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.
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
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.