Commercial housing associations?

There’s a very good piece in the FT on the commercialisation of the housing association sector.  I’ve referred to the Dutch experience before and it echoes many of the concerns that are being raised here regarding the UK.

I emailed a Dutch friend of mine to ask about their experience of commercialisation in the inclusionary housing sector.  He summed quite well how greater autoonomy and commercialisation had played out..

There was one big problem that was reported on from the very beginning: there were no clearly defined aims that could be used to judge effectiveness and efficiency and there was no clear demarcation of the field that housing association should cover. So what do you get if you make organisations independent, give them a huge lump sum and do not impose clear socially defined aims? And there were indeed perverse effects such as disinvestments, investments in non-core activities, land banking, lavish financial behaviour by CEOs and outright fraud. It needs to be said, though, that these are obviously mediagenetic events and behaviours, the majority of the housing associations and CEOs were fully aware of their social obligations.    

The FT article suggests that the HCA seem to preparing contingencies for housing associations defaulting on debts, insolvency etc. as they are engaging in commercial development to support (replace?) their social mission.  Up to now, the benign housing market has meant that commercial profits have been usually  subsidising affordable housing provision but what happens when profits turn to losses – as they surely will some day?


Professor of Real Estate Networking?  (HE and RE)

I’ve always felt that, in many business roles, interpersonal and transferable skills can be as important as formal or specialised knowledge (albeit I’ve no empirical evidence and I prefer my surgeon, dentist, optician etc. to be expert rather than charming).  There was an interesting article in the FT yesterday on the skills that MBA employers regard as most/least important.

It’s good to have a survey rather than anecdotal evidence.  The amount of times we get told after someone has met an employer over several glasses of prosecco…Your students need to be better at answering the phone/Excel/spelling/attention to detail etc. or that they need to know more about leases/valuation (Argus)/planning/sustainability/infrastructure or they need more commercial awareness/business knowledge/market nous.  I suspect that different types of employers want different skills and knowledge and often they want a range of stuff.

It also raises the hoary old issue of the blend and balance between vocational training versus an academic education.  Are academics who often have little commercial experience and who have typically specialised in narrow, niche research topics really best placed to transfer broad, close-to-market, vocational knowledge and skills?  There are few academics who have both academic and commercial expertise.  Even if they have, their commercial experience and expertise is often specialist.    I sense that some real estate schools are becoming more like vocational training schools staffed by former practitioners who preach what they practiced rather than academic institutions staffed by researchers and specialists.

I found the results of the FT’s survey pretty dispiriting.

The five most important skills were not core MBA subjects, such as finance and marketing, but more loosely defined qualities, or so-called soft skills, such as the ability to work with a wide variety of people (cited by 76 per cent of employers) and the ability to prioritise (cited by 72 per cent). Of these, employers said the ability among MBA graduates to manage their time effectively was the most difficult to find

The least important skills were marketing, statistical, programming and financial skills and environmental management and CSR.  Financial and marketing skills are the least important to MBA employers!  You don’t need to do a degree to learn how to manage time, network, work in a team etc.  Is this what an academic institution should be about? While I’m ranting, in my experience I don’t tend to get a lot of positive feedback from students when they’re set complex problems.

I’ve just remembered that Cass Business School appointed a Professor of Networking a few years ago.

Uplift in uncaptured land value uplift?

I’m not convinced that she’s got a strong handle on the topic but there’s an interesting article by Judith Evans in the FT today on land value capture.  It relies heavily on two reports by two organisations from different ideological perspectives – the Adam Smith Institute and Centre for Progressive Capitalism.  It’s worth reading the comments on the article to get a sense of the issues and how long they have been central to the debate about planning, land use, housing and taxation in the UK.

Shelter, in research done with the think-tank the Centre for Progressive Capitalism, estimates that £87bn could be ploughed into housebuilding and other infrastructure by local authorities during this parliament if they could take full advantage of land value capture. This sum could be enough to ensure that Britain deals with its housing shortfall, but it is contingent on reform of a little known piece of legislation passed more than 50 years ago. Currently, when local authorities buy land — for example for regeneration projects — they must pay prices that take into account potential planning permissions and infrastructure developments, rather than just the value of the land at its current use. This means councils therefore usually pay inflated prices. The 1961 Land Compensation Act should be amended to enable local authorities to buy land at current use value, according to the Centre for Progressive Capitalism and the Adam Smith Institute. This would put councils in a position of being able to subsequently grant planning permission for housing on the purchased land, and then sell it on at higher prices. They could also enter into joint ventures with developers to build housing on the land, and then sell the homes. Either way, the local authorities could reap the benefit of the uplift to land prices, and use this to fund affordable housing.

A lot of these issues have been discussed in previous blogposts.  However I hadn’t spotted the Centre for Progressive Capitalism’s report.  It’s got a lot of interesting content and is well-worth reading.

In particular, it has attempted to estimate the level of land value capture through developer contributions such as s106 planning obligations (affordable housing, open space, infrastructure provision) and the Community Infrastructure Levy.

I’m struggling somewhat with the methodology – although I may be missing something.  Using a very macro, big picture method based on data on numbers of houses built, land values, densities etc. they estimate that residential land worth c£14.8 billion was developed in 2014-15 in England.  It is estimated that the existing use value of the land was c£2.4 billion.  This produced a land value uplift of c£12.4 billion.  They then deduct sales of public land (approx. £1 billion) and an estimated £2.75 billion worth of developer contributions (mainly affordable housing) to get to approx. £8.6 billion of uncaptured land value.

I think that there is some double counting going on.  The £14.8 billion estimate already incorporates the effect of planning obligations.  If they are using the last estimates of residential land prices, then these are not based on values without planning obligations.  Basically the £14.8 billion reflects the fact that (£2.8 billion of) planning obligations have to be paid.  So – the approach seems to me to be underestimating the amount of uncaptured land value uplift.  It looks to me that there’s still the same amount of land value uplift capture in absolute terms (£2.8 billion) but less in relative terms.  The uncaptured land value uplift seems to be closer to £11.4 billion rather than £8.6 billion.

London’s viability guidance: target practice

Following a consultation in the spring, the Mayor’s Homes For Londoners: Affordable Housing and Viability Supplementary Planning Guidance 2017 was published last week.  There’s lots of interesting stuff in it that will come out over time.

It’s interesting to highlight some of the land value capture aspects.  Schemes that deliver 35% affordable housing do not have to go through a viability test.  It’s stated also that

The Mayor has a clear long-term strategic aim for 50 per cent of new homes to be affordable.

Is this a viable policy?  How much land value capture might it represent?  Does ‘clear’ add anything?

Let’s say that you have a proposed scheme of 200 apartments that could be sold on the open market for £100 million.  Excluding land costs, it is expected to cost £30 million to build (allowing for profit) (I know it’s low but bear with me).   Assuming that 50% affordable housing is provided and that this part of the project is sold to a housing association at a 70% discount, the impact of the developer contribution in the form of affordable housing is a £35 million reduction in revenue.  This leaves a surplus of £35 million for the land (65-30).  So the land owner gets £35 million and the community get £35 million.  For simplicity let’s ignore all other developer contributions such as the CILs and other s106 payments.  If there were no affordable housing requirements, the developer could have paid £70 million for the land.  So – the land value uplift ‘unlocked’ by the planning permission has been shared 50:50.

What happens if these ratios change?  The non-land costs were pretty low here.  What if they had been £50 million?  The land value goes down to £15 million and the land value capture (still £35 million out of a no contribution land value of £50 million) goes up to 70%.

What if the non-land costs had been £60 million?     The land value goes down to £5 million and the land value capture goes up to 88%.

In all there scenarios, £35 million of land value uplift is being captured for the community.  It’s essentially a regressive quasi-tax on land owners.  Would it be fairer to set a target for land value capture rather than for affordable housing?

I wish that it wasn’t so but…My sense is that there will be very few sites where a 50% affordable housing requirement will be viable.  Non-land development cost proportions will need to be really low and alternative use values (such as offices) will also need to be really low if an appropriate incentive for land owners (i.e. payment for their land) to be generated.    I don’t know how much work has been done on the viability of this clear, long term strategic aim/ target but it looks unrealistic to me and unrealistic targets could undermine the credibility of the policy process.

This has been quick and back of the envelope estimate and I’d like to be wrong.  I suspect that housing associations will have to pay more (and be subsidised accordingly) or the target will be meaningless.

Vacancy rates?  (HE not RE)

There were a couple of slightly dispiriting pieces in the Guardian in the last few days on the university sector.  The Secret Teacher was bemoaning the effects on students’ motivation of the growth of unconditional offers by many universities.  We started to do this at Reading a few years ago but I think that it has been reduced.  Most of my colleagues were uneasy about it.  It just doesn’t feel right.  I can imagine the reaction of our alumni.

Leading organisational theorist, Andre Spicer wrote a pretty excoriating piece in the Guardian on the expansion of empty administration in the university sector.  It struck a lot of chords with me.  Echoing the Yes, Minister episode with the hospital with no patients, I liked the idea of the all-administrator university.

In the UK, two thirds of universities now have more administrators than they do faculty staff. One higher education policy expert has predicted the birth of the “all-administrative university”… The massive expansion of administration has also fuelled an equally stark expansion of empty activities. These include costly rebranding exercises, compliance with audits and ranking initiatives, struggling with poorly designed IT systems, engaging with strategic initiatives and failed attempts at “visionary leadership”. All the while, faculty are under pressure to show they are producing world-class research, outstanding teaching and are having an impact on wider society. No wonder some faculty complain that they are “drowning in shit”.  

Having been through numerous initiatives and re-organisations usually without any rationale ever being proposed – nevermind an outline of the costs and benefits. (Actual supporting evidence is a pipedream), I liked Andre’s simple recommendations

When any new initiative is proposed, faculty need to ask: “Is there any evidence this works? What is the logic behind it? And is it meaningful to staff and students?” Answering these three simple questions is likely to cut back empty administration substantially.

I’ve seen examples where departments in universities can become complacent and clubbish.  It’s about getting the right cost-benefit balance to ensure that academic staff are responsibly and competently autonomous using appropriate management and effective, yes they’re important, administrative structures.  I’d tend to agree with Andre Spicer that the cost benefit of a lot of the current quality assurance structures and senior management initiativitis is biased heavily towards costs.

Let the new term begin!