Reducing the risks to lenders and borrowers

Nearly all roads along the journey to building homes will lead to a valuation by a qualified chartered surveyor before a lender will consider releasing funds. So why not start by using the same budgeting tools as registered valuation surveyors?

Adopting a common approach to development viability and budgeting creates a shared understanding for all parties involved in the planning and delivery of new projects, and this achieves consistency which in turn helps encourage finance and investment through lower risks.

Appraisals Made Easy

If you are evaluating house building, evaluating land, assessing budgeting options for neighbourhood planning, assessing development viability or looking at housing finance, the recommended way to make an evaluation is by using a detailed residual cash flow calculator, also called an automated valuation model.

Sirca Developer is the No.1 assisted automated residual valuation cash flow calculator which provides estimated market rates on essential cost items as an assessment is being undertaken. To get a more accurate development appraisal you can now simulate the cost impact of various choices before making any sort of commitment.

Starting the budgeting process on the right basis means buyers and sellers can get closer to a market price much quicker helping to speed the development process. This also helps to create a realistic bridge to the eventual valuation for lending purposes ensuring projects are more likely to gain funding.

More information on Sirca here >

Sirca Home Developer is currently being used by surveyors, planners, finance experts and also individuals looking to build a home.

Residual Assessments:

Experienced surveyors will use several methods to assess the figures on a project when determining viability, but one of their main tools will be a residual appraisal. Adopting the same development appraisal process as valuation surveyors will help speed up financial viability and planning, which in turn will help identify values that are more likely to receive funding.

By starting out at the end and using a model to simulate different development ideas that are likely to meet financial viability tests, this initial process will quickly highlight the most appropriate projects and this in turn will speed up development overall:

“Development to meet economic, social and environmental objectives can only take place if proposals are affordable and viable, and finance is available to support them.” RTPI, March 2012

Residual calculations are a simple concept: (1) you judge the end value of a house, (2) you deduct away the costs to complete a project and (3) what is left is the amount you should pay for land.

End value – Cost to build = Land price

The problem is that each plot of land is unique and so each project will, in most cases, have different costs and end values.

Assisted calculators can help those who are new to residual assessments or those that use them too infrequently to warrant staying up to date with all the necessary costs and charges.

This process was used extensively in the 1970s to calculate what to pay for land and how much to allow for project costs, including profit or equity saving. However, in rising housing markets people tend to use approximate figures because any errors in calculations are usually absorbed by rises in end values.

When house prices are fairly static, detailed residual assessments are one of the main tools for calculating what to allow for project costs and what to pay for land.

All of the evidence work on calculating the viability of the new Community Infrastructure Levy and setting the local authority tax rates has used residual value assessments.

Detailed residual assessments are effectively business plans which lenders and others in the house building process will want to see. It also increases their confidence in project assumptions and ensures that different options can be looked at before making any final decisions.

Cash Flow

As development takes place over extended periods of time it is necessary to take account of all the factors that can influence funding such as interest rates and inflation. This can only realistically be achieved by simulating the development process inside a model and taking account of potential increases in costs over the expected development cycle. Here is what other experts say about the cash flow process in development appraisal:

“Cash flow approaches are widely used in development appraisal to accurately reflect the timing of development expenditure and revenue so that the finance costs can accurately reflect the net cash flows or amount that needs to be borrowed at each stage of the development.” RICS draft guidance note – Financial viability in planning, 2011/2012

“This allows for the accumulation of costs with interest charges added to accumulated debt monthly which is more realistic…” David Mackmin, Valuation and Sale of Residential Property

“The overriding advantage of the DCF techniques is that they recognise the time value of money…..The discounted cash flow approach appears to give a clear indication of the accept/reject decision for project appraisal.” David Isaac, Terry Steeley, Property Valuation Techniques, School of Land and Construction Management, University of Greenwich

“The cash flow method enables the developer to allow for such an irregular pattern of cost, giving a more explicit presentation of the flow of expenditure and a more accurate assessment of the cost of interest.” David Cadman & Rosalyn Topping, Property Development

“…provide a more detailed and accurate appraisal of the residual value using a discounted cash flow approach. All the anticipated costs and returns can be shown on a monthly basis from the project commencement to completion.” Michael Blackledge, Introduction to Property Valuation, University of Portsmouth

Sirca Home Developer is the No.1 assisted residual appraisal cash flow calculator which uses a database of costs and charges to suggest what to allow at key stages of a project assessment. The results are automatically feed into a recommended cash flow model speeding up the appraisal process while reducing the chances for making errors.

Anyone can produce a residual appraisal, only those suitably qualified produce valuations which lenders employing them will rely upon.

This is a blog post for selfbuilder.tv highlighting a few potential problems of taking on contractors who try to win work by slashing tender prices and how allowing for extra professional help when evaluating developments can save time and money overall.

Recent figures from the NHBC, the house building warranty provider which issues around 80% of all warranties, show that the number of new homes built using its registration scheme has fallen from 200,000 in 2007 to around 115,000 in 2011.

This underlines one of the big problems for the government with a building sector making up around 8.5% of GDP. Its own general estimates suggest that for every £1 spent on construction, between £2-£3 is generated in the wider economy. So when there is a major contraction in house building there are significant negative effects on the whole economy.

This is one of the reasons why the government is making house building a central plank of its strategy for economic growth. A series of recent announcements have listed a raft of measures aimed at boosting house building, from the release of publicly owned land with scope for 100,000 homes to underwriting financial support to house builders wanting to issue 95% mortgages for anyone buying a new house up to a value of £500k.

The self build sector is also to be one of the beneficiaries of government attention with the Housing Minister Grant Shapps aiming to double the number of new homes built by individuals for their own families.

With the general collapse of house building over the last 3 years and the recent measures aimed at reversing this decline, it is easy to see why many have indicated that the house building industry has reached the bottom.

This could signal good news for self builders who are able to move forward with projects or have been sitting on the sidelines waiting for the right time to start looking in earnest. Why? Because landowners have yet to experience an increase in demand and so land prices are low with many sellers prepared to negotiate to complete deals.

Contractors too are still experiencing recessionary pressures while keeping a hopeful eye on signs of a recovery in orders. This is keeping their tender prices below the wider economic inflation levels as they cope with managing cash flow and bank overdrafts, rather than focusing on making huge profits.

As the government measures begin to take effect, these favourable conditions for self build could start to fade. This could be an issue for anyone building houses because while the benefit of increasing house building is the creation of more jobs and more economic activity, the downside is that this growth is going to be channeled through a reduced number of contractors and sub-contractors who are still in business.

Growth and recovery from a low base brings its opportunities and its risks, which lenders are becoming aware of, especially for inexperienced self builders. However, there are several ways to show lenders how you intend to manage these changing market risks.

Demonstrating good preparation and planning is one key aspect, but going a bit further and allowing for the help of expert advice from a good architect and a project manager or quantity surveyor can only enhance your prospects of funding.

Very few self builders consider appointing a quantity surveyor, or ‘QS’, mainly because very few have herd of them or are aware of what they do. Yet outside of self build it is rare to find a project where a QS is not involved.

Chartered QS’s make up about 40% of the 100,000 strong qualified membership of the Royal Institution of Chartered Surveyors (RICS), which is one of its largest groups of practicing surveyors.

What exactly does a QS do? This is a very common question and one that will change according to the specialist area of practice that a QS may find themselves working within.

Traditionally, a QS would have been a cost and contract adviser, but now they are regarded as construction economists, cost managers, contract advisers and client representatives. This shift describes a role moving from advising on what construction costs are, to advising and managing costs and project risks on behalf of clients.

For self build, their overall role could range from preparing a detailed schedule of materials for a building project which can be priced by contractors, to providing a detailed estimate of costs and obtaining tenders, to advising on contract clauses with builders.

Once a project is underway, the QS will keep an eye on costs, recommend a schedule of payments to contractors based on work completed and they would price any cost changes or variations that come about from deviations from the original agreed designs.

Once a project is finished, a QS will prepare a final account, which is a detailed summary of the costs of a project, and issue a final statement of any outstanding payments to contractors.

With the house building market expected to experience some level of recovery over the next two years, there is a practical risk consideration for employing a QS as a cost manager on a self build in order to safeguard projects and cost overruns. Here are some reasons why.

Contractors are currently very keen to win business and they will be looking to price new projects very competitively. While this offers a good opportunity for self builders, the situation could soon turn once projects start on site and an experienced cost manager will spot some of the potential pitfalls:

• A keenly priced tender may see contractors looking for opportunities to increase the project value once an order is secured. So any changes once a project has been fully designed and approved need to be kept to an absolute minimum. It also helps to look carefully at contractors tenders and see if any are much lower than might be expected for a particular project type and size. There could be genuine pricing errors or there could be signs of trouble ahead.

• The trend over the last 30-40 years has been for contractors to employ very few direct staff and to sub-contract much of their work. So while a contractor can price a project, if there is an increase in overall construction activity then sub-contractors could be persuaded to focus on higher paying jobs. This places your contractor in a difficult position of having to either pay more for sub-contractors or letting the schedule slip while they wait for the availability of key skills or specialist trades. This can impact on several other trades down the line putting the project and your budget at risk.

• Contractors are just as reliant on suppliers as you would be. If suppliers demand upfront payment or if materials prices increase substantially after the completion of design and during construction, the contractor may have to look to you for additional costs if they, and you, have not factored a contingency for inflation into their prices.

• Paying suppliers for materials has other pitfalls. Contractors and sub-contractors may look to you to help fund their cash flow in order to pay for what they would term ‘materials off site’. Historically, materials stored off site belong to you once you have paid for them, but only if they exist. And what happens if the supplier or the contractor goes out of business? A QS would usually be responsible for ensuring that materials stored off-site but funded by you do actually exist and they are clearly identified and held separately for your project.

• A contractor suffering cash flow problems is often easy to spot for a QS. The interim payments they request often do not match work completed on site, they begin to make errors with ordering materials in advance, they request more upfront payments and sub-contractors start to complain about late payments. While some excuses may sound reasonable in the short-term to advance a project, a contractor suffering cash flow problems could find it difficult to fund building works towards the latter stages of a project. An experienced QS would look to manage the balance between ensuring the contractor has reasonable funds to do the necessary works, while keeping an eye on the overall project funding needs.

• If the worst thing were to happen and a contractor was unable to continue a project, an experienced QS would be able to mitigate delays and additional costs by looking for alternative contractors or sub-contractors at a reasonable cost given the circumstances. In some instances a QS might suggest a contractor provides a performance bond which is an insurance policy that covers short-term cost increases, such as a contractor going out of business and new contractors having to continue on different terms. But if a contractor does go out of business half-way through a project, the QS will be one of the first on site to lock the gates and the first on the phone to suppliers to ensure materials are where they should be.

Underlying all the work of a QS is their responsibility to be impartial to everyone involved in your project, including lenders. This gives everyone, including self builders, comfort that costs and project risks are being monitored by experienced professionals. This in turn makes self build less risky for lenders and improves the prospects for lending.

And this is good for all self builders who would potentially see more lenders entering the market with competitive loan options. Why? On paper, self builders are a safer bet for lenders because the time scales are much shorter for loans, where good contractors are carrying out the works, and the overall loan amounts are much less than larger projects.

More importantly for lenders, self builders move into the homes once building works are completed, unlike commercial developers that have to find buyers before their profits are eaten up by interest costs on unsold homes.  However, many lenders are still concerned about self build because of the risks posed by extremely keen and motivated families, but who are inexperienced at carrying out one off building projects.

Allowing for extra professional advice is like any other project cost, the best way to reduce project risks and to manage the costs is to plan well in advance and budget for them.

You can find a Chartered Quantity Surveyor near you by using the RICS online find a surveyor service here. You can also find an architect near you through the RIBA.

This is a blog post for selfbuilder.tv that we wrote as CIL was being introduced at the start of 2012:

The Community Infrastructure Levy (CIL) is now a fact of life for almost anyone building or extending a property beyond 100m2 of gross internal area, or those creating a single dwelling below 100m2.

If you intend to build your own home, CIL is a new and additional cost which you may have to pay and you should factor it into any budget planning before you speak to lenders.

CIL is, to some degree, a reasonably straightforward local authority tax. If you create new space, in particular housing, you are very likely to be liable for the extra costs unless you are building social housing or you are a qualifying charity landowner.

CIL is actually an optional charge that local authorities can choose to adopt to help them fund their infrastructure costs, such as building new schools, roads, schools, flood defenses and all manner of major projects.

The original intention behind CIL was to encourage councils to allow new development on the basis that they would be able to raise money for major projects. Secondly, central government saw it as a way to replace the older and slower system of raising money through negotiated planning contributions, commonly known as section 106 agreements. But now we have CIL and section 106 agreements, although you would be very, very unlucky to have to face both.

A council can only adopt a CIL charging scheme if it has first set out in advance what it intends to spend all its CIL revenues on and it has gone through a public consultation process. But once it has brought in a charge, there is very little flexibility around paying it.

If a local authority wants to adapt a CIL, and central government expects that over 80% of councils will do so, each authority must establish what its CIL levels should be and its entire CIL policies then have to be approved by an inspector.

This CIL consultation process is used by councils to establish whether or not builders and developers can afford to pay proposed CIL charges, within the areas permitted for development, without affecting the viability of developments across the borough. As part of this process the council establishes what charges it should set and where they should apply.

This means that councils can allocate charging zones within their catchment areas, with expensive areas attracting a high charging level and less favourable areas receiving a reduced CIL or a zero charging level. To some extent, CIL could be seen as a means tested development tax.

Take Poole BC, for example, they are expected to have three charges across the borough of £75/m2 and £168/m2, but £211/m2 for the more desirable area of Sandbanks along the South Coast of England. Parts of Wandsworth in London are looking at charges between £nil to £575/m2.

Before you buy a piece of land, you should check if your local authority is planning to adopt a CIL charge, identify when it may start and then you should confirm the appropriate rate if there are any charging zones.

For anyone planning to build within Greater London, they will also need to allow for making an additional charge for contributions to the Mayor’s Crossrail infrastructure fund.

There have been some concerns that the CIL will stop many self-build projects from going ahead. This is a very valid risk, but here are some additional points that might help reduce some of those risks:

1. So far only three councils have brought in CIL: London Borough of Redbridge, Newark & Sherwood DC and Shropshire council.

2.The CIL is payable by the person carrying out the building work, but the charge is first notified when full planning approval is given. This means that if you are buying a plot that is CIL liable, you should try to negotiate a reduction on the plot value in order to pass the CIL costs to the landowner. This might be tricky if you are buying a plot with just outline planning.

3. If you are buying a building to demolish it and start again, provided the building has been recently used, CIL may only be payable on any net increase in area you create. Double check this with the council before making any budgeting decisions as it could provide some unexpected savings.

4.If you own a plot of land that you want to build on, you should think about applying for full planning before your local authority introduces a charge.

5. While all the local authorities that intend to introduce a CIL must do so by April 2014, many have yet to start any detailed work on how they will be dealing with it.

These are the front running councils who volunteered to take on the early learning stages of developing a CIL and so they will be among the first to start charging, which is likely to be within the next three to 12 months:

• Barnsley Metropolitan Council
• Bolton Council
• Bristol City Council
• Cambridgeshire Horizons – East Cambs and Huntingdon (and Cambridgeshire County Council)
• Chelmsford Borough Council
• Colchester Borough Council and Essex County Council
• Elmbridge Borough Council
• Gedling Borough Council
• Greater London Authority
• Greater Norwich Development Partnership (GNDP)
• Havant Borough Council
• London Borough of Barnet
• London Borough of Croydon
• London Borough of Islington
• London Borough of Sutton
• London Borough of Wandsworth
• Mid Devon District Council
• Milton Keynes Council
• Oxford City Council
• Plymouth City Council
• Redcar and Cleveland Council
• St Helens Council
• Swindon Borough Council
• Torbay Council
• Wycombe District Council

For a typical three or four bed house, CIL may well impact on your overall budget because the costs can, depending on where you live, equate to £10,000 to £20,000.

Lenders may be very concerned about CIL levels for particular projects and they may consider individual applications as posing an additional credit risk, especially if you forget to include an allowance for CIL when applying for funding.

If there is any risk that you cannot afford to pay a CIL charge, you should speak to the local authority and see what help, if any, they can provide on installment payments. Typically, half the CIL is due to be paid within 60 days of a project starting on site, with many councils allowing you to spread the remaining costs over a reasonable time period after this first payment.

You will need to be careful about not paying a CIL charge because the council places a notice against the land that will show up during any conveyancing or solicitors searches, such as when trying to sell, buy or remortgage a plot or development.

Finally, if you have a piece of land with full planning permission and CIL is not yet being charged by your local authority, then your plot will be free from CIL charges. However, full planning permission typically only lasts for three years. If you are facing the prospect of needing to reapply for planning, your previously exempt plot will become liable for CIL if your planning is given after the council introduces a CIL charge.

For this reason, some might see the introduction of CIL as anti-land hoarding charge, especially for those that have plots with full planning and who want to avoid paying a CIL, or those that need to protect as much of the value of a piece of land as they can but can’t afford to build on it.

Like any other development cost, the best way to approach CIL is to research when and how it might apply and then budget for it.

With large parts of the high streets becoming boarded up, it seems we are no longer a nation of shopkeepers. Changes are also taking place in the rental market as more people opt to rent rather than buy, so we could be winding down our position as a nation of home owners.

So is this the time we turn our efforts to becoming a nation of individual house builders and build-to-renters?

The Building Societies Association is helping to promote self-build and they have researched some of the main issues that are holding people back:

• Self-build construction funding, not the mortgage once a project is completed
• Complexity of the planning system (red tape generally)
• Land availability
• Lack of impartial advice

These are the points being addressed by a mix of government intervention and specific industry groups.

While self-build only accounts for around 10% of annual house building, there are industry estimates that suggest this sector accounts for around 40% of all new detached family homes. This is not surprising given that the average self-builder is a family where the parents are between 35-50 years old.

Self-builders are typically more engaged with sustainability issues and will spend more time considering the overall energy efficiency and design of their homes in terms of the building fabric, overall insulation, most suitable heating options, water use, energy efficient lighting and alternative power sources. For this reason, self-builders often have higher overall specifications while still managing to save on the overall costs compared to buying a similar sized property on the market.

This sector is certainly worth supporting and that is why we updated our development calculator which is currently used by surveyors, estate agents, planners and finance experts, to enable self-builders to work through the early stage budgeting, land purchase and to help them prepare applications for funding.

Land

Over the coming weeks and months, the government and the custom home build community are gearing up to announce measures to tackle all of the real and perceived barriers preventing people from building their own homes.

The government has a real ambition for us to become a nation of housebuilders and it is starting things off by releasing public land and suggesting that there could be some gap funding.

Experience

But it seems that one of the main problem areas holding everyone back is the lack of confidence because of our relative inexperience with developing for ourselves. However, the figures from VAT refunds indicate that over the last 10 years somewhere between 100,000 – 200,000 homes have been built by individuals for their own benefit, so clearly it is not beyond the bounds of reality for ordinary people to successfully navigate building a single house.

The numbers are relatively unknown because no one has kept a complete record of this thriving cottage house building industry, until now.

Historically it is has been difficult to keep track of individuals that build a house and live in it afterwards because they have nothing to shout about other than the personal satisfaction of building a house to suit them and generally making a 10%-30% saving on buying a similar pre-built home on the market.

Lenders would be the obvious choice for data capture, but lenders do not seem to have an industry wide method of keeping track of those that obtain self-build funding and once people are moved to traditional mortgages the construction financing records are archived.

Recent government figures on custom home build from other countries show that building your own home is the norm, not the hidden exception:

This government backed report also highlights that there could be around 100,000 people each year looking at the possibilities of self-building, with other reports suggesting that up to 400,000 search for plots each year. And the idea that this could be a popular form of construction is supported by a survey carried out last year by the Building Societies Association which found that:

• Over half (53%) of people in the UK would consider building their own home in the UK if they had the opportunity;
• The majority were attracted by the ability to have control over the design and layout of their home (53%); and
• The ability to build more cheaply than buying on the open market (43%).

The purpose of rebranding ‘self-build’ to ‘custom home build’ is to emphasise the distinction between those that choose to get physically involved with actual building work and the vast majority that simply acquire land and hire professional help to do most of the delivery. In this context, custom home build is no different to any other part of the property development industry.

Build-to-Let

There is also another interesting sector of the house building market that could be about to become populist among smaller investors, the potential ‘build-to-let’ approach.

With the rental market becoming ever more popular thanks to high demand, average rental returns of 5%-7% accordingly to ARLA and with small house building offering the potential for substantial savings, it is not beyond reasonable expectation that we will see people consider this as an alternative way to make a living or create a pension pot.

Saving 10%-30% on the overall value of a completed property, before stamp duty savings are factored, provides the potential for built-in equity when the build loan is refinanced, and this could be used to increase the average yield or free-up capital to invest in other projects.

And why not build-to-let? The government is already pushing the idea of ‘build-to-rent’ with the bigger pension providers as a way to encourage more house building for the masses. But with this initiative there is more of an uphill struggle because pension funds don’t like the long-term uncertainty of developing in new sectors and they don’t relish the potential costs of administration that may follow with large numbers of tenants, despite many funds already operating commercial property divisions.

According to industry research, small investors are also more likely to hold their rental properties for 18.8 years, with research conducted by ARLA on its members indicating that 35.3% of small landlords are looking to keep their investment properties for over 20 years.

Like any other SME business sector, small and responsible landlords are more likely to support the wider economy because they rely on help from letting agents, SME insurance firms, cleaners, maintenance firms and gardening businesses. So while house building directly creates 1.5 jobs and 3 in the wider supply chain, build-to-rent could add an extra job to the economy on top.

Finance

For all of the above and many other economic reasons, Datamonitor, the market research consultancy, published a report in February 2012 bullishly claiming that the size of the self-build lending market will double by 2015:

“Self-build mortgage market will more than double in size by 2015

“Research by Datamonitor indicates that mortgage advances for self-build properties will rise from less than £800m in 2011 to £1.9bn by 2015. Growth will be fuelled by growing consumer awareness of the self-build option, coupled with government measures to help those wanting to pursue this route to home ownership.”

The housing minister Grant Shapps has also been involved with related measures which aim to boost locally inspired building with the introduction of the Community Rights to Build and to Reclaim Land, through the new Localism Act which we reviewed in April 2011. There is also a government mandate for the public sector to find and release land for up to 100,000 new homes to include provisions for custom home builders.

Placing greater control of development in the hands of individuals and communities does carry some risks which are mainly risks of inexperience. But these can be overcome with professional help, but the wider benefit to society is the creation of homes and landscapes that people want to live in and have greater regard over.

Planning

The historically slow planning system is expected to be streamlined with the new National Planning Policy Framework which is intended to provide greater certainty and speed to planning decisions. The government’s stated aim on planning policy is quite straightforward, but still not without controversy:

“This is a key part of our reforms to make the planning system less complex and more accessible, and to promote sustainable growth.”

More on this when the government releases the final documentation, potentially alongside the Budget or towards the end of March 2012. Or you can read about the planning changes in the excellent summary provided by the Royal Town Planning Institute.

Provided that everyone operating around the custom home build market focuses on making it easier for people to build their own home; provided that land availability is increased with the help of government intervention; provided that the planning system and regulations are made easier to navigate; and provided funding is increased, then there is no reason why custom building a family home should not become an ordinary house buying process or even one of the options a small build-to-let investor might consider.

There are several areas where the Localism Bill meets the Health and Social Care Bill in largely unfamiliar territory that could play a significant role in defining the future of the built environment and its impact on improving population health outcomes.

Dealing with public health is typically one area of cross party consensus, despite the political differences in meeting the challenges. One of the new policies of the Conservative led government is the separation of public health policy from the NHS and in doing so it is promoting a much greater focus on preventing people from needing to access the wider NHS system.

As part of the new approach, responsibility for public health will be moving to local council control and medical treatment is moving to independent GP led consortia, both of which are localism strategies.

As a consequence, it is very likely that issues relating to planning, housing, transport, open spaces, industrial buildings, retail, leisure and environmental concerns will be some of the factors that will form part of the wider public health debate from later this year, as the Health and Social Care Bill 2011 nears enactment and the Public Health England Bill, currently at White Paper stage, emerges as a consequence.

Anyone involved in the property sector will need to start taking an active interest in public health policy and health inequality policies, not least because all publicly funded projects will need to do so.

[NB: this and related policy posts are written around a fast-moving political and policy environment that will continue to change until HoC Bills become law]

Planning for public health

With Eric Pickles indicating at a recent RICS presentation that the Localism Bill could be given Royal Assent in the Autumn of 2011, the increased prominence of local council elections will become more significant by the end of 2011.

Planning already carries local political ramifications requiring senior planners to take account of such factors, but now councils will see new pressures to have a greater say in considering the public health outcomes from planning considerations, this being just one area of potential future public health oversight.  This raises, for example, the importance and broadening the remit of pre-planning application assessments and feasibility studies.

Local governments will also have to consider the public health impact of projects within local enterprise partnerships and across boundaries, just as central government will need to consider projects that are to be part of any national planning framework. This is one of the cross-over points for ensuring public health issues are prioritised and are consistent across all governments agencies involved with the built environment and community matters.

Bob Neil, the Parliamentary Under Secretary of State at the Dept. of Communities and Local Government, commented at a planning conference that sustainability is a priority for the government and planning policies will reflect that as part of its drive for more growth in the construction and housing sector; ‘presumption in favour of development is in the context of sustainable development principles’.  The Marmot Review, which the new public health policies are being framed around, also highlighted sustainability as a key public health issue, so this is one of the major points of policy that the property industry can positively influence:

It is the view of all of us associated with this [Marmot] Review that we could go a long way to achieving that remarkable improvement by giving more people the life chances currently enjoyed by the few. The benefits of such efforts would be wider than lives saved. People in society would be better off in many ways: in the circumstances in which they are born, grow, live, work, and age. People would see improved well-being, better mental health and less disability, their children would flourish, and they would live in sustainable, cohesive communities.

Local councils and the people ultimately responsible, elected councillors, will gain the added remit of being judged on the health outcomes of the population in their areas.  Once councillors gain accountability for poor public health to their list of priorities, we can expect them to look harder at the planing and local environmental issues affecting their figures and the council tax impact of needing extra services due to worsening preventable public health outcomes.

The PM’s motivation for change

As David Cameron nears his first year in power, Parliament is full of new Bills and White Papers that reflect campaign manifesto pledges. Within these new policies, there are several themes which coordinate the most controversial and radical outcomes of the new laws, all of which are intended to profoundly impact the way government, local councils and communities will work in the future:

• Decentralisation
• Localisation
• Transparency
• Competition
• Inequality

These are the broad themes that David Cameron has recently restated that he feels ‘passionately about’ and form part of his top priorities for the future direction of the country. He has argued that many of these radical changes are not new ideas, but Conservative policies developed during many years in opposition; and countering the view that it is all too fast too soon, he believes that making sweeping implementation is necessary to prevent internal public sector bureaucracy and lobbying from preventing ‘essential’ change from taking place.

Giving power to the people

Over the past few months, the property press has been full of news and views on the changes to the planning system, or ‘rebooting’ as Minister for Decentralisation Greg Clark calls it. The Localism Bill and the few sections that profoundly impact on planning laws, has, quite rightly, captured a lot of attention and the RICS is just one of the professional bodies heavily involved in unbiased political policy reviews, government lobbying, calls for evidence and a wider working or networking with interested parties and organisations.

However, the wider localism objectives really are radical, as Eric Pickles MP outlined in a recent speech to the third sector:

• The right – through neighbourhood planning – to have a meaningful say over what your home town will look and feel like in the future.
• The right to challenge the way local services are run – such as children’s centres, social care, or even transport.
• The community right to buy – with time to come up with a business plan, and find the cash, to run resources like leisure centres and libraries.
• You know the neighbourhood, you know what people want, you know what’s going to work.
• The fact is that public services have been run on the Gospel according to the Government for too long. It’s stifled innovation and stopped us getting the best results.
• So whether parents want to run a new school, residents want to take over the community centre – or big voluntary groups want to run whole public services. We’re not just grudgingly allowing it – we’re positively encouraging it.

The government is pushing out virtually all decision making, including community regeneration and direct housing finance, from the centre to local councils and to the community. In this new era of localism and the Big Society, businesses and organisations will have no choice but to start thinking locally to a much greater degree, in particular to avoid objections from local communities.

Happiness politics

While Ministers have individual policy responsibilities such as the Localism Bill and the Health Bill, the Cabinet is seemingly joining up many policies to improve the nation’s overall well-being, behind the unpopular front line focus on budget cuts and improving economic recovery (or making it worse as the Labour leader Ed Miliband would argue).

David Cameron declared his intentions to pursue policies on societal well-being as far back as 2006, well before the September 2007 run on Northern Rock and the start of the recession in 2008. So there is some plausibility that this joining up of policy for societal well-being and the Big Society is not a cover for cuts or ideology over the size of government, even if they are convenient bedfellows, but the first time a Conservative led government has taken such a strong approach on traditional Labour and Liberal Democrat social fairness doctrines.

In an interview in May 2006 with the BBC, David Cameron said on societal well-being:

• Improving society’s sense of happiness is of the utmost importance.
• Improving our society’s sense of well-being is, I believe, the central political challenge of our times.
• It’s time we admitted that there’s more to life than money, and it’s time we focused not just on GDP, but on GWB – general well-being.
• Well-being can’t be measured by money or traded in markets. It’s about the beauty of our surroundings, the quality of our culture and, above all, the strength of our relationships.

This explains why the ONS has been working, since November 2010, on plans to measure the nation’s happiness.  To understand what the ONS was doing , we met with Paul Allin, measuring national well-being programme director at the ONS and discussed the rationale and some of the work behind the happiness policy.

It was evident from the start that creating a happiness index was a long-term project and to ensure its robustness the ONS were taking their time and recruiting some of the best minds in the field, as well as heavyweights from the wider business community.

Measuring well-being is a serious endeavour, now out of the hands of government (the ONS is independent) but influencing future government policy, just as measures of GDP and inflation do at present. In particular, well-being is slated to be linked with all policy evaluations with a view to reducing inequality and health inequality, which the Prime Minister cites as being ‘as wide as they were in Victorian times’.

Well-being is set to become a way for everyone in central and local government, not just those focused on health, to measure the non-economic outcomes from local, regional and national decisions. Having been tasked with the objective, the ONS’s view is that governments will need a “detailed measurement of well-being to show the costs and benefits of different allocation decisions.”  Or in other words, influencing decisions about where public money and effort is invested.

Even China, the last country anyone would consider as airy-fairy with its questionable record on human rights, announced on 2 March that it was to measure the Gross National Happiness of its population and its local and national officials would be judged by how happy the Chinese people were.

All of this growing national and international emphasis on well-being raises the importance of this seemingly frivolous pursuit to one of the changes that the wider property industry needs to understand and watch very carefully.

Measuring happiness

From April 2011, the ONS will cease its public consultation and begin to officially measure national well-being.  Each year, the ONS will be using its £2m well-being funding budget to ask 200,000 people a handful of questions and their responses, along with a selection of already measured objective household data, will be released every quarter from 2012 in what is to become a ‘well-being index’, which is yet to be fully defined.

What is expected to follow from this is a requirement for well-being to be included in the Green Book, the HM Treasury guidance for central government, which sets out a framework for the appraisal and financial evaluation of all future laws, policies, programmes and projects.

Once ‘well-being’ officially makes it into the Green Book, all government decisions and spending plans will be tied to well-being evaluations and outcomes, in some form, or as the Prime Minister put it:

Every day, ministers, officials, people working throughout the public sector make decisions that affect people’s lives, and this is about helping to make sure those government decisions on policy and spending are made in a balanced way, taking account of what really matters.

From 2012, it is likely that bidding for a public sector contract, or private projects that impact public policy or whose scale affects a large proportion of the community, will require consideration and evaluation of the project impact on community well-being and health inequality, in addition to any local issues such as neighbourhood development plans and local public health policies.

There will also be indirect pressure for Commonwealth countries to consider adopting measures of national happiness and one of the points of difficulty being reviewed by the ONS team is devising an well-being index which can be implemented by other countries. Paul Allin’s initial view is that an index may have to be built around available data that is produced by other European countries and could be produced by Commonwealth countries, although most countries are expected to wait and watch how the well-being initiative filters through to government actions.

The trouble with happiness

Science has shown, through evidence based research, that happiness matters a great deal to health, life expectancy and disability free life expectancy.  This is the reason why governments around the world are taking notice of the decades of research that are now converging around societal well-being and government policies.

The trouble with measuring happiness is that you can’t accurately do so with any significant meaning.  Take this example, while economic growth has risen steadily since the 1970s, happiness has stayed about the same, with a few blips during the previous three recessions.

People’s level of happiness and life satisfaction changes with time and research has shown that it fluctuates substantially once people get married and take on the responsibilities and commitments of family life. So measures of national happiness will tend to show aggregate levels of satisfaction over time for the whole country, which will be, on average, about the same year in, year out.

Where you live, affects how long you live

Measuring well-being is a good idea, as the think tank ‘nef’ have evaluated, but the more relevant measure of well-being, for public health policy, is health inequality or differences in life expectancy and disability free life expectancy according to local authority responsibility.  Professor Sir Michael Marmot, an advisory member of the ONS panel measuring well-being, has commented on officially measuring happiness that ‘…health is a better measure of well-being, than well-being.’

The science behind what causes health inequality is the basis upon which the government is to create Public Health England, the umbrella for local council public health officials that will be tasked with improving health and reducing the number of people requiring access to the NHS and delaying as long as possible, through improved health, the time when people need assisted elderly care.

What has been known for some decades is that life expectancy varies according to where you live, a factor that directly crosses into the built environment.  Across England, male life expectancy between the poorest and most affluent areas within each local authority exceeds nine years for around half of the authorities; the comparable figure for female life expectancy is six years. However, more recent efforts have been made to identify differences in life expectancy within local authority areas, official regional boundaries and across cities.

These new measures and findings show that, for example, Westminster has the widest within area life expectancy, 17 years, for men; for women, the gap is widest in Halton and Newcastle upon Tyne at just over 11 years. When factoring some form of disability that affects overall quality of life, such as diabetes or strokes, the Wirral has the widest level of inequality in disability free life expectancy for both sexes, 20 years for men and 17 years for women.

Nationally, Glasgow has a male life expectancy of 54 years in the poorest parts (Calton), compared to 82 in the more affluent parts (Lenzie).

From the overall data on health inequality by local authority, the central line shows that there is a gradient to life expectancy according to where people live, both across England and within an area.

The factors affecting life expectancy are not limited to contrasting measures of the richest and poorest in society; the range includes the middle classes, from white collar middle mangers in clean office jobs to higher grade mangers in industry, all in the middle will yield several years of life expectancy to the most affluent in society.

Cross-party support to improve health and save money

The new well-being policies are less about what makes people happy and more to do with creating policy decisions that make local people less unhappy over their lifetime.  This is because the biology of unhappiness impacts productivity, creates sickness, reduces independence and causes an extra financial burden for the taxpayer in assisted care.

The Marmot Review, commissioned in 2008 by Alan Johnson, estimated that preventable health factors cost the taxpayer between £25 – £37 billion in extra welfare payments and NHS costs, with a further £31-£33 billion in lost productivity.

The objective of tackling health inequalities was addressed by Labour in 1977 and again by David Cameron in 2005. The Liberal Democrats have also shown a great deal of interest in health inequalities and Jo Swinson MP, Deputy Leader of the Scottish Liberal Democrats, has championed the cause for measuring well-being for several years.

Diane Abbott, the new shadow public health minister, has recently confirmed Labour’s support for the government’s introduction of Public Health England, while identifying differences between the parties on implementation:

The Labour Party supports the proposals to move public health into local government, who will have a ring-fenced budget and a local Director of Public Health. There will be a new national organisation called ‘Public Health England’, into which a variety of public health quangos like the Food Standards Agency will be incorporated.

So while the political parties have their own ideas and differences on how to approach the problem of health inequality, the fact that they all support tackling the issues means that it will become a major theme for future government decision making.

Multi-disciplined approach to tackling public health

What does this mean to the wider property industry? The underlying data on health inequalities links life expectancy to where people live, their neighbourhood: public health outcomes are linked to the built environment.

As a secondary part of the major overhaul of the NHS, expected to become law later this year, the government will create Public Health England, with an annual budget for local Health and Well-Being Boards for each council.  These boards will be tasked with overseeing the future health and well-being of the nation by focussing locally and by doing so they will be required to reduce the numbers of people that need to access medical care or assistance.

From 2012, each council will have a Director of Public Health who will chair their Health and Well-Being Board, which will likely consist of a range of experts, including property professionals such as planners and estates officers, and other interested parties that will influence both local policies and the eventual downstream commissioning of NHS projects controlled by GP’s.

While it is a presumption that planners, at the very least, will be involved with public health policy, there is evidence that a recommendation along these lines will be made.

After commission the Marmot Review in 2008 and while awaiting its recommendations, a 2009 Parliamentary health committee reviewed the issue of health inequalities and commented on the built environment’s role in being a factor in health and well-being outcomes:

The built environment affects every aspect of our lives. During the inquiry we heard many concerns: high streets awash with fast food outlets, flagship health centres located ‘at random’ and planning policies which have created towns and cities dominated by the car, with out-of-town supermarkets and hospitals, which have discouraged walking and cycling. In our view, health must be a primary consideration in planning decisions.

The committee went on to recommend that ‘…PCTs should be made statutory consultees for local planning procedures.’

While Primary Care Trusts (PCT) are being wound down and will not exist from April 2013, their role in public health will shift to local council control, making the publication of a recommended ‘Planning Policy Statement on health’, that was to ‘…require the planning system to create a built environment that encourages a healthy lifestyle..’, seemingly unnecessary, at this time.

Joining up public health with local council politics

Speaking on the BBC’s ‘Politics Show’ in March about the NHS reforms, the Health Secretary, Andrew Lansley, clarified that local councils will be involved in “…agreeing what are the strategic needs in their area and that the GP commissioning groups plans meet those needs alongside the local authorities responsibility for health and social care.”

The new Director of Public Health will be answerable to elected councillors on health outcomes and everyone will be accountable to local people and central government. You can expect that they will have a strong say on everything that the evidence based health inequality research has associated with the built environment including adequate public spaces, transport, schools, sport, housing and high streets.

The shift in emphasis for preventative measures based on cooperation was first seen after the introduction of The Local Government and Public Involvement in Health Act 2007.  This required Primary Care Trusts to work with local authorities and they began to do so under a framework called the Joint Strategic Needs Assessment (JSNA).

The JSNA provided for engagement with local communities and relevant stakeholders on identifying and targeting the needs of local communities, so it is expected to form the basis upon which the new local role of Public Health England will initially operate, a policy recommendation supported by the BMA following an initial review of the new public health proposals.

However, while it is the most likely starting point, the JSNA framework is just one of the possible starting points for a review of the close collaboration of council departments and the wider stakeholders, such as the new GP commissioning consortia in each region.

The overall indicative approach to public health and the new NHS framework was outlined from discussions at a public health meeting organised by the Chartered Institute of Environmental Health in February, where cooperation and coordination of efforts across council departments were seen as critical. This is also the view of Tim Baxter, one of the senior civil servants in the Department of Health, who is responsible for formulating much of the outline objectives and remit of Public Health England before Parliamentary debate.

While Public Health England is not due to begin formally (it seems to have cross-party support for its enactment) until April 2013 when its full remit and £4bn spending budget will be effective, the localism policy formulation and shadow roles in councils have already begun. Wandsworth council was the first in the country to appoint a Director of Public Health to ensure an effective transition and to begin the work of integration across council departments.

Local Government & Public Health

Towards the end of March, the Department of Health had noted that there were some 132 local authorities seeking to establish health and well-being boards, with much of their focus on closely examining the staffing requirements and the framework advice from central government and the health inequalities research team. By April 2012, Public Health England and all the local council Health and Well-being Boards will be established and have some operational mandates, along with shadow budgets.

How public health policies will be developed and enforced around a focus on deregulating planning is still to be considered, but there will be instances where local people and businesses will be advised that some elements of their neighbourhood plans are at not in their best health or, once the ONS index is released, well-being interests. One of the the localism ideology questions that arises is – do you allow people to proceed with plans that are not in their best health or well-being interests, after providing relevant information, or do you create regulation to veto certain aspects of what local people want? Tony Blair was fairly clear on this aspect of public health which may indicate central government’s overall future approach:

Small changes in the choices people make can make a big difference. Taken together, these changes can lead to huge improvements in health across society. But changes need to be based on choices, not direction. We are clear that Government cannot – and should not – pretend it can ‘make’ the population healthy. But it can – and should – support people in making better choices for their health and the health of their families. It is for people to make the healthy choice if they wish to. Choosing health sets out what this Government will do to help them.

We will build on the work of this White Paper at every level, from support for individuals right up to engaging the entire nation through events like the London 2012 Olympic Bid. I believe that Choosing health will be a major step in making the improvement of everyone’s health everyone’s concern.

Local government is still in the foothills of the new public health agenda, but many of the issues affecting health have been known and studied for many decades, so one can expect that the pace of change will be significant, especially once the costs to local government of not being proactive are highlighted by the new Directors of Public Health.

Pamela Chesters, the health advisor to the Mayor of London, Boris Johnson, who oversees the implementation of the London ‘health inequalities policy statement and strategy’ produced in April 2010, has an advanced idea of how London policies will be shaped to reduce health inequalities. From our recent discussions with Ms Chesters, it was very clear that the issues of health inequalities in London were of central importance to the Mayor and the GLA.

Some of the policies are already being tied to reducing the gap in life expectancy within London and improving health outcomes by promoting healthy activities (she noted the bike hire scheme as one example) and initiating reviews on how to begin looking at the role the built environment plays in causing or easing inequalities.

Health & wealth. Looking beyond the Localism Bill

While the Localism Bill is the hot topic of the property professions at the moment, the government is actually coordinating legislation that may affect the wider property industry and which is based around a broader set of public health issues.

The Prime Minister and the coalition government are seeking to ‘improve what matters most’, other than GDP, but GDP is still the top priority as the government attempts to ‘get the economy moving again.’ While we wait for that to happen, it is worth looking beyond the Localism Bill to see what the future may bring for the likely changing landscape of the built environment and the Vision for Cities.

Ahmed Zghari MRICS

]]> http://rightproperty.com/2011/04/19/beyond-the-localism-bill/feed/ 0 http://rightproperty.com/2011/04/19/usa-community-health-inequalities-compared/ http://rightproperty.com/2011/04/19/usa-community-health-inequalities-compared/#comments Tue, 19 Apr 2011 01:14:32 +0000 az http://rightproperty.com/?p=852

The USA opens up debate about community health inequalities, or health report cards, to help local governments focus their efforts on the primary public health issues influencing their particular neighbourhoods.

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A group of the leading experts on well-being discuss the findings on the state of well-being in the UK and how government and business leaders can use the data to transform our health, happiness and productivity.

Speakers:

• Jim Harter PhD, Gallup chief scientist, Workplace Management and Wellbeing
• Ben Leedle, chief executive officer, Healthways
• Jim Clifton, chief executive officer, Gallup
• Dr David Halpern, director, Cabinet Office Behavioural Insight Team
• Paul Allin, director, Measuring National Well-being Programme, Office for National Statistics.
• Chair: Matthew Taylor, chief executive, the RSA

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Jo Swinson MP is the Chair of The All-Party Parliamentary Group (APPG) on Well-being Economics which is an officially recognised cross-party group of MPs and Lords in the UK Parliament.

It was formed in March 2009, to:

• Provide a forum for discussion of wellbeing issues and public policy in Parliament;
• Promote enhancement of wellbeing as an important government goal;
• Encourage the adoption of wellbeing indicators as complimentary measures of progress to GDP;
• Promote policies designed to enhance wellbeing.

Richard McCarthy, director general at the Department for Communities and Local Government in an interview with Planning.

“Neighbourhood planning is about local people ‘setting the detail’ and ‘adding colour’ to pre-existing national strategic frameworks and local strategic plans.”

Sir David Attenborough presents the 2011 RSA President’s Lecture on population growth and the earth’s ability to cope.

The last 100 years witnessed the most rapid urbanisation of the planet in all its 4.5 billion year history.

The world’s population reached around 2 billion during the mid 1900s, where 29 per cent lived in the urban areas. By 2000, just under 50 percent of the 6 billion population lived in urban towns and cities around the world.

According to UN estimates, 60 per cent of the global population, around 5 billion people, are expected to live in urban areas within the next 20 years as the world grows towards the 9 billion mark.

The trend in urban growth is the mega-cities where more than 10 million people live, work and play.  We already have 26 cities that meet this criteria with Greater Tokyo being home to over 34 million people, more than four times the population of London.

China is set to leap ahead of Tokyo with the creation of a city that will be home to more than 42 million people as it merges several districts into one urban landscape.

Cities are growing because the population of the world is growing, but also because opportunities in rural areas are diminishing as the agribusiness becomes more efficient and new family members find it harder to establish their own farms.

Sustainable urban development and public health will become the major themes for policy makers as they come to realise that the equality road ahead is just about to become more difficult as we seek to find homes, good schools, jobs and opportunities for the growing population.