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A journey into the unknown
Housebuilder – February 2015

The government is looking to double the speed of delivery of new homes at Northstowe in Cambridgeshire by commissioning them directly. Mark Smulian finds out how this might work - and whether it can be a success or will it all go horribly wrong

It is usually thought desirable to install the transport infrastructure before a major residential development proceeds.

But things have been taken to extremes at Northstowe, Cambridgeshire. A decade on from the first planning application scarcely a house stands, yet the place is served by the country's first inter-urban guided busway.

The slow progress at what is supposed to be a 10,000-homes development has led the government to pilot a new method of financing housebuilding there, which if successful is likely to be adopted elsewhere.

Homes and Communities Agency

It involves using the Homes and Communities Agency (HCA) as a sort of giant housing association, appointing builders to construct homes as contractors, paying them, then marketing and selling the homes itself.

This could be the shape of things to come. Builders have, depending on their view, been warned or encouraged. Northstowe is one of many redundant military sites available for redevelopment that dot East Anglia.

The first planning application was made in 2005, but nothing followed. It then had a brief stint in the Labour government's €śeco town €programme, but the recession in 2008 stopped progress and it resumed only last year.

This might not have mattered to anyone apart from those directly involved were Northstowe not supposed to be a flagship for sustainable new towns with capacity to meet much of the demand for homes in booming central Cambridgeshire.

The repeated false starts embarrassed the government; not least as its own HCA is due to develop most of the site, though developer Gallagher Estates will provide the initial 1,500 homes, for which it gained outline planning consent in October.

This though would make little impression on the 10,000 homes intended, and ministers were losing patience.

Treasury chief secretary Danny Alexander told a Liberal Democrat conference meeting last October: "We rely on housing associations, local authorities and the private sector to [meet the party's target of building 300,000 homes a year], and if they can that's great but I think central government may need a commissioning role to make sure it happens, as a sort of backstop."

Northstowe was among the beneficiaries of Ł225 million announced by deputy prime minister Nick Clegg in November to "unlock the barriers to investment", and then chancellor George Osborne's autumn statement in December said: "The government will trial a new delivery model on the site, with the HCA taking the lead on delivery, including through masterplanning and commissioning. "This will support the construction of up to 10,000 new homes, up to twice as fast as conventional development routes.

"The government will undertake an evaluation of the Northstowe development, and of the feasibility and economic impacts of pursuing this model on a larger scale." A further report on this approach is to form part of the pre-election Budget.

The crucial phrase was "up to twice as fast as conventional development routes". This referred not to the actual speed of building, but how rapidly each home came to market.

While the HCA has been tight-lipped about how the system of commissioning housebuilders will work, South Cambridgeshire District Council had a briefing from housing and planning minister Brandon Lewis that shed more light.

Tim Wotherspoon, South Cambridgeshire's cabinet member for strategic planning, told Housebuilder: "The view has often been expressed that housebuilders prefer to landbank sites, and I think the government wants to avoid this by saying the HCA will commission the homes and sell them on to end buyers."

Housebuilders may resent that accusation, but there was perhaps worse to come. As Wotherspoon says: "The government's intention will be that, since housebuilders restrict the supply of homes coming on to the market to about one a week at best, a pilot is needed to put to the test whether that is necessary, or could there be more?"

Even were several developers involved each bringing, say, 50 homes a year to the market, the resulting 250 homes would see it take 40 years to complete Northstowe, "which would be rather on the slow side", he says. Ministers will also use Northstowe to test how fast the market can absorb new homes. "Absorption is an important factor, so what is the maximum rate at which land for housing can be built out?

"My understanding is the HCA will get construction companies in and say "put up these houses for us then clear off, we will deal with selling the property'", says Wotherspoon. "They have got to know if they can increase the rate of release of property into the market, but they do not know the scale.

"The government will pilot this model to see if it can be used elsewhere."

Consolidation among volume housebuilders during the recession has led to a lack of competition, Wotherspoon says ministers told him, and they want "to allow smaller housebuilders a slice of the action too and allow for self-build".

The autumn statement said the government would set up a special purpose vehicle to develop Northstowe's 8,500 HCA homes, "which is likely to involve investors, not just from the private capital markets but also from the public sector," €ťWotherspoon explains.

"For example, South Cambridgeshire hopes to invest as we can also borrow prudentially through our general fund to build homes.

"We do not intend to compete with housebuilders; we will use that to build homes of different tenures." In theory then, the HCA will take care of planning, hand out contracts to builders, pay them for completed homes and sell these faster than the private sector normally manages.

How realistic is all this? John Slaughter, HBF external affairs director, says: "The industry builds at the speed the market wants to buy homes at, although there is some evidence, though it is not scientific, that if you have a very large site with several developers, rather than just one large one, you get a faster rate of building.

Sales risk

"It could be that the HCA intends to take some of the sales risk by appointing builders and then selling the homes itself, but it would need some knowledge of the market or it would get this wrong."

Slaughter warns: "There is a quite serious question as to whether it would work. It could be that smaller firms participate through this, but if the object is to speed up development that is a different issue from encouraging competition."

It seems ministers are seeking to do both.

A government press release issued after the autumn statement said the housing minister had visited South Cambridgeshire and "confirmed the pilot I announced last week could see the government building their own homes as well as other schemes to encourage local builders to develop at the new town and encourage more self build to make sure homes can be built more quickly".

The minister added: "Northstowe is a great site for new housing, supported by local people and the council, to bring much needed new homes to the area."

It is not only the HBF that views the idea of the government commissioning homes with some puzzlement and alarm.

Danny Friedman, a former head of policy at the National Housing Federation, said he "had to stifle his laughter" at the government's plans: "I very much doubt if the Treasury has in-house development skills, so my guess is that they'll have to subcontract."

"For years the Treasury rules on obtaining best value and full market price have been one of the barriers to local authorities and other public sector bodies releasing land for affordable housing directly to providers rather than forcing open market sales and then having to play the section 106 game.

"I very much doubt if the Treasury has in-house development skills, so my guess is that they'll have to subcontract not just the building but all the other aspects of the development, such as planning consents, remediation and infrastructure, probably to the lowest bidder."

Housing consultant David Hall, who has worked for a number of major affordable housing consultancies, says: "It strikes me that the government is essentially intending to act as developer.

"The developer's role is generally to access the land, carry out the building and sell the property making a profit. Obviously that also means they take the risk.

"On the one hand it is admirable that the government wants to do this, but it does mean it is taking the risk and it will of course mean a different approach to the project. It has to procure the building contracts and manage the sales rather than just disposing of the land or agreeing some form of profit share."

He too sees the HCA having to "bring in the right people to manage the process" but says if managed well "it clearly could be better value for money for the state". Hall adds: "Developers are generally quite good at assessing the market and the best times and places to buy, build and sell.

"I'm sure the government will seek good advice but if they just plough ahead in order to meet political imperatives then it could of course all go horribly wrong if the market isn't right."

If what the government plans at Northstowe works it could be the start of a new approach to financing large-scale projects such as garden cities.

If it goes wrong the Cambridgeshire guided busway could still be trundling through empty fields many years from now.