Why brownfield development is overrated

 

 

Developer:   Hello, I would like to apply for planning permission for a residential development just out of town.

Planner:   Forget it. Don’t even bother applying, it’s not worth the effort and expenses. We can’t allow it, our local Nimbys would crucify us.

Developer:   That’s a shame. Is there anything else I could do?

Planner:   Actually, yes. There’s a brownfield site nearby, a derelict industrial area, where you could build about the same number of houses.

Developer:   And the Nimbys won’t object to that?

Planner:   Much less. You may even get a few supporters, because the site is an eyesore. Your application will probably get through.

Developer:   Then where’s the catch?

Planner:   There isn’t one, really. Well, there are clean-up costs involved, but they shouldn’t be exorbitant.

Developer:   Is the site contaminated, or something?

Planner:   Oh, no. Just old factory buildings, girders, and stuff like that.

Developer:   So I would still turn a handsome profit.

Planner:   I would assume so. Sure, the development cost is higher than for greenfield land. But bear in mind that Section 106 payments would be a lot lower, because the area is within an existing settlement. All the infrastructure is already there.

Developer:   And the land itself will also be considerably cheaper.

Planner:   Of course. And last but not least: The local press loves our Nimbys. A clash with them will not be good PR for your company at all.

Developer:   So let me summarise. I’ve got a choice between an unattainable first-best solution, and a second-best solution that is only mildly less attractive, and easy to attain.

Planner:   Exactly. So what do you say?

Developer:   Why, it’s a no-brainer. If I can’t get permission for greenfield development, I will, of course, not build anything at all.

Planner:   But if you don’t build anything, you will make zero profit.

Developer:   I know. But I’d much prefer zero profit to a perfectly workable second-best solution.   

 

…said no developer ever. Absurd as the above dialogue may sound, if you read the campaign materials of Nimby organisations, you get the impression that dialogues like this are taking place every day up and down the country. There is no need to build on greenfield land, they cry, when there is so much brownfield land around. Developers could easily build millions of homes if they were prepared to use brownfield land. But they won’t do it. They just won’t. 

For the Nimbys, ‘brownfield sites’ is not just a land classification, but a mystical incantation. At CPRE (Campaign to Protect Rural England) meetings, they probably dance around a fire dressed up in tunics, chanting the words ‘brownfield sites’ and ‘urban regeneration’ to the beat of a drum.

Note that the brownfield cult is a very young cult. Its practitioners claim that they have never practiced anything else, but that is rewriting the recent past. Until very recently, the Nimbys claimed there was nothing wrong with housing supply. When the Barker Review called for a modest liberalisation of the UK’s planning laws in order to get more houses built, CPRE replied that building more homes

‘would make very little difference to house prices – which depend far more on demand-side rather than supply-side factors. […] At the time of publishing this report, house prices were stable or falling. Homes were expected to become more affordable for first time buyers as earnings rise. But the Barker Review argued that there has been a long-term undersupply of new homes for sale. We disagree. […] [T]here is not a long-term undersupply of market homes. But if Government now believes there is, and changes policy accordingly, result is likely to be an oversupply. […]

‘[T]here is an adequate supply of new homes for sale. […]

[T]here is no chronic, nationwide undersupply of market homes. It follows that implementing the findings of the Barker Review would lead to excess housing.’

In the meantime, the undersupply of housing has become so obvious that continuing to openly deny it would damage CPRE’s reputation. So, for PR purposes, the organisation quickly had to change its tune. They now claim that they had always been in favour of building more homes, and that their only query was that those homes should be built on brownfield rather than greenfield sites.

Unfortunately, for the most part, build-on-brownfield is just another Nimby excuse. Firstly, brownfield development already accounts for the bulk of what little development we have, and it has enjoyed a lead over greenfield development for as long as we have comparable data (see Figure 1). We are currently building next to nothing, and less than a third of next to nothing is built on greenfield land.

 

Figure 1: New dwellings built per 10,000 inhabitants, previously developed vs previously undeveloped land

 

(Author’s calculation based on data from DCLG and the National Land Use Database)

 

Secondly, there isn’t actually that much brownfield land around. The total area of brownfield land that is judged by the respective local authorities to be, in principle, redevelopable, is about 312km2, out of which 90km2 are in London and the South East. For comparison, greenbelt land (much of which is, of course, not ‘green’ by any stretch of the imagination) accounts for 16,394km2.   

 

Figure 2: Brownfield land vs greenbelt land, England

(Ibid.)

 

90km2 is no small amount of land. Housing isn't actually very land-consuming. The DCLG estimates that given current dwelling sizes and densities in newly developed areas, if every square inch of developable brownfield land was used for housing, it would be enough to fit 1.5m new homes. That would indeed go some way towards solving the problem.

But not every development that is physically possible is also be economically viable. Some of those brownfield sites will, for now, be prohibitively expensive to decontaminate. Others will be in the wrong place, even some of those in the South East – the regional level is still a high level of aggregation.  

There will be no meaningful solution to the housing crisis in which brownfield site redevelopment does not have a role to play. Indeed, there are intelligent proposals for how brownfield development could be boosted. But it cannot be more than one element in a much broader package. The brownfield potential is currently vastly exaggerated and overhyped.

And there is a reason for that. The Nimbys’ continued stranglehold over housing depends crucially on our willingness to engage in a peculiar form of double-think. Most of us know that the housing market has gone crazy, and most of us understand that we need to build a lot more to bring it back to normal. However, as soon as somebody actually puts a shovel to the ground, we instinctively side with those who scream bloody murder. But this is an unstable equilibrium. People will eventually realise that if they want development, they have to stop cheering on its enemies. We cannot moan about rising housing costs, and at the same time egg on those who are causing them.

And once that realisation hits home, the Nimbys’ time will be up. The brownfield hype is their last lifeline. Let’s sever it.

@ KN Just wondering what you make of this? http://www.conservativehome.com/thecolumnists/2012/12/andrew-lilico-the-... Aggregate land rents should only be seen as the market measurement of the impact of all State regulation. Indeed some economists call it Regulation Tax (privately collected). All good State regulation increases land rent, and all bad regulation decrease them. So, from the two options of a) build, build, build, or b) institute a land value tax(and untax Capital), which one raises aggregate land rents the most? The higher aggregate Regulation Tax is, the better. The trouble all starts when this State created value is privatised. This defacto subsidy is the ONLY reason housing is unaffordable in the UK.
This sarcastic resume does nothing to advance the debate other than annoy those (including me) who want to protect open spaces and the Green Belt in particular. It would be more helpful if the IEA would address itself to free market solutions to the problem instead of just supporting the building industry PR campaign, which Grant Shapps has enthusiastically endorsed, to build, build, build on open fields. My suggested routes for further investigation: 1 Deny to the state sector the exclusve right to provide social housing. They laughably call this "affordable" housing when it is neither especially low cost to build or to rent/maintain. Private sector providers would probably get more units per acre (sorry! hectare) than current box-loke two storey social housing and do so to a higher standard at lower cost. Evidence - look at anything produced in the private sector and its improvement over the past 10, 25, 50 years then look at service levels in the public sector, project achievement in public procurement, etc. 2 Introduce zoning so the voters (remember them?) can endorse or reject development in their area and builders can have greater certainty as to what will/not be allowed. This would cut a lot of cost out of the system for planning departments and builders. Zoning would give the opportunity to build in explicit increases in infrastructure to cope with increased demand. In many areas a powerful and valid reason for objecting to developments is that hundreds of new homes are proposed with no increase in local transport, health or schooling. For the last two at lease, builders could and should find solutions with strong private sector financing and operations. 3 Recognise the statist forces at work. Local councils are keen to promote development on land they already own to the exclusion of other sites proposed during local development consultations. Zoning would reduce the scope for this and so would local referendums on development plans. 4 Investigate the underlying cause of increased demand. It is surely the rapid increase in population. I doubt the IEA would even try to claim there is any correlation between population size and economic efficiency or output per head. The immigration debate is fundamental because it is a cause of pressure on local housing and infrastructure and a principal cause of distrust of politicians. The need for labour mobility to meet particular shortages of highly specialised workers does not imply or require unlimited immigration. Higher teaching / training quality and selective work permit type workers would resolve any economic questions; unlimited immigration is a political decision which local communities are suffering. Your sarcastic response is not helpful.
You're making the usual mistake of assuming that more supply of housing - be it brown or greenfield, would reduce house prices in the area the houses are built. Fact is, building more homes (and indeed shops or offices of factories) on brownfield sites where they are most needed, i.e. London and South East would only lead to house prices everywhere else in the country falling slightly and boosting rents and prices even further in London and South East. It is quite simply because house prices = land values + build cost, and land values are highest where there are most people. Just try looking at a map for once and ask yourself, where are land values highest, London, New York, Tokyo or perhaps Outer Mongolia or Siberia? So if people move from Siberia to Moscow, land values fall (even further) in Siberia and go up in Moscow. Those are observable facts, whatever your O-level economics tells you about "supply and demand".
Mark is, in my view, at least partly right. Building more houses would do nothing to reduce the prices of homes unless the demand for them also decreased or was coincidentally matched exactly - an unlikely scenario. For so long as we allow unlimited immigration into Britain and require the existing population to pay for the consequential additions to all sorts of required infrastructure, the incease in population will continue until the cost of taxation and levies to fund the building makes habitation here unattractive. Given the low incomes of millions around the world and the relative insecurity of their lives, the level of tax and levies on the resident population here would have to be penal to achieve that result. The basis for unlimited demand for housing and other infrastructure is largely the increase of population. If income per head here was increasing that too might add to demand (bigger homes, second homes, etc) but income per head is still below what it was before the last crash. This increase of population is a decision of the political class without popular endorsement. The reasons why politicians favour unlimited immigration may be either (a) to change the nature of our society, which they self-evidently do not like or respect, (b) in the mistaken belief that free trade in goods and money is no different to free movement of people - as if widgets and human beings are of equal moral value and entitlement. I suppose there might be a third, mercantilist, reason that the bigger the aggregate GDP the better for them, regardless of the per capita income and the destruction of our open spaces. Whether "brown field" means used industrial sites or just under developed urban districts, there is clearly a lot of scope for additional homes without destroying open spaces. But if immigration continues unrestricted the increased density (yes, Mark is right - especially in London) will become very unattractive.
Oh dear oh dear oh dear. We are now sinking to Kindergarten level economics and blaming everything on immigrants. How come that the house price bubble was pretty much a global thing - and happened in net emigration countries as well as net immigration countries?? For clarification - it makes no difference whether it is native, pure-bred, Epping-approved, British born people moving to London or Johnny Foreigners, building more homes and offices in London pushes up rents in London.
It is clear that the UK population has been growing at a faster rate than other European countries. The cause has been immigration. Indeed some European countries have seen a significant departure of residents to the UK which has left unused housing and a depleted demographic and skills profile. The point about the effect of immigration on housing and other demand for services is that most of the ones currently coming to the UK arrive with little assets. It is therefore clear that they cannot pay for the required services and facilities. It is the established population which pays for them. Mark's sneering attempt to characterise my case by references to immigrants and racial issues is surely beneath him. The point is not a nationalist or a racial one as he must know but like so many who engage in this debate he has chosen to attribute attitudes and values to his opponent which I am sure are not applicable. He is better than that and I am disappointed in him. Let's be clear: for any country a large increase in population will cause a commensurate increase in demand for various facilities and services. If the new residents are unable to pay for these themselves it is the existing population which will be required to pay. if a significant increase in housing is required, as typically happens when a population increases due to extraneous causes, there has to be an increase in housing density or the use of more open space. Given that the UK and especially the South East of England already have a high population density these are clearly important issues. Mark may value open space less than others but the Green Belt, for example, was conceived following careful thought and much debate. The areas assigned as Green Belt (itself a form of development zoning) was done after due process of consultation and authorisation. The thinking seems to me to have been valid - politicians knew they could not be trusted to resist pressures to develop open spaces which objective analysis showed should be kept open. The public did not want to see London stretch out to Harlow in the north or to (say) Guildford in the south. Mark is entitled to disagree and to argue for unlimited building on any land owned by anyone, but I doubt he would find much support outside the building companies, some land owners and Grant Shapps. So if not unlimited building on open space what does Mark want - higher density? Well that seems the most likely short term solution. And in respect of population does he favour continued unrestricted increases in our population.
I am a property developer and someone that values our countryside. You can build in a responsible way, not because of any government policy, but because its the right thing to do right. To call everyone that wishes to protect the countryside a 'nimby', just shows how little some people understand the issues. Sensible planning laws that encourage brown field first are to the benefit of both the environment and people. Many but not all developers prefer green field sites because they deliver bigger profits!
"Build properly" is right and it is not only on brown field sites where the thought applies. Much of Britain is not in the Green Belt yet still local planning authorities restrict development for unacceptable reasons and promote development in the wrong places. Local opinion is ignored so the planning authority can get its way; some suspect that may be because the authority itself owns the favoured land, or others suspect something altogether less savoury may be going on. The experience of , for example Chicago, shows that zoning is by no means an easy option but I do believe it would be better than what we have now. Planning authorities consider themselves best placed to determine the size, shape, aspect, design and material finishes of proposed buildings deposit the fact their staff are not architects and appear to have very conservative views on design.

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