Risky business


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Strategic land sites (e.g. sites without planning permission) are notoriously difficult to "unlock". In order to do this, the various risks of procuring and delivering these sites need to be taken into account.

Perhaps prompted by the Letwin Review of housing delivery, national news outlets, as diametrically opposed politically as The Guardian and The Telegraph, have decried the practice of land promotion, accusing those in the sector of profiteering from land speculation while doing nothing to help solve the housing crisis.

The counter-argument, however, is that strategic land firms play a key role in assembling sites and gaining planning permission which, according to many in the sector, the major housebuilders have increasingly shied away from (with some exceptions) following the 2008 global financial crisis. This is possibly due to the fact that it is an inherently risky business.

More than just being legitimate, it can be argued that strategic land firms’ role in the housebuilding industry is vital. A report published last year by consultancy WYG estimated that up to a third of councils do not have a five-year housing land supply, as required by central government. In other words, up to a third of local authorities are failing to plan for the housing needs of their populations in the medium and long term. At a time when the UK is facing a housing crisis, strategic land specialists’ work identifying unallocated sites for potential development could be seen as making an important contribution.

They are certainly active. A recent analysis by Savills found that strategic land companies are now the most active group in the pre-planning process, with plans for approximately 250,000 units in the pipeline. When plans that have been submitted or received outline permission are included, the figure rises to 350,000 homes.

Notwithstanding the above, strategic land promoters have had a hard time of it in the press lately. One of the charges laid at their doors is that their work is inflationary; that because they represent another step in the process and demand high profit margins, land rises in value, something which is then represented in inflated house prices in order for a housebuilder or developer to also make a profit. In part, the charge is countered by the fact that housebuilders are not, in general, promoting unallocated sites themselves.

But according to Julian Keith, Real Estate Partner at Trowers & Hamlins, it also fails to recognise that strategic land companies take on huge risks, particularly given the current planning processes and these risks have to be rewarded. “There are different people taking risks at different stages of the process,” he says. “There is land assembly risk, planning risk, building risk and then sales risk. Strategic land companies are exposed to the first two and if you are taking a risk you should be rewarded. What’s more,” he adds, “there is nothing stopping the public sector, or savvy investors from doing the same thing.

"Ultimately, the key is more housing and, as the Letwin Review indicated, a greater diversity of tenures to assist absorption in the market.”

Companies in the strategic land sector are also accused of taking an aggressive stance when it comes to dealing with the planning system. Where they are able to persuade a planning authority to simply allocate their site in the next iteration of their local plan, this shouldn’t be the case. But Rory Stracey, Real Estate Partner and Planning specialist at Trowers & Hamlins, says that situations can become combative when a company is unsuccessful or unwilling to wait and seeks permission for an unallocated site.

“When you talk about gaining planning permission for non-allocated sites, it’s an inherently adversarial play because the planning authority will have deliberately chosen not to allocate a site, probably for political reasons,” he says. “That’s when you tend to get into the adversarial territory because you start arguing about housing land supply – arguing that the local plan isn’t meeting local housing need. That’s where a strategic land promoter’s skill in navigating the planning system can play a key role in winning planning consent where a more generalist developer or housebuilder that is not geared up for contentious planning issues wouldn’t be able to achieve it.”

In part, that skill involves calculating what level of community benefit is viable for a given site and what level of community benefit is necessary to tip the planning balance in favour of consent being granted. After all, it is in the strategic land company’s best interests to make a scheme as politically palatable as possible. “If you’re trying to promote a site that isn’t allocated then selling the community benefits of the scheme is central to winning favour for the proposal,” says Stracey.

"The more that can be brought to the table in terms of infrastructure will help with making the planning case.”

Equally, it is important from a placemaking perspective and absorption to ensure mixed tenure schemes with adequate community benefit are sought, but also it is key in terms of creating a coherent community.

Controversy or no controversy, without strong intervention from government the strategic land sector is here to stay. What’s more, Keith predicts that a new wave of investors could be about to enter the market. “There is a place for people – the public sector, long-term investors or other capital – to get involved,” he says. “If we have another dip in currency post-Brexit, I think there is a big opportunity for investors to come in and assist in bringing these schemes forward by obtaining planning and putting in infrastructure. This would help deliver the much needed housing the country needs and, for them, hopefully make returns when the schemes are finally sold.”

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