housebuilders and councils arguing over how many affordable homes can be afforded to be subsidised should be aware that the cost of finance line might be double what the finance is actually costing the developer. Because the overall effect of the inflated charge is to lower both the residual land value and the number of affordable homes.

Peter Bill is a journalist and the author of Planet Property and Broken Homes