Don’t dump density – alarm

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Jan 2018: This now includes an email exchange with Prof Ian Gordon at LSE. Later material is BELOW the original post.

Dec 2017: The draft plan is  now out and comments are being gathered by Just Space at https://justspace.org.uk/2017/12/12/new-plan-first-impressions/.

Oct 2017: Rumours now abound (October 2017) that the draft London Plan, due out for consultation on 29 November, will have dropped the density matrix. It was being widely ignored and circumvented and some elements in City Hall wanted to scrap it, while others wanted to improve it and enforce it. If the rumours are correct the scrappers have won. That would be disastrous in my judgement, fuelling further rounds of land price escalation. This is the story and the criticism. Please comment and correct errors.

Since the GLA was created in 2000, London Plans have used an innovative approach to controlling housing density for new building across the city: density should be proportional to public transport accessibility. In this way most new residents are conveniently placed to use public transport and that, in turn, supports better and more frequent services. By contrast, in the areas which are a long walk from public transport or where services are infrequent, only very little new housing should be allowed. Developments in such places are more likely to generate car trips, so the fewer of them we have, the better. The combined effect of this density policy with lots of other policies and investments, has been that London has managed the miracle of increasing the proportion of trips made by public transport, cycling and walking in this century.

This very simple idea was embodied in an advisory matrix (a table) in which Public Transport Accessibility Level (PTAL) allows you to read off the range of permitted housing densities. Further refinements were added and the matrix was re-named “sustainable residential quality matrix”.

With the high and rising prices and rents of open-market housing in London, the speculative construction of housing has been extremely profitable for developers, whose quest for development sites has often been very competitive. This competition among land buyers tends to drive up the prices paid for land which is disastrous for councils and non-profit housing associations seeking to buy land cheaply to provide social housing, but also makes it harder to require private developers to provide a high proportion of social housing or other social benefits within their schemes (agreements under Section 106).  Securing social housing and other social benefits in private developments has become much harder since the financial crisis of 2007/8 when a downturn in disposal prices (brief, as it turned out) enabled developers to claim that they could no longer afford to make such provisions on the same scale, or at all. They became adept at using confidential ‘viability’ studies to minimise such commitments and the Coalition government of 2010 strengthened their position in new guidance and regulations. The use of ‘viability’ studies has been fully explored by journalists (TBIJ)  and by academic researchers (Colenutt and others 2015; Sayce and others 2016).

In calculating how much they can afford to bid for land, developers work backwards from what they can expect to realise from final sale of the finished homes, deducting their estimated construction and other costs (plus a mark-up called ‘developer’s profit’) to arrive at a ‘residual valuation’ —the maximum it’s worth them paying. If maximum permitted density is specified in the city plan, then developers have clear limits on what they can build and that is therefore a main determinant of land prices. This is one of the key ways in which state action constitutes land markets —by defining precise development rights which can then be traded.

The London Plan density matrix has been very widely breached. That has been clear for years and in 2016 the GLA commissioned a study by an LSE team (Ian Gordon, Alan Mace and Christine Whitehead) which concluded that the matrix probably had very little effect: the densities of actual building projects could mostly —and better— be explained statistically by direct accessibility measures, neighbourhood density and other attributes.  [see their report and Chart 3.2 below] The researchers were interested in how to improve forecasts of future built densities and proposed that the matrix be discontinued. They considered that the London Plan should specify minimum permitted densities but that any setting and negotiation of maximum levels should be a matter for the 33 London boroughs whose professional officers and elected politicians would best be able to know what would be accepted in each place.

LSE 2016 density chart

Until we see the draft London Plan at the end of November, and its supporting documents*, we shall not know exactly what the GLA has decided to do, and on what grounds.  They may simply have followed the LSE team’s advice or they may have considered other factors.

The LSE study is notable, however, for having paid no attention to the effects of density regulation on land prices so the consequences for the land market of their proposed re-regulation are not considered.

If you have a planning policy which is only advisory and is being widely disregarded or over-ridden in actual decisions, there are two ways to go. You could scrap the policy in favour of an explicit devolution of the issue to local policymakers and negotiators. Or you could improve and tighten-up the policy, making it mandatory. My view is that the GLA is wrong if it has scrapped the matrix because it will further encourage speculative land buyers to over-bid for sites, pushing prices up, confident that they can negotiate high enough densities with the boroughs to get their money back.

Case-by-case negotiation between developers and boroughs has already been responsible for squeezing down the level of social housing provided under Section 106. If the regulation of maximum density becomes even more relaxed than it already is, then I’m expecting land prices to be further pushed upwards.

What the GLA should be doing is trying to get much more certainty into the land market by tightening up and enforcing (i) upper density limits (ii) minimum percentages of homes to be let at social rents.

Can I prove I’m right?  No. It’s based on my understanding of how markets work and is consistent with what practitioners (including many of my ex-students) tell me. It also fits with standard thinking in those countries which have zoning systems where it is a basic rule or axiom that any flexibility or relaxations in density must be strictly codified and only given at a high price —for example the incentive zoning debates in New York.

Later – 1 November – Toby Lloyd at Shelter tweets a link to his February blog post  calling for similar changes – not on density but on affordable housing proportions, space standards, viability tests, with nice graphics. http://blog.shelter.org.uk/2017/02/time-to-look-again-at-viability

Later – 12 December. The London Plan, now that we have it, does see the dangers of land prices being inflated by ‘hope value’, but only in the specific case of Opportunity Areas: “§4.6.13  In Opportunity Areas, boroughs may want to consider applying a localised affordable housing threshold for the Fast Track Route or fixed affordable housing requirements. This approach could help provide certainty to developers and land owners and help prevent land price rises based on hope value.”

Colenutt, B, A Cochrane and M Field (2015) “The rise and rise of viability assessment” Town and Country Planning 64(10): 453-458

Gordon, I, A Mace and C Whitehead (2016) Defining, Measuring and Implementing Density Standards in London London Plan Density Research Project 1 London, LSE http://eprints.lse.ac.uk/68515

Sayce, S, N Crosby, A Parsa, R Harris and P Garside (2016) Viability and the planning system: the relationship between economic viability testing, land values and affordable housing in London, University of Reading http://centaur.reading.ac.uk/68820/

* The main relevant supporting documents, due out with the draft London Plan, will probably be the Strategic Land Availability Assessment (SHLAA) which uses density forecasts to estimate the housing capacity of the sites it considers will be available and the Strategic Housing Market Assessment (SHMA) which predicts the housing needs of Londoners of various income levels. Both these controversial studies are termed ‘technical’ documents, not ‘policy’ documents so they are not subject to much public scrutiny. Just Space has good commentaries/critiques of them, however.  The London Plan itself will appear on the GLA web site with all its associated papers. 

Email exchange with Ian Gordon (LSE):

On 30 Oct 2017, at 15:55, Gordon,IR … wrote:

Dear Michael,

Thanks for the email and the link to your blog.

I’d heard just one echo of this rumour, and would naturally be pleased if the reviewed Plan does, in this respect, turn out to do what we proposed (a very rare occurrence in my experience).

You’re clearly right that we did not actually assess the difference that specifying upper limits to local densities might have made in moderating land value inflation in London since 2004.

And, though I understand little of land/housing economics I too would assume that expectations that higher densities were likely to be permitted on particular types of site would increase expectations of its value.

But, I take it that our inability to find evidence that the formally stated density maxima in successive versions of the Plan made a significant difference to achieved densities (or, it seems, to the effective policy of GLA, in terms of schemes it supported – though we did not look explicitly at this, or how the maxima actually became the norm in practice) means that we would not have found evidence of any significant restraining effect on land valuation from having these formal maxima .

Hence I don’t see reason to believe that removing the maxima would actually remove a real restraint on land price escalation.

(ME) I agree that your analysis and findings haven’t identified any restraining effect from the density maxima in the matrix. Since they were so widely disregarded that’s not surprising.  My point is that the alternative of actually enforcing such limits (which has not been tried yet) would be valuable and would have a restraining effect. ONLY an enforced upper limit could be expected to have an effect.
As I see it, the force of the argument for removing this component of the (iconic) density matrix lies in two propositions:

  1. that it is simply wrong to make explicit statements of policy (and targets for conformity with these) that the relevant policy authorities have no clear expectation of pursuing in practice, with appropriate corrective action being taken when targets are clearly not being met (which has not been the case during the life of the GLA);

(ME) Agreed. GLA Decisions Unit clearly disregarded the policy, as did boroughs.  That’s a “put up or shut up” kind of argument and could favour enforcement (with me) or scrapping (with you).
and

  1. that there is no good reason why the GLA, rather than boroughs, should determine maximum acceptable densities for specific  categories of sites across London.  Judgements about (socially) appropriate densities/development form should take account of two kinds of failure from an unguided interaction between market forces and local planners:
  2.   One of these involves omission from consideration of important spatial externalities (across the city/city-region as a whole) particularly in relation to meeting housing needs and to reducing emissions from transport – there is a clear and legitimate role here for the GLA /Mayor here in seeking to raise density norms, particularly in areas with good public transport potential .  Specification of minima for different types of situation is an appropriate way of pursuing this;

Yes

  1. The other involves  issues of the impacts on the quality of life of particular types of scheme, notably negative effects of over-intensive/tall development,  with externality effects that are mostly concentrated within boroughs, and indeed sub-borough areas.  As such, it is boroughs (and their electorates) who are the appropriate, legitimate and potentially responsible custodians of those interests – though the density matrix (as transferred into borough plans actually seems to pass that responsibility up to the Mayor).  Density measures are a pretty crude indicator of problem potential here, and standards/guidelines for what is not permissible seem best formulated at a local level (maybe worked out among like-minded boroughs), but imposing common statistical standards from City Hall for maximum acceptable densities – even if these were likely to be enforced – is not a good way of securing a better and more politically acceptable mix of schemes.

(ME) That’s not my point.  Local people, planners and politicians will certainly be the ones fighting out the local issues of development intensity, over-shadowing, car parking and all the other stuff.

My point is a separate one: that discouraging land price escalation should be a high priority for GLA policy. One way to discourage such escalation is to set a binding (= non-negotiable) upper limit for each part of the city, within which boroughs could make their own micro-local design policies.  The plan should do the same for affordable housing percentages. I am not disagreeing with the research you did. I’m simply emphasising an isssue which, as you say, your research did not address.

This would be enforced through the Mayor’s call-in powers over schemes and the Mayor’s oversight of borough plans.

Does that make sense ?    Ian

LATER: Ian replies to my red comments (20 December)

I’m perfectly content for you to post this with your (red) responses – and see no point in slugging back on what would be the same lines as in the piece you have (just with added bluntness).

For the record, I do think that intensification is a sensible element in a portfolio of actions to up housing output inside London (as in the OLC and some of the specific elements I believe to be in the Plan), but don’t think super-densification (or some versions of densification) are a good thing.  Or crucially that densification has done anything in the short run to boost housing output.

So, in relation to the matrix, the basic points (as you recognise) are that:

  • we doubt it’s made any real difference to outcomes reflecting market forces (within an overconstrained regional environment) and the practical ways in which ‘planners’/politicians/Mayors have accommodated/fine tuned these;
  • repeating the same prescription, with added moral rearmament will make no difference, in the absence of any influential group seeking to hold the Mayor to account (as the Assembly has conspicuously avoided trying to do);
  • it’s a bad/corrupt idea to include policy statements that we know won’t actually guide action;
  • that the GLA are an unlikely/inappropriate and clumsy body to be policing the negative quality impacts of bad intensification schemes – and boroughs should be left in a position where their electors hold them responsible for so doing.

Or something like that.  In this, as in other ways, I think it’s time for the GLA to stop playing symbolic politics with the Plan.

I shall be arguing this – but it’s not worth repeating it here.  So, please do publish my note with your annotations.

All best for a Christmas holiday to charge up your batteries for the rest of the consultation period.

Ian

Later (16 January)

My main concern in this field remains the need for more inflexibility in the key planning variables affecting valuation and land price, notably (in London anyway): maximum density and social housing %.

Interestingly at an LSE seminar yesterday James Clark (GLA housing policy) was forthright in asserting that certainty about “affordable” % was important as a way of damping-down land prices and he said that anecdotal evidence already suggested that it was working.  But he absolutely refused to apply the same logic to maximum density controls. He said (i) that higher densities are in general always welcome and (ii) there’s not much scope for applying such limits in reality because UK planning allows everything to be traded off against everything else. Well, if this second point is valid for density, why isn’t it also valid for % “affordable”. To me that’s illogical.

Later (26 January) Property Week…

Journalist Peter Bill is spot on with a short article Khan’s heartless London Plan is good news for developers

“‘Densification’ is the Big Idea. A prescription that will promptly jack up values on the right land.”

 

 

 

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