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Creating ever higher standards |
RESI Conference
Mark Clare’s address to the 2007 RESI Conference
Good morning, ladies and gentlemen.
It’s traditional on these occasions to say how pleased you are to be here.
Well, in truth I feel a little daunted to be addressing so many industry representatives, with so much experience of the sector.
I’m feeling particularly uneasy because I’ve been asked to say something about, how house builders see the future . . . . with less than a year’s experience under my belt.
Predicting the future is a fraught business at the best of times . . . . . . let alone with so much change in the air.
Indeed, history is littered with the unwise, talking confidently, about the unknown.
JK Rowling was told by Bloomsbury, that there was no money to be made in children’s books.
The Beatles were told by Decca that they didn’t like their sound, and guitar music was on the way out.
In 1977 The Chairman of Digital Equipment, told the world, that there was no reason anyone would want a computer in their home.
And my favourite ………… Tom Cruise was once informed that he was not pretty enough for television. I know how he feels.
So I’m afraid there won’t be, many Mystic Mark predictions from me this morning, but I will share with you reflections from my first year as Barratt's Chief Executive.
There’s no doubt that this has been a year of enormous change for Barratt, with the acquisition of Wilson Bowden, and our entry into the FTSE100.
The commercial logic of the deal is powerful, and we have lost no time in integrating the businesses. We have set out our stall to create a formidable competitor, in both the residential and the commercial sectors.
We have an enhanced land position.
We have strength in all aspects of the sector – from the more up market segment to regeneration. From shopping centres to social housing.
We have a stronger brand position, and the ability to reap substantial efficiency gains.
The task for us at Barratt, is now to deliver these benefits.
But it’s been a year of very significant change elsewhere in the housing sector as well.
Consolidation has driven changes in the structure of the whole industry, not just within our company.
And new Government policy could lead to a revolution in home building – what we build, where we build and how many we build.
I’ve come from the energy industry that seemed to me, at the time, to be highly regulated. Yet compared to this industry, it was the paradigm of free enterprise.
I certainly didn’t come here for a quiet life, and at times the agenda for change seems overwhelming.
More homes, more social housing, zero carbon delivery, improving design, higher customer service, planning reform, urban regeneration, and the use of Greenfield land. Each issue, with it’s own merits. Each issue with its own agency or Government champion.
Please don’t misunderstand me. This is not a complaint – it’s just an observation.
Indeed, these are the great issues of the day, and I strongly believe that public policy has a legitimate role to play in land use, environmental targets, and housing supply.
So, let me try and make sense of the issues. I’ll start with the challenge of more homes.
There is no doubt that the supply of new homes has not been meeting demand. Year after year the gap has grown.
The number of households is steadily increasing for a whole range of demographic reasons. But supply has been stubbornly constrained.
The outcome has been a steady increase in prices compared to income. Price inflation born from shortage
So we, as a nation, need more homes and I believe that in the last six months, this has become widely accepted. That in itself is a big step forward.
Government Green paper targets want to see 240,000 net additions by 2016. That’s against a current run rate of 170,000 and an average of 145,000 over the last 10 years.
And what’s more the demand figures, just like the cost figures for the Olympics, seem to be revised upwards everytime they are reassessed.
What is particularly interesting is that the most recent increases in supply have been achieved by increasing density. That in my view cannot continue. In some areas apartments have reached saturation point.
We must meet the increasing desire for family homes, rather than the push towards apartments dictated by PPG3 or short term economics.
Let me say straight away that Barratt is absolutely committed to a growth agenda. Whilst a number of house builders’ growth has stalled recently, our figures from last year were very strong. Both in Barratt and David Wilson.
And our business model assumes, market conditions permitting, continued and sustained growth year on year.
Of course, the unmistakeable, irrefutable conclusion of this is that if volumes are to increase, then land supply has to grow.
Here the public sector has a huge responsibility, as it controls vast amounts of land.
It is no good Government willing the ends but not the means. And more recently, the signs have been more encouraging.
The Green paper commits to bringing forward more land to the market for housing from the MOD, the Department of Transport and local authorities.
But homes cannot be built on good intention alone. We must create clear indicators, of how much additional land is being brought forward, where and when.
We need transparency to ensure that the target of an additional 200,000 homes, on surplus public sector land is met.
I believe that Barratt is particularly well placed to respond to the challenge of regeneration on surplus land. 80 per cent of what we build, is on brownfield sites.
In London we have a long track record of breathing new life into rundown areas. We have delivered some of the most difficult and complex schemes – in Feltham, Swiss Cottage and Docklands.
And now, through our specialist regeneration unit in the North of England, we are winning major new project, after major new project. First with our partner Artisan ….. and now by ourselves.
Earlier in the year we announced that we would be the developer on the Hattersley site. Today I can confirm that we have achieved another major success. We’ve secured the Camphill site in Nuneaton to create 844, homes with the right mix of social and economic rejuvenation.
We will create a new modern village with exemplar standards of architecture, design and environmental sustainability.
And there will be more to come.
But, we have to be clear: it’s unlikely that the nation’s appetite for housing can be met from brownfield land alone.
Indeed, the Social Market Foundation recently calculated, that even if all homes were built to London density, we would still need to build 1 million homes on previously undeveloped land.
So we must face up to this. We must have the debate about Greenbelt and greenfield land.
It needs to be a much higher quality debate, than we’ve had to date. We need to explode some of the myths about land use.
For example, the Barker Review found that people thought that at least 50% of land was developed. The reality is that the figure is just 13%.
Some greenfield land – and indeed greenbelt land - is clearly suitable for development. Some Greenfield land has no particular merit in terms of landscape or biodiversity.
Other areas are clearly precious and should never be touched.
But we cannot dodge the debate. If we want more housing, it has to be built somewhere.
We also need to keep the issue in perspective. To build 200,000 new homes ever year for the next 15 years would require less than 0.5% of greenfield land.
But if that is an uncomfortable truth for those who defend the countryside, here’s one for our industry.
It’s clear to me that developers have at times, been their own worst enemy. Failing to deliver what communities want. Falling down on design and the creation of community.
How can we expect to be welcomed if we can’t get this right?
If we can increase the supply of land, the next question is “can we convert it more quickly, through the planning process, into vibrant, mixed communities?”
There is no doubt that the planning process is frustrating and slow. Planners like developers are much maligned and I’m not criticising their professionalism. But it’s difficult to argue that the system is fit for purpose. It’s complex, with enormous burdens placed on all concerned.
Here I think the Government has done less to grasp the nettle. And where it has grasped a nettle, I think it’s often got hold of the wrong one.
Looking at the planning white paper, the suggested reforms may help you build a nuclear power station – which, as I’m sure you will agree, is not much use to us in the housing industry! They will also help many people looking at extending their homes.
But there is little that will benefit housing supply, apart from relieving some of the workload. Can we really look at the imperative of increasing supply, and say we have the planning system to deliver it?
We do recognise the need to fund new infrastructure to support new development, but Section 106’s can be opaque and cause delays themselves.
But is Planning Gain Supplement really the answer?
I welcome the fact that the Government has paused for breadth. But I hope that the pause becomes a longer stop and think.
For a Government that is rightly trying to put more homes further up the agenda, it really does seem to be an act of folly, to embark on a major system of reform without widespread support - and PGS just doesn’t have it.
The Government response is to say to the industry, come up with an alternative. Fine in theory but the timescales are unreasonable.
We need a different approach – one that provides incentives to local authorities promote and secure more housing. It’s clear to me that some Local Authorities do this really well. And in other places it’s a real struggle.
But what is absolutely clear, is that we will fail, without local support, so house builders will have to raise their game as well. More house building has to be accompanied by much more consultation with the local community. Only with legitimacy and support will expansion of housing supply be able to take place.
We have to listen to our communities and do much, much more, to demonstrate the benefits that redevelopment can bring.
Equally I hope the comprehensive spending review will contain the infrastructure support so necessary to underpin more housing.
We will also have to work harder to demonstrate the industry isn’t failing to develop its land assets as quickly as it might. I could give you good economic arguments, why it isn’t in our interests to hold on to land – and we’ll certainly make those to the OFT.
But my case today it’s rather simpler: Anyone in my company, would have hell to pay, if they were sitting on land assets without developing them as quickly as possible. It’s as simple as that.
Of all the issues currently in the housing mix, it’s affordability that has driven Government to start addressing supply.
From the house builders perspective, it has to be a concern that our product is beyond the reach of so many people. The cost of the average home has tripled over the last 10 years.
The Halifax has calculated that key workers, such as teachers and nurses, cannot afford to buy an average house in 70% of British towns.
For first time buyers a house at the bottom of the ladder will cost around 7 times average earning compared with less than 4 times just 10 years ago.
To tackle this issue we will need a range of options.
First and foremost the supply of housing must be addressed.
But for many that still won’t be enough. I’m old fashioned, and believe that there are times when government priorities, need government funding where the market won’t deliver.
There is little doubt that an ambitious target is in the Government mind - 70,000 new affordable homes a year. But it must be supported with funding, either directly, or through subsidised land.
We will not square the circle by simply requiring a higher proportion of social housing on development sites.
That would heap burdens on to private buyers that they cannot afford or reduce the viability of many sites that will simply delay their development.
It is likely, that of the 70,000 affordable homes, 45,000 will be socially rented. The remainder will be private or shared equity sale.
We see the expansion of social housing, and the emergence of a new market sector as an opportunity. We are already one of the largest builders in the sector.
We have had success with our Ipad homes and we are leading the way with the English Partnership - First Time Buyer Initiative. In my view this is a creative and sensible way to tackle the issue. And one that can be expanded.
At the same time as tackling volume and affordability, there is the small matter of the need to deliver zero carbon by 2016.
It’s a huge challenge but a necessary one – 25% of all UK emissions come from households. And the fact that 30% of the housing stock in 2050, has yet to be built, tells you just how important this is. But the fact that much of the housing stock already exists, means that it too must not be ignored.
It’s a huge challenge for our industry, so this morning I want to say a little bit about how we are tackling the issue.
The first point I want to make, is that we completely support the objective, and are determined to make as big a contribution as we can – as quickly as we can. We want to be industry leaders. The issue is not going to go away.
There are three areas that need to be tackled. Firstly, the energy efficiency of the house. Second, the issues of micro generation and renewable supplies, and third customer acceptability.
In terms of efficiency, there is no doubt that there are some relatively easy wins, in terms of better standards of heat loss and lower electricity requirements.
We can attack these through design, and through improvements in material technology. It will involve triple glazing, higher insulation, and better air tightness.
We have already worked through with Arups on how to make these changes to our standard house designs. But design is only one aspect: the challenge is now for our suppliers, to look at how they deliver the changes we will require – without increasing costs.
Once the design and the fabric of the house, have been significantly enhanced, there will still be a residual energy need. In the absence of an energy policy that delivers surplus mainstream renewables, this will need to be met by household or district renewables.
There will be difficult choices in this area, as the optimal solution is not yet apparent. We have all the micro renewables on test at our eco village, and have built a detailed understanding of their performance and the customers view.
My view is that at the household level, it is likely that a mix of solar thermal and photovoltaic will be optimum. On other technologies more must be done to improve performance, cost and reliability.
We must have evidence-based policy making in this area, not gestures. It’s totally unacceptable for inappropriate and inefficient technologies to be foisted on the public.
The wrong solution will have significant costs, for both the customer and the environment. It will also do enormous damage, to the overall objective of cutting emissions.
For larger developments a more efficient solution is likely to be provided at a district level. Here it would be possible to combine renewable district power plants, and perhaps even wind turbines serving major developments.
Whatever the outcome, we will require a major redesign of our energy system and how it is regulated.
We will need intelligent metering in the household, and at the district level changes will be required to the way the electricity distribution business operates.
That is a challenge my old industry must embrace.
But in the race to find technical solutions we must not forget the customer.
Zero carbon will affect how people live in the homes we build. And behaviour is an important part of the equation. We can build a zero carbon house that quickly becomes anything but.
We will have to make the designs and the costs acceptable. We have to have zero carbon that is affordable not just zero carbon for those who can afford it.
That is why prototypes are important. Building on the experience of the eco village, we will build, at BRE, one the most eco friendly homes ever built.
It’s called, rather unoriginally, the Greenhouse. It’s likely to be a level 6 house and one of the first ever to qualify for zero stamp duty.
But the point is not to build just one. The point is to rapidly learn from the experience, and ensure that we can use what we learn in our standard house types.
We already have carbon saving measures on around 40 of our developments, and we are likely to see this figure expand rapidly.
So this is a huge agenda of change for the industry – more homes, more affordability and higher environmental standards.
And it’s an agenda we cannot deliver alone.
So I want to conclude by calling for a new level of cooperation and partnership, between the industry and policy makers. Mutual understanding and respect. Not an uneasy alliance.
Let me start with what we, as the development industry, must deliver.
First, is the need to make a much more compelling case for major developments.
And as part of that we must get better at making the case for regeneration in terms of the economic, social and environmental benefits
Second, we as an industry must commit to, and deliver further improvements to quality and design. A home is the most important purchase that our customers ever make.
It’s where we live our lives, and bring up our children. Those values must be reflected in the homes and communities we build. Too often I feel that customers are left out of the equation, both by regulators and developers.
In future Barratt will be more customer focussed. Although our standards have risen quickly there is more improvement to come. And I’m determined to deliver it – it will be central to us in terms of what we do and who we are.
But service is just one part of the equation: we need more customer input into what we build in future. And this is particularly pressing as design will change to meet the carbon challenge.
Which leads to the third point – a step change in skills across the industry. The challenges of the future, whether they are about complex regeneration, improved customer service and the environmental agenda, will call for different skills and a different level of skills that we have access to today.
We have recently won an unprecedented number of awards for the quality of our site managers. We are now taking on more than 50 graduates this year and we already lead the industry on apprentices. And there is still more to be done.
But the policy makers must play their part as well in this partnership. Above all else they must get the policy context right.
The lack of coherence between central, regional and local government must be addressed. The issue was vividly illustrated, by the recent report from Government Inspectors into development numbers in the South East. This is clearly at odds with central government objectives. If central Government objective is 40,000 per year, there is something seriously wrong if Regional Government believes the infrastructure won’t support it.
Put bluntly we need public policy to bring forward more land, and to remove blockages to planning. And this must be a policy framework that brings Government together at all levels.
Without it we cannot deliver the additional housing the nation wants. Without it the sector and policy makers will be on a collision course of disappointment and recrimination.
Policy makers must also play their part elsewhere. Affordability will not be addressed by building more housing alone.
The right type of housing needs to be financed, and that must come in part from public spending. We also need innovative schemes to continue to address first time buyer needs.
The sector also needs something else as well: recognition that the industry must make adequate returns so it can be financed.
Investors will only bring forward funding if the returns are high enough. With interest rates rising and share prices under pressure, this is a massive challenge. If returns don’t stack up neither will new housing.
So the policy framework must recognise that without it, more social housing and higher environmental standards cannot be funded by developers, without housing numbers falling.
I want to conclude by making just one prediction: the next five years will an exhilarating time to work in this industry. Where else will there be such a massive market expansion?
Housing has come centre stage, but at a time when economic pressures are growing.
Government, in partnership with the industry, must now crystallize their thinking, and bring forward a coherent framework, that sets out how public policy objectives can be met.
Ladies and Gentlemen, as an industry we must not say that because we can’t tackle the challenges alone, we have no part to play. And to play our part we must change.
That’s our part of the deal and it’s one we at Barratt fully embrace.
Thank you
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