Labour's housing plans unpacked

Hello and welcome to Intelligence Talks! I'm your host Anna Ward and today I'm joined by three guests from Night Frank's research and planning teams. I'll head of ESG Research, Flora Harley, I'll head of planning Stuart Bailey and head of European residential research, Kate Everallon. Hi Flora, Stuart and Kate. Morning Anna. Hi Anna. So I'll be quizzing our guests today on the Landside Labour Board on Friday and what they think the government's priorities should be. We have a mix of perspectives here in the room with us so I'm going to be picking on you first Stuart to give us a quick hit of planning reaction. Obviously that's a big part of Labour's manifesto. They're pledging to build one and a half million homes in five years. We've heard also from Rachel Reeves this week as well about opening up the Green Belt and rowing back on some conservative policy. Do you think Labour can break the UK's planning deadlock? We've been getting excited about the pre-election stuff because planning was real front centre, almost of the debate and the manifesto. Mainly about housing, the rest of commercial development wasn't as much focus on that but housing being a key national piece of infrastructure has really hogged a lot of the headlines. And it's great that Labour has been out there really sort of identifying the issues really responding to where we've really struggled as a sector to address that residential housing supply. I do think the challenge there is potentially bigger than Labour have acknowledged themselves. I think to get to 1.5 million new homes within their tenure is going to be a really big challenge. It requires getting to 300,000 homes delivery per year, which we've never got anywhere near it as a nation. Planning application volumes have dropped to lowest ebbs since 2008. Planning approvals are still high. I think there's work to be done in the system. The first steps are going to be about revising the NPPF back to its former state where housing supply targets were... What I'd be really interested to know is are you expecting it to be like a wholesale radical revolutionary approach or would you say they're more likely to look at the system that is slightly flawed and try and modify it slightly and improve it? Which would you say is more likely at this point? I think it would be modification. I think there will still be those that call for a wholesale rip-up and start again. What we've seen from previous governments is attempts to do that have fallen flat. Planning is such a democratic process. It's almost impossible to take it back to basics and start again. And actually what most of my clients are saying to me at the moment is actually we just want certainty in the process. We want to be able to move forward with more positivity. I think I do something controversial, like remove the democratic element in planning decisions. I strongly suspect not. I think we may look at ways to try and fast track certain things. So brownfield development may look at fast tracks potentially this grey belt. Within the green belt we'll come forward in that basket as well and maybe look at ways of that being determined on a sub-regional basis rather than it being by local planning authorities. I think that's probably more of the sort of things that we're going to see rather than a wholesale take planning committees out of the process entirely. And what would you say are the key dates, the diary and times of the NPPF? Obviously that will be coming down the tracks. What would you say are the sort of things that you're looking out for? I think there's an intention from the new government to get on with it as quickly as possible. And that's certainly welcome to all of us that are operating in the industry. I think the challenge around that will be some of the requirements to involve a legal process in re-adopting previous legislation and moving back to bringing forward new legislation which they will do to bring in some of these things. So I think within the first six months we will see quite a lot of new bits and pieces coming through but the sort of the scale of change is likely to be over the course of a year I would say. And what would you expect to see in the NPPF when it comes out? When is it coming out? Well, we don't know. There may be an announcement today on that. It's a moving feast at the moment every day. There's a really good thing here about a lot of the Shadow Ministers have retained their mandates and their briefs. They've come back in. They have a good understanding. They've been doing it for a year or two years in some cases. There's not really any great shocks. So they know what they're doing. They know what they're about. The civil servants will be familiar with them. I think that will help move things forward. In terms of the NPPF, it feels like the first step is going to be to sort of revolt. What was introduced by Mr Gove earlier this year and move back to the previous iteration of the NPPF. Now whether that can be done really straightforwardly. I'm not entirely sure of the legislative process to doing that. But what they want to do is reinstate the five year housing land supply and the needs for councils to monitor and calculate their housing needs and actually hold them to account on that. Now I would like to see them go a little bit further and actually mandate that requirement. So it's an essential requirement. I'd also like them to tweak the green belt policy requirement to make it an obligation on authorities to review that green belt and identify those brown field grey belt sites within the green field to actually help bring that forward. At the moment the wording is a little bit loose and that would need to be tightened up to a meaningful impact. I'm just saying, and Flora, obviously Stuart has wishlist out there. From your perspective on NetZero, clearly the Labour have a really ambitious building plans. How do you think Labour can balance this ambition to build with getting closer to NetZero? Well I think there's a few things to take from their manifesto. So the first is the renewable energy sort of aspirations, decarbonising the grid by 2030, which is absolutely no small feat and we'll need a lot of different parts of the system working together. Just by way of example, renewable energy counted for 47% of our electricity generation last year, which is amazing and it's up from 42% the year before. But the deployment level of wind and solar would need to be double if not quadruple in some different areas and some of that will be helped by the removal of de facto bands onshore wind farms. But it's still, there's a lot of momentum you just bear and the planning system is one that will need to work with them as well as all of the grid limitations. Then in terms of physical properties, well we've got in the private rented sector, they're looking to introduce minimum energy efficiency standards by 2030. They didn't actually specify what those minimums were. No, it wasn't Satan also. No, it's sort of been taken that it'll probably be EPCC, which was previously put forward by the previous government, but then was scrapped in September last year. So they're looking to put that in place, which again, it's no small feat. It's around 50% of the private rented sector or over 3 million homes, which are actually below that level. So that's a lot of support needed to bring everyone up to potentially an EPCC. The other side of things is there's long been the minimum energy efficiency standards muted for commercial buildings of EPCB by 2030. Yet that hasn't actually gone any further, it's not in legislation and there was no mention of that in the manifesto. But I think we just need certainty because that's one of the things that's going to drive it forward. And the other piece of the puzzle, which I think is sort of pushing that decarbonisation effort, is around the green finance strategy. So mandating transition plans aligned with 1.5 degrees and Paris Agreement for all financial institutions and FTSE 100 companies. That'll have an occupier effect, but it also means that there could be sort of more financial instruments or financial funds going towards that decarbonisation effort along with the sustainable disclosure regulations, meaning that there will just be a bigger pool of capital put towards that transition. So hopefully it could move us the right direction, but I think we just need, in the same way Stuart just said, we need certainty around what's coming in the regulatory space and then everyone can make more plans accordingly. I know kids' silence has been so cautious and obviously saying things can't happen overnight, but how long do you think it will be before we have a slightly clearer view on where this is going? Well hopefully we'll have a better idea in autumn when they finally put out a budget. I know they're not planning to rush anything because they want to make sure that the OBR can catch up and make sure there's robust forecasts because of it. So hopefully we'll see a lot more there, but with the decarbonisation plans are quite strong in some of the ideas, but the devil is always in the detail isn't it? So hopefully in autumn we'll know a little bit more. What about policy reversals? I did read that they're quite likely to go back on the gas boiler band and incentivise people to put in other types of energy efficient heating and so on. What did you make of that? There is a bit of the rowing back from what we saw in September 2023. The warm homes grant will hopefully see more air source heat pumps or energy efficiency heating systems being put in and the funding required to do that because it can be costly to individual homeowners. The other bit that they're rowing back on is the EV mandate, which is a slightly separate to the energy efficiency, but it just shows that again they're rowing back on the rowback and pushing back in towards more of the net zero targeted policies because I think that one's a really interesting bringing it forward to 2030 again, the band on the sale of internal combustion engines. Obviously there's going to be a lot of EV charging infrastructure that needs to support that transition because if you see a sort of seven fold increase in the number of EVs being sold every year, which would be the level if every car was an EV, and that's going to need a lot of infrastructure and property owners are well placed capitalise on that. The other thing I was going to ask you about was New Ancientian Trilogy, because that again in the manifesto they seem to be promising the best of both worlds so to unlock the homes but also still protect rivers and waterways. How is that possible? I mean I think if anyone knew they would have specified I think that's another one where it's going to be the aspiration is there, but the delivery is going to be tricky and you're going to have to balance that and I think they're going to come up against a lot of those sorts of issues where they want to do it, but then they look at the practical implications and is it realistic. So it'll be interesting to see there is a lot of nature related pieces in the manifesto about woodlands and peatlands and some of those sorts of areas again aspiration versus reality will just have to see what comes down to it in the autumn statement and beyond. And so before we get all bogged down in the UK, can you give us a bit of a take from your European point of view as to how residential markets over here are going relative to European peers. Well I guess to start off with we need to look back so the European markets perform very differently to the UK markets during the pandemic so we saw quite a big boom period in those sort of lifestyle markets. This year what we've seen is a slight lull in activity particularly in the first quarter of the year and then from about May onwards once the signals from the European Central Bank were that there was going to be a rate cut. We started to see a bit more interest in terms of inquiry levels, but also sort of sales completing as well. So there was that bit of a pick up in May in Europe, but UK has been a bit flatter in terms of activity. And I think what we were starting to see in January was this real positivity around you know four, five rate cuts over the course of this year that hasn't happened. The one big difference I guess between the eurozone in the UK is that the ECB has pivoted UK financial markets are sort of saying maybe August maybe September for that that first rate cut. So there's a slight difference around that I think we saw households in Europe gain a bit of positivity once they were confident that the direction of interest rates was down. But obviously these are discretionary markets so they're not necessarily having to sell it's not like the mainstream property market. As a result vendors have been reluctant to accept that we're not all green that pandemic period that boom period so not quite as realistic when it comes to pricing. And bias have just sat on their hands for several months really just waiting to see that direction of interest rate obviously the elections have had a big impact. I was going to ask you about that because obviously while everyone was expecting this labor majority clearly what's going on in France is a bit of a surprise. How is that impacting maybe it's too early to tell I don't know but is that having an effect at the moment on people's plans. I think the sort of the shock result and the shock calling of the election has slightly vented some confidence across the region. The property markets the far right in some respect this time last week everybody was expecting the national rally to win the election. Obviously there's been a lot of horse trading and now we've got the far left that has done better than we expected a week ago. But I think the outcome is probably still much the same in as much as we're going to have a hung parliament so we've got a far left legislature that's going to have to work with a centrist president. That means in terms of the actual detail policies is hard to say. The big concern I guess for investors ultra high net worth individuals is around the wealth tax so the far left had mooted that they plan to overhaul the wealth tax alongside other policies. But whether they will have sufficient appetite or sufficient support to be able to do that it's hard to notice what direction things will go in. Generally as well obviously for the UK prime particularly in the capital we've seen the changes to non-domarals have an effect and we don't quite know what label will be doing. I know in one of your recent reports actually you rank the UK on capital gains tax again that's another policy we don't know what label will be doing with. But currently it's lower in the UK than France and is that something that buyers of the prime housing in the UK based in Europe will be watching closely? And I think this is part of a bigger picture so we talked at the start of the year about how this was going to be the biggest election year in history. I think in Europe alone alongside the European parliament elections there's something like 19 parliamentary and presidential elections. So what that means is the likelihood of quite radical policy shifts coming quick and fast is a reality. And that is inevitably influencing wealth flows across border flows across the region and people are starting to reassess you know what that landscape looks like and where we'll deliver the lifestyle they want. Perhaps with alongside sort of education requirements for children or potentially we're seeing in the like the pandemic we're seeing a big increase in early retirees. So we might see people started to look like places like Italy but that taxes in enforce one of those Switzerland but also some parts of Spain as well. Valeriks for example have changed their policy around wealth tax as well. So there's lots of things lots of moving parts at the moment. I think it's probably going to take a couple of months for things to just bend down and people to be able to sort of reassess. And also we don't really know until probably the budget in the autumn exactly what that the implications of that non-dom rule is going to be. And do you think that there could be other countries reacting quite quickly to all of this and perhaps taking advantage of changes in policy and trying to sort of lure investors over into their countries. Are there signs of that yet? Yeah I mean there's a lot of moving parts I said partly because what they're doing a lot of the European countries is focusing more on the sort of digital nomad type visas to try and attract people on a temporary basis. There's pressure from the EU to reduce the number of golden visas. So we've seen porch goal for example has rained in the rules around that and several other markets as well. Ultimately they are looking to deliver affordable homes for their electorate but they've got to keep one eye on making sure that they're still an attractive proposition for foreign investors as well. You know a lot of these governments have got some of the biggest deficits they've ever had on record. So they need to ensure that they are attracting that investment across from overseas as well. So it's a tricky balancing act that many of these governments are going to have to, you know, type rate they're going to have to walk and that's obviously very relevant to the UK. And Stuart I don't know if that's something that you're talking about in planning circles. The balance to build affordable against maintaining and sort of an attractive landscape for investors here. Yeah I mean a labour government is going to push affordable housing and I think they haven't given much detail on that yet. And I've said that they will look to kind of stabilise and implement policies to sort of boost the supply of affordable housing. My main concern on that is actually what they're talking about and the green belt grey belt stuff with the saying it'll have to be 50% affordable as a starting point. Now a lot of these sites just are not going to be viable at that level. I thought it wasn't in their manifesto though. They talked about it. They stopped short of it in their manifesto certainly. So with that and there was talk of tax on foreign buyers to help fund planning officers which are phoned quite bizarre. They need to do something to boost planning officers in the evening. Only 300 of them. 300. Which is hardly going to touch the surface. It's not just like one per planning for it. Yeah to finish off I thought I'd just ask all of you what you paid for your money basically. So I previously asked the commercial research team there. So if you had 15 million pounds that would be nice wouldn't it? And you can spend it on any aspect of the UK residential market where would you be putting it and why? When do you like to kick off? Do I have to go UK-resie or can I go Europe? I guess you could be contrarian go Europe. Yeah go on then. Okay well I've got kind of two answers. If it's Europe from a purely personal lifestyle perspective I would say probably someone like Mallorca. A nice sort of northern located villa. That's sort of area where you can also get a decent rent to return. I think if it's UK I'd be a bit risk averse and diversifies much as I possibly could. So I would probably take that that posse of money and split it probably into three or four different things. So firstly probably a prime central London property and something like Mayfair, Kensington, very central. Then I'd probably look at item rent sector and sort of buy properties across multiple cities. And then maybe a bit in terms of social housing, built rent, something along those lines as well. So a bit risk averse so I'd probably spit things out a little bit. Yeah that sounds very like European kind of hedge fund manager. Flora how about you? I'm hoping that it's going to be very ESG kind of good credentials etc. It would be I think in the drive for the renewables. I think I'd look for some land which would either be good for solar or wind deployment. You'd have to have good sort of grid connection and either lots of sunshine or lots of wind depending on which way you go. Or even battery storage because all of these things are going to have to work together. So I'd definitely be placing it into more than the renewable drive and steer it. If I was spending government money I'd spend that on planning departments. But if it's my own money clearly I would be looking at investment prospects. I would go for a big chunk of Graffield land in the Greenbell. I would look at that in the south east somewhere and I would promote it for a senior living development. What's the chunk of land reserved for biodiversity in that game? I think there's some good returns to be made in that as well. Interesting. I mean at the moment it's unclear where all the grey bell actually is isn't it? Would it be convenient enough for a senior living development? I think it's interesting. We've done some analysis of where grey bell is located and some of the sites definitely aren't as accessible or as sustainable as they might be. I think we need to look at potentially consolidating some of these sites into a larger land mass. But there are some obvious sites to take forward and that are close to road infrastructure and closer to sustainable settlements. I think you can create something of a reasonable size that would be attractive. Well very diverse answers and thanks for your quick takes or so on the election and Kate as well great to get your European viewpoint very helpful to put it in context. So thanks for joining me. For more analysis you can subscribe to our research note which goes like every Monday, Wednesday and Friday. See our show notes for more details. And please do subscribe wherever you get your podcast and listen out for our next episode in two weeks.