Academic hypocrisy

Given the amount of obfuscatory pleonasm (you see, we can’t help ourselves but, to be clear, it’s meant to be a joke) that academics often spew, it may be a bit rich for me to be pointing to some of the nonsense spouted in the business and management world.  But – Lucy Kellaway’s FT article reflecting on 25 years of failing to stem the flow is too good to miss.    She’s particularly harsh on the highly successful Starbucks chairman, Howard Schultz.

Howard Schultz is a champion in the bullshit space. The Starbucks executive chairman has provided me with more material for columns than any other executive alive or dead. Yet he is still at it, and still out-doing himself. Earlier this year, he announced that the new Starbucks Roasteries were “delivering an immersive, ultra-premium, coffee-forward experience.

There’s a good-natured and humorous reply from someone alt Starbucks today which also made me laugh.

She also quotes Eversheds who are a pretty run-of-the-mill regional law firm.  I was surprised to see them in this company.  I’ve met some of their partners over the years and they seemed like ordinary, grounded people to me.  Something obviously went wrong in HR when in 2007 they

tried to appeal to young recruits by looking for “knowlivators, innovateers, performibutors, proactilopers, prioricators and winnomats” — the last being a particularly unwinning combination of winners and diplomats.

 

The big shrink?

There’s a dramatic piece in the FT today by Robin Wigglesworth setting out a very bleak picture of the prospects for the US retail sector.  Some memorable figures are quoted.

PwC estimates that there is about 24 sq ft of retailing floorspace per person in the US, compared with 11 sq ft in Australia — the only other developed country that comes close to the US — and between 2 and 5 sq ft in Europe…

Goldman Sachs estimates that ecommerce companies only require 0.9 employees per $1m of sales compared with 3.5 for a bricks-and-mortar store, 

There’s a strange contrast between the apocalyptic tone of the FT article and the fact that the ULI Consensus Forecasts for retail rental growth in the US is 2% per annum for the next three years.  It’s also worth noting that availability rates in the US retail sector have been shrinking for the last three years.  Can both be right?

Network affects?

Anna Minton has quite a provocative piece in Guardian about the ‘revolving door’-type lobbying and power networks that can be found in the planning and development sector.  I’ve seen lots of secondments to and from local and national government and large planning and development consultancies and developers themselves.   Most organisations try to build relationships with decision-makers in order to understand the decision-making process and to influence decisions. In property development, huge profits can hinge on fairly subjective political judgements.  You can see the potential benefits in terms of exchanging knowledge and understanding but the potential for conflicts of interest are obvious.  It’s a hard one to govern effectively.   Lobbying is pretty pervasive in business.

Doing well by doing, er, broadly the same.

The FT Lex Column has a nice piece on Barratt Homes comparing their relative position in 2007 and 2017.  The big picture looks pretty benign.  Gearing levels are currently negligible compared to 2017.  With 80% of their units as houses (compared to c50% in 2007), they’re more focussed on low density schemes.  Such schemes also tend to be less risky.  Not least because they are easier to stop, slow down and change in the event of a downturn compared to large, high density, single building schemes.     I’m a bit puzzled by Lex’s claims on land banks.

It also spends proportionately less on new land and returns a lot more cash to investors. Given that land prices have not kept pace with house prices, and with its low indebtedness, Barratt could easily afford to be more aggressive with land purchases. These days housebuilders tend to view land in the same way that airlines view fuel: a raw material whose significant cost needs to be aligned with near-term selling prices. Land speculation, via long land banks, is out of fashion.

But – they’re still holding about five years of land ‘inventory’ – not much change since 2007.    The land bank tends to record land holdings that have planning permission.  I would like to know more about the so-called strategic land holdings.  They may have shifted towards using options and/or promotion agreements rather than ownership.     Apparently, the biggest constraint on increasing supply is skilled labour.  It’s one of the few times that I haven’t seen the planning system mentioned.  It’s also worth noting that whilst their profits have nearly doubled, dividends have quadrupled and the number of housing completions has barely budged.  Takes some doing.

Viability: circular game in Islington

The saga of the Parkhurst Road development continues.  I think that it is becoming the seminal case of Benchmark Land Value and the interpretation of viability guidance in London .  I’ve written before about the previous appeal decision here and here.  Islington BC have been pretty tenacious in fighting this case and a new appeal decision has been released recently.

During the appeal, we again (other developers have used this argument before) saw the altruistic developer offer

to provide 10% affordable housing (by unit), notwithstanding that this level of provision is said to make the scheme unviable in commercial terms.

Bless.  In contrast, the dastardly Council argued that

34% provision (by unit) is the maximum reasonable level of provision on this particular site.

Not surprisingly

Both parties have provided viability assessments to support their positions.

The Inspector dismissed the appeal.  There was a lot of discussion of the use of comparables in setting Benchmark Land Value (BLV).   In particular, the Inspector wasn’t too keen on the use of ‘raw’ comparables,

It seems to me that a purely market based approach to site valuation where there are no demonstrably comparable schemes available for benchmarking seeks to prioritise the third limb of paragraph 023 of the PPG dealing with viability. Such an approach simply allows for a comparison against other transacted bids which may or may not have had comparable attributes such as EUV, AUV or abnormal costs for example. Such an approach diminishes the importance of the first limb of the PPG guidance, which requires land value to be informed by policy. This position aligns with Paragraph 4.1.5 of the Mayor’s Housing SPG which states that a market value approach should only be accepted where it can be demonstrated to properly reflect policy requirements and take account of site specific circumstances.

The above will only make sense if you’re well informed about the viability debate.  The judgement also emphasised the emerging guidance in Islington’s SPG on viability and the Mayor’s Housing SPG.

The previous Inspector’s conclusion also pre-dated the clear guidance now contained in the Mayor’s Housing SPG and the Development Viability SPD that the EUV Plus method is usually most appropriate. Whilst neither document precludes other methodologies, in light of my considerations above I consider that the EUV Plus methodology is appropriate in this case and is to be preferred to a purely market value approach, allowing for value to have regard to the market as a consideration, rather than the determining factor.

This is a barely coded dismissal of the RICS guidance.  Basically, the Inspector seemed to be saying “if you are going to present land transaction prices as evidence for Benchmark Land Value, make sure that it is comparable in terms of sales prices, density, planning risk, abnormal costs AND planning obligations – especially affordable housing.  if it isn’t, then make appropriate adjustments”

The Inspector seemed to be influenced by BNP Paribas’ Anthony Lee’s evidence which effectively critiqued evidence from Gerald Eve and CBRE that presented market  comparables which weren’t very comparable to Parkhurst Road as the basis for setting the competitive return to the land owner

Given what’s at stake, this contest to set the rules of the viability game is likely to continue.  When you see local community groups producing videos like this, then you start to appreciate why it seems to matter so much.

 

Are housing associations two-faced?

Savills have just released an interesting report focusing mainly on the housing association sector (Disclaimer – a planner that I know well works for Savills).  Nicky Morrison at the Department of Land Economy in Cambridge has been writing for a while contributing to an emerging body of academic work on the growth of development of housing for profit by social enterprises such as housing associations.  The L&Q acquisition of Gallagher Estates was something that I’ve commented on before.

The Savills report provides some good up to date insights and data on trends in the sector.  The Coalition government in 2010 slashed grant funding.  In the same period, social rented housing supply has largely been supplanted by affordable rented housing.  Supply by housing associations has largely gone down.  Nicky’s work* suggests that their supply of for-profit housing has gone up.   Ironically, most housing associations saw the supply of social rented housing as their first priority.  Access to land seems to be the key constraint to increased supply.  Certainty on rents is also a key concern.  The report also provides some interesting data on the ownership of development land.  There are major differences in land ownership pre-application and post-permission.  Lots to see for anyone interested in this area.

*Manzi, T. and Morrison, N., 2017. Risk, commercialism and social purpose: Repositioning the English housing association sector. Urban Studies, p.0042098017700792.