It’s a crisp morning, and an enthusiastic bunch of Under-10s footballers run out onto the pitch. They’re in full kit – red and black stripes, black shorts and red and black socks, the colours of Saffron Walden Community FC in North Essex.
But these ultra-keen youngsters have no fixture this pre-lockdown weekend. They’re not allowed to play football, or even train, on the ground where they’re now standing. It’s the result of a ridiculous legal stand-off between the local council and one of the UK’s biggest housebuilders. A shortage of pitches locally means there is nowhere else to play.
“We’re having to cancel training sessions and matches as local pitches are overused and the alternatives are miles away in Hertfordshire and Suffolk,” says Matt Clare, Secretary of Saffron Walden Community FC. “Meanwhile, these two new pitches in our hometown have been sitting here for years, unused and untouchable – and all because of corporate greed”.
Back in 2012, Persimmon – the UK’s second-largest housebuilder – was granted planning permission to build several dozen houses on a site near the centre of Saffron Walden. It’s an attractive market town with good schools, just forty minutes from London. Demand for new homes, and new sports facilities, is high.
As part of the planning conditions, Persimmon agreed to provide two full-sized football pitches, along with temporary changing facilities including toilets and showers. The development went up, Persimmon sold the houses and levelled and seeded the two pitches. But, five years on, while the pitches are ready for use, the changing rooms remain unbuilt and even the necessary utility services – water, drainage and electricity – are not yet installed.
The requirement to provide the pitches and changing rooms was part of the Section 106 agreement Persimmon struck with Uttlesford, the district authority granting planning permission. Such deals are routine, used to share the “planning uplift” when housing is greenlit on developer-owned land. The gains can be massive – with land valuations often rising 100-fold or more. That’s reflected in the sky-high prices faced by homebuyers and vast profits made by housebuilders with large landbanks. Section 106 agreements require developers to provide local infrastructure and fulfil other conditions, so communities disrupted by housebuilding and the subsequent squeeze on local services can claw something back.
Under the 106 agreement between Persimmon and Uttlesford, once the development was completed and signed off, ownership of the two pitches would ultimately transfer to the town council, making them available to local football clubs. The houses were built and sold years ago, but as long as the changing rooms remain unbuilt, pitch ownership remains with the housebuilding giant. “If we started playing there, we’d be trespassing on Persimmon property – they could sue us,” explains Matt Clare. “We’ve obviously asked to use the pitches on a ‘without prejudice’ basis, but Persimmon have repeatedly refused”.
If the pitch ownership was transferred before the changing rooms are there, legal responsibility to build them would also transfer, from Persimmon to the town council. The bill for building the changing rooms would also then land on taxpayers – which local councillors, understandably, reject as unfair. “It’s just madness – we’re all going around in circles,” says Clare, who has spearheaded a local campaign to pressure Persimmon to deliver on its 106 obligations.
That campaign includes lining up the Under-10s squad on the Persimmon-owned pitches, in full kit but unable to play – a photo opportunity for local newspapers and the scene described above. Both the club and town council have also written to the British Olympic Association about its Persimmon sponsorship deal, given the developers’ refusal to build the changing rooms. The estimated cost is well under £100,000 – petty cash given Persimmon’s £3 billion-plus annual turnover.
“We hope the BOA would not knowingly be financially associated with a company that treats grassroots sports this way,” says Paul Gadd, the leader of Saffron Walden Town Council. Local residents’ groups have meanwhile written to each member of the Persimmon Board – one of whom, they stress, was previously the Senior Independent Director at the Football Association. “Persimmon directors should be utterly embarrassed at how the company is behaving in this town,” says Gadd.
“Persimmon knows what it’s doing, waiting for everyone to give up and lose patience so they’re let off the hook to build facilities they’re legally obliged to provide,” says Clare, who as well as running the local football club is also a chartered surveyor, so knows his way around the building industry. “There’s a growing list of 106 obligations this company has failed to deliver across Saffron Walden under various agreements – include hedging, fencing and lighting, as well as our changing rooms,” he says. “It all adds up – and Persimmon clearly hopes that in the end, local pressure to use these pitches will become overwhelming, and the council will end up paying”.
No isolated case
This Persimmon saga in Saffron Walden is more than a run-of-the-mill local news story. It matters – and not just because I live in Saffron Walden, and my son has regularly turned out for our local football club.
For one thing, Persimmon has a track record of attempting to renege on Section 106 agreements. Back in 2014, the housebuilder dragged its feet building a sports pavilion in Iwade, Kent – a near carbon-copy of events in Saffron Walden. “It was a huge battle and getting them to build it took several years, even though the pavilion was in the 106 agreement,” says James Hunt, then Chairman of the local parish council. “Persimmon did everything they could to try to wriggle out of it – they didn’t care and the local authority seemed reluctant to take any action”.
This is a common theme – local authorities are under enormous pressure from central government to get more homes built. Large developers are often the only players in town. “Some councillors seemed intimidated, mindful that Persimmon have money and clout,” says Hunt. “Even now, while we have the pavilion, there are tasks Persimmon has yet to complete, like planting and landscaping. But they’ve sold the related homes and banked the cash, so they’ll get away with whatever they can”.
These cases are part of a pattern. In Redditch, just south of Birmingham, a row has ensued for years over half a million pounds owed by Persimmon to the local council in section 106 payments, along with other unfulfilled conditions including the provision of street lights. Last year North Somerset Council finally took legal action against Persimmon over £400,000 the local authority claimed was outstanding in planning agreement cash, relating to developments going back to 2002.
In all these instances, Persimmon says it is fulfilling its responsibilities, acting lawfully and working constructively with everyone involved to resolve section 106 disputes. “Discussions with the relevant parties are ongoing,” says Richard Hush, of Persimmon Homes Essex, regarding the situation in Saffron Walden. “We want to assure the local community we are doing everything we can to reach a positive and timely conclusion for everyone”.
Persimmon is by no means the only large UK housebuilder being chased by a string of local authorities for unfulfilled section 106 obligations. But the company has a reputation for particularly high-handed tactics when dealing with local officials, together with poor customer service and corporate excess.
In 2018, Persimmon’s then Chief Executive Jeff Fairburn was ousted after receiving a £75 million bonus – slammed as “obscene” by politicians, charities and corporate governance experts, not least because the developer is heavily reliant on cash from new homes sold via various taxpayer-backed Help-to-Buy schemes.
In 2019, after a spate of customer complaints, an independent review by a QC concluded Persimmon was responsible for a “systemic nationwide failure” to install legally-required fire-stopping cavity barriers in new homes.
Then last year, Fairburn’s successor Dave Jenkinson quit as Chief Executive amidst continued widespread complaints about build quality. But all the while Persimmon has continued to chalk up huge returns. In 2018, it became the first British housebuilder to make an annual profit over £1 billion. And, even in 2020, despite the impact of the Covid lockdown, the developer is expected to return some £850 million.
While profits are generally good, are such returns really justified in an industry using basic technology and methods which haven’t changed for decades? Are margins of 30 percent-plus defendable or desirable in an industry which impacts the lives of millions of ordinary consumers, making the biggest purchase of their lives, an industry which should surely be highly competitive?
But that’s the trouble. The UK’s once vibrant housebuilding sector, where small operators competed on both price and quality, has over the last quarter century and particularly the last decade become dominated by a few over-mighty giants. A handful of large developers now own and control via options agreements vast tracts of land and, challenged by too few smaller operators, produce homes that are often pokey, of low or even defective quality and over-priced.
Prices are high, above all, because these dominant housebuilders exercise huge power over supply. Large developers with deep pockets maintain an iron grip over the rate at which new homes come onto the market, prioritising margins over volume, to keep prices and profitability artificially elevated. This is the core of their business model, as any decent equity analyst knows – and has sent profits sky-high, given the lack of competition from smaller outfits that build-out quickly to aid cash flow.
This is a major reason the UK now has a chronic housing shortage which, in turn, is the main driver of our affordability crisis. It explains why large housebuilders hold such sway over local authorities – because more homes are desperately needed and the big developers are in control. It’s why some powerful housebuilders routinely flout section 106 agreements, because they know councils are under pressure to fulfil Whitehall-driven housing plans and, as land and house prices keep rising, cash-rich developers are happy to wait. And it’s why a bunch of Saffron Walden Under-10s, during those precious months between successive lockdowns, were unable to play their favourite game.
Iron Triangle
For decades, the number of homes built in Britain each year has fallen well short of the 250,000-benchmark set out in the seminal 2004 Barker Review, required to meet trend population growth. But UK housing completions since the 2008 financial crisis have been particularly low, averaging just 162,000 per annum.
A shortage of homes, to both buy and rent, is why today’s 25 to 40-year-olds now spend more on housing and are more likely to rent than any generation since the 1930s, with high prices so often denying home ownership. This situation is caused, more than anything else, by the highly-concentrated, uncompetitive nature of our housebuilding industry which deliberately generates an ongoing shortage of homes.
From the inter-war years up until the mid-1980s, housebuilders were able to start up, grow quickly and establish themselves as significant contributors to regional economies. The UK residential construction industry was driven by lots of small and medium-sized enterprises (SMEs) competing to produce spacious, reasonably-priced homes.
In 1960, the ten biggest housebuilders accounted for just 9 percent of all new homes built – with the industry dominated by SMEs operating on relatively thin margins, striving to build as many homes as they could. When the UK last consistently built over 250,000 homes a year, during the early and mid-1980s, such SMEs accounted for two-thirds of the industry’s output. Since then, the sector has significantly consolidated, as successive recessions and related withdrawals of bank finance have seen swathes of small builders go to the wall.
In the aftermath of the 2008 Lehman collapse, in particular, countless local construction firms folded into insolvency or were taken over, their land holdings consolidated by increasingly dominant large housebuilders. Since then, the share of homes built by “volume” developers producing over 2,500 units per annum, has risen from 31 per cent to 59 per cent. The equivalent share built by small firms, delivering under 100 homes each year, has plunged from 28 per cent to just 12 per cent.
By 2016, a House of Lords study into housing supply concluded the UK residential construction industry “has all the characteristics of an oligopoly”. And the three largest developers now account for a quarter of homes built each year, with the largest ten supplying around two-thirds.
This lack of competition means all-powerful large developers are able to drip-feed supply onto local housing markets, prioritising profitability per unit over volume, putting home ownership beyond an increasing majority of the UK’s working-age adult population. Housebuilding is not complicated. Developers buy land, secure planning permission, put up structures using very basic methods then sell them. The barriers to entry should be low and the competition among rival suppliers fierce – to the benefit of consumers.
Increasingly, though, large housebuilders boast profit margins resembling those of path-breaking high-tech start-ups. Their sustained and deliberate building go-slow explains our chronic unaffordability crisis, with millions of “priced out” young adults denied the security and economic benefits of owning their own home.
In my book Home Truths: the UK’s chronic housing shortage, I described an “iron triangle of vested interests” maintaining this low-build-high-price housing status quo. One side of the triangle is existing homeowners, who routinely turn out to vote and protest loudly if more houses are built close to them – the so-called NIMBYs. The second side is the housebuilding industry itself – the powerful large developers and the related land agents who, over many years, have made heavy campaign donations, not least to the Conservative party, in a bid to resist policy reforms and keep things as they are.
The final side of the triangle is the commercial banks, up to their necks in residential property loans. Well over half of all bank loans in this country relate to property. Banks want the value of the underlying assets to which loans are linked to keep rising, to make their balance sheets look stronger. So they have no incentive to lend to SME developers that would quickly build more homes, addressing our chronic housing shortage.
This iron triangle forms a formidable coalition against change. That’s why attempts to “fix” our broken housing market – making it more competitive, with the supply-side meeting rising prices with significant increases in the completion of new homes, and homes of better quality and value – will need to be coherent, determined and sustained.
Instead of tackling these knotty vested interests, though, successive governments have fallen back on quick, headline-grabbing, demand-side fixes like Help to Buy (HTB). That’s thrown petrol on the fire, jacking up demand for housing even more by giving young, aspiring homeowners a state loan, at a punitive interest rate. In the face of a deliberately slow supply response from large developers insulated from competition, this has pushed prices up further for the vast majority without HTB access.
That’s what the numbers show. Since HTB was introduced in 2014, the large housebuilders have been building far fewer homes – way below pre-2008 levels, despite the massive taxpayer subsidy – while their profit margins have been between two and three times higher. While helping some onto the housing ladder, HTB has encouraged already dominant developers to build a spate of over-priced, sub-standard homes, often sold on egregious leaseholds. The scheme is a form of substantial corporate welfare for firms that don’t need it, further consolidating the position of already over-powerful developers, entrenching the vested interests even more.
Political geometry
As the ranks of “Generation Rent” keep swelling, Boris Johnson says we need to “build, build, build”. The Prime Minister understands that the political geometry is shifting, with increasing numbers of voters suffering rather than benefitting from our housing shortage. He rightly senses that the party which “solves” our chronic housing shortage, while enduring brickbats from those in the iron triangle, will reap broader political dividends.
As the UK emerges from lockdown, there’s also a growing sense that housebuilding – and construction more generally – needs to act as an economic motor, spreading wealth across the country. The construction sector saw a massive 40.7 per cent output drop in April 2020, early in this pandemic. But it has since recovered, with sector GDP up 1.9 per cent during November on the latest ONS data, the seventh consecutive month of growth, driven by both housebuilding and infrastructure spending. Construction is one of very few parts of the economy which has already recovered to pre-Covid levels of output. There is a lesson in that, as the government seeks the broader growth that is vital if the UK is to handle its vastly inflated post-Covid debt burden.
Every UK recovery from recession over the past century has been associated with a sharp rise in housebuilding – not least after both world wars. The only exception was the period after 2008, when housebuilding was moribund and the British economy staged its slowest, most sluggish recovery in recorded history. That’s no coincidence. If the Prime Minister wants Britain to boom once lockdown is lifted, he needs housebuilding on a roll.
The answer isn’t HTB, or other demand-side schemes that make housing even less affordable for the vast majority, while handing large developers more power and profit. HTB is a ridiculous, shameful policy – which has already channelled over £20 billion from the public purse to housebuilders. Yet in July, as the property industry donations rolled in to Tory party coffers, the scheme was quietly extended again until 2023.
The answer, similarly, isn’t the “radical planning shake-up” ministers unveiled last August. The government claims “a lack of land with planning permissions” is the reason we’ve built around two million too few homes since the turn of the century. Yet around four fifths of residential planning applications are now accepted, and permissions for over a million homes remain unused.
The real problem is ever-lengthening delays between permissions being granted and homes being built – as the big, influential builders which hoover up most building permits then impose what is, for them, a highly-profitable go-slow.
The issue, then, isn’t the lack of planning permissions. It is the lack of permissions in the hands of builders that, far from deliberately sitting on them, are determined quickly to build them out, turning permissions into much-needed homes. Unless ministers acknowledge and tackle this massive market failure, the UK’s chronic housing shortage will remain.
The government must start by pouring resources into social housing, helping low-income families not by handing tens of billions of pounds to private landlords for what is too often substandard accommodation, but by harnessing state and private sector money to build decent social housing instead.
Above all, though, the Prime Minister needs to tackle the deeply entrenched supply-side blockages to commercial housebuilding, injecting competition into the industry by helping small firms that build quickly, breaking the big developers’ stranglehold.
The need for a full Competition and Markets Authority inquiry into our housebuilding industry is now screamingly obvious and urgent. The last such investigation was in 2008, since when market concentration has increased very significantly. In October 2016, then Housing Secretary Sajid Javid accused leading UK developers of “sitting on land banks” and “delaying build-out”, urging them to “release their stranglehold on supply”. Having resigned as Chancellor last February, Javid is tipped for a return to the Cabinet. And in the Foreword he wrote for the new paperback edition of Home Truths, Javid raises the prospect of a CMA investigation.
The UK is “suffering from a fundamental housing shortage”, argues Javid. “Far too many planning permissions being granted are still not being built-out in a timely fashion, or even at all,” he writes. “It may be time for the competition authorities to look more closely at an industry that has become increasingly concentrated over recent years, dominated by just a few large operators”.
There is a broad coalition across British politics – from housing campaign groups to centre-right think tanks, to say nothing of several Parliamentary inquiries – that wants the government to scrap HTB and focus on unblocking the supply-side of the housing market. There is widespread recognition, for instance, that while the NIMBYs shout loudest, parts of the green belt should be made available for housing – not least close to transport hubs.
Far from “being concreted over”, the green belt now covers an astonishing 13 per cent of England’s land mass, having more than doubled over the last 40 years, while residential property (including gardens) covers less than 2 per cent. Yet Johnson’s government has been quick to rule out additional green belt release.
The most fundamental issue, though, is to recognise and address the reality that the UK housebuilding industry is now, at best, an oligopoly – a very long way from a functioning, competitive market. I’m happy to back capitalism, but this is not how capitalism is supposed to work. The deeply entrenched vested interests deliberately preventing competition across our housebuilding industry, the iron triangle protecting and enforcing the on-going shortage of homes, is doing a major disservice to UK consumers and broader society.
Yet rather than tackling vital supply-side reforms – enforcing strict planning permission time limits, imposing anti-trust measures, making the land market less opaque – successive governments have opted instead for the easy headlines of juicing up demand in the housing market, which makes a bad situation worse.
And in the meantime, large housebuilders will continue to sit on land, squander planning permissions and thumb their noses at their section 106 obligations.
“What we are seeing in Saffron Walden is further proof of how power in the planning system is skewed towards mega-sized developers,” says Kemi Badenoch, the Saffron Walden MP and Treasury Minister. “There are not enough levers available for local communities to ensure that those who make promises before obtaining planning permission fulfil their obligations as promised”.
The volunteers who run Saffron Walden Community FC certainly agree with that. “At the latest meeting between Persimmon and the council in November, the housebuilder appeared to decide it does not have to deliver these changing rooms, despite the section 106 agreement” says Matt Clare. “More promises were made but since then, despite our regular and polite requests for an update, Persimmon has done nothing meaningful to resolve this situation at all”.
Once again, Persimmon insists it acts reasonably and legally at all times. But many in this North Essex market town aren’t convinced. “This company is laughing at us – our club, the council, our entire community,” says Matt Clare. “They have been saying for years they will deliver on their promises soon, but soon never seems to come”.
Home Truths – the UK’s Chronic Housing Shortage (Biteback Publishing). By Liam Halligan. Out now in paperback
