Croydon Council’s scheme to build 50 per cent of affordable homes through its Brick by Brick scheme came under intense scrutiny from private developers at the Develop Croydon Conference.
Following a presentation from Colm Lacey, the chief executive of Brick by Brick, Guildhouse UK chief executive David Hudson and Menta chief executive Craig Marks questioned whether it was realistic for commercial developers to be set such high affordable housing targets.
David Hudson: I’m fascinated on about how you managing to achieve 50 per cent affordable in terms in terms of how much you pay for your land; what are your finance costs; and what profit margins are you assuming justify 50 per cent? Because I can’t do a calculation where I can do that on any site.
Colm Lacey: Part of the reason that I think we can do it is because we’ve got a programme on this scale. We’ve got 50 different sites and we can work out how we can distribute the various different uses across those sites. In some cases we will have 100 per cent affordable schemes and in some cases we will have 100 per cent private schemes, in some cases we’ll have mixed tenure schemes. That helps us to optimise the values across those different sites for us to be able to afford more affordable. Land values as well is a really important point. We are paying a market value for that land which is commensurate with building 50 per cent affordable housing. Unlike you perhaps, we don’t need to engage with an unscrupulous land trader who isn’t going to sell the land for any less than X. From my point of view the first mistake being made is that people are over paying for land in the first place and needing to recruit that overpayment by delivering less affordable housing at the other end of the process. I would imagine we pay less than a land trader would charge; we are paying what the scheme can afford in terms of delivering 50 per cent affordable housing on that land. Across the piece, we have to have all of those valuations approved by our district valuer, who values them on the basis of 50 per cent affordable.
David Hudson: I’m still struggling because if you value up rented accommodation it will not pay for the construction costs. So I do not see how you can do that unless there’s a negative land value. It’s all very well saying you can value the land but the reality of the real world is that if people can’t sell you the land you can’t develop; you get no housing. Presumably this is all land owned by the council…
Colm Lacey: In this case it is all land owned by the council, yes. The way that I would throw this back to you is: how do we fix the affordable housing problem it people continue to overpay for land, and therefore people continue to not be able to afford affordable housing. How do we fix it? Equally I ask the question in a different way: a developer who’s brought their land many years ago during a recession, has got hold of land or got a level of public subsidy in their land which in effect makes that land value less than it would otherwise trade for, or maybe zero in some cases, why aren’t they delivering 50 per cent affordable housing?
David Hudson: I’ve never known a situation where I’ve been able to buy a piece of land for zero. They tend not to sell. You say it’s overvalued but the value is what someone is willing to sell for and what someone is willing to buy for. If somebody’s not willing to sell there’s no point in saying it’s overvalued because if we can’t buy the land we can’t develop. The only way you can properly deal with this problem is by subsidising affordable housing and that’s not what the government is doing. You are bending the rules to make it look like this is achievable when it’s not an achievable target in the real world, I’m sorry to say.
Colm Lacey: I do hear where you’re coming from on that but I would say that unless there’s a structural change in the process then you are always going to pay what you consider you can afford for the land, which is always which is always going to more, and at the other end of the process you’re not going to be able to deliver the affordable housing. You’ll are going to take a punt when you buy the land and say ‘you know what, I’ll get something through planning at around 15 per cent’.
David Hudson: That’s not how viability works. Viability works on not what you pay for it but what the existing use value is. That’s the real point, there’s a real existing use value that means you can’t go below that. You’re not going incentivise people to sell a garage if all they’re going to get is what they’re trading for, they’ve got to be incentivised to sell to you. You have to give them a little bit more; and usually it’s 25 per cent as a benchmark.
Craig Marks: Colm, that we’re all enthused about Brick by Brick; all that’s happening in Croydon and the development initiative the council are taking is all fantastic. You’ve got land which is council land and you’ve got the ability to deal with that through existing land value by allocating over a number of sites what is a viable delivery strategy. And that’s wonderful. But let’s not forget that a lot of us have been here for many many years. The development sector did kick this off where we developed here on the Schroders Stanhope site, we brought in Redrow to help us to deliver what will be 700 to 800 new homes there and I think it’s not every scheme that can deliver 50 per cent. I think that is something that we all have to accept. When we buy land and invest millions of pounds in planning applications we do so not very lightly. Is it safe to say that every site will be looked at on its viability because I think we’re sending out the wrong message – we’ve been here for a long time, we were initial founders of Develop Croydon as was David as was Schroders Stanhope – we can’t give out that message that we’re only open for business in Croydon if it’s 50 per cent or if it’s 30 per cent whatever.
Colm Lacey: Don’t get me wrong, Craig, I’m not the planning authority. What I am telling you is we at Brick by Brick believe that we can deliver more affordable housing than we have traditionally been able to deliver in Croydon by virtue of the elements that we’ve got within that development programme.
Mark Easton: You can’t pretend to be a straight competitor then.
Colm Lacey: Definitely not.
Craig Marks: All I’m saying is that it’s important for us as the prime speculators here and the council and Gavin Barwell will no doubt be listening in due course, is that the message Croydon is sending out is that we want the investment, we want the private, the public, in each individual opportunity whether it be offices, residential, new theatres, is dealt with on viability to enable development because if we stop it in its tracks we’ll have lost what we’ve been trying to achieve together for the last 20 years.
Colm Lacey: We feel really strongly that we’ve created something to enable to deliver what we need to deliver which is housing supply. And that’s housing supply across private housing as well as affordable housing. To touch on Craig’s point, this doesn’t mean that there’s not room for anybody else to deliver. It’s absolutely essential that they deliver what they are already delivering and that Croydon’s absolutely open for business; we need people that have entered at a different stage and will continue to enter at a different stage to continue to deliver and then this great story will continue.