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514  11 November 2002   

More thoughts on
the housebuilding business
 

My own experience of how the housebuilding industry works generates quite different perceptions from those of laymen.  Take a new look at its processes, through the eyes of a professional - let's look at the lay fallacies.

It is said - "It is more profitable for housebuilders to build on green fields than to redevelop brownfield sites"

  • Wrong: For the housebuilder, land is merely one factor of production, along with bricks, paint, wages, power.  He must pay to the prior owner the market price for each site. The land market is an efficient one, and site-prices are bid up to whatever level permits the housebuilder to make a profit falling within the bracket 10%/15% of the house selling-price.  If a greenfield site is well positioned, legally simple, and easy to develop, the housebuilder will have to pay (and will be happy to pay) a "high" price for it.  But the brownfield site, in spite of all its difficulties, will be equally profitable for the housebuilder - he will take all its special costs into account (legal fees, decontamination, planning problems, divided ownership), and pay much less for the site in the first place.  There is no such thing as an expensive site - or a cheap site, for that matter.

It is said - "Housebuilders have to build up large landbanks, requiring large-scale capital lock-up"

  • Wrong: The delays of the town-planning system have long had a profound impact upon the practices of the housebuilding industry.  Companies now commonly defer payment for development sites contractually, until planning permission has actually been granted, and then move quickly to bring the resulting homes to the market.  Options and conditional contract methods are deployed to achieve this result.  Business practice has adapted (as it usually does) to the vagaries of the public regulatory system.

It is said - "Housebuilders are inefficient: the average estate house takes over 14 weeks to build, and the industry has failed to improve its on-site production methods"

  • Wrong:  It is true that on-site construction periods have not been reduced, and construction methods remain largely traditional.  That is explained not by inefficiency, however, but by commercial sensitivity.  Houses are being produced for sale to owner-occupiers, and owner-occupiers are resistant to non-traditional methods - timber-frame houses can face customer resistance, for example, as can the use of plasterboard instead of wet-plaster.  Popular tastes change only slowly, and the housebuilder is constrained by the preferences of his customers.  And it is also true that houses could be built much faster on site, by the use of more intensive industrial methods.  But it takes on average 12 weeks to go through the processes of selling a house - arranging a mortgage, rearranging schooling and other family commitments, buying furniture and other household equipment.  And purchasers will ordinarily refuse to buy a house until its foundations are complete - and its positioning and plot-size therefore clearly apparent "on the ground".  Rapid construction (necessarily, at higher cost) is therefore not a priority for the industry.

It is said - "Housebuilders always try to increase densities, because they always make more profit out of high-density sites".

  • Wrong:  Determining the best "product mix" for any particular site is one of the key skills of the housebuilder - larger units on lower density sites generate much greater profit-per-unit, but may be more difficult and slower to sell - to build larger numbers of smaller houses, to a quite different income bracket, may unlock the development profit much more quickly and reliably.  But that is only an option if the site is suitable for that alternative form of development, in terms of social class, neighbourhood status, and official planning policy.  The correct analysis of the best value-structure for each site is one of the key skills of the residential developer, when building for owner-occupied sale.

Are there any questions which you have, about this fascinating and pivotal industry?

I would be delighted to explain - Drop me a line

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515   11 November 2002   

Jacqueline and
the Patagonian toothfish

"Administrative law" is my subject.  As a young Barrister, my political interests led me naturally to specialise in litigation between the individual and the State - and that is the subject-matter of "administrative law".  Orthodox lawyers argued at that time that in the UK there was no such thing as administrative law, because the State was subject to the jurisdiction of a unitary system of Courts, and a unitary system of law. That is quite unlike the Continent, where there are dual systems of Courts, with special administrative courts adjudicating on State v Citizen issues, and distinctive bodies of administrative law - Verwaltungsrecht, droit administratif.

But I have never found such arguments convincing - either as a lawyer or a politician. There is indeed a special jurisprudential zone, in which lawyers seek to understand and encompass the distinctive features of state/citizen relations.  Somewhere in the academic annals of international law there is an absurdly learned article from me, comparing the administrative law jurisdictions of the UK, France and Germany - in 1964, I knew more about that arcane subject, I suspect, than anyone else in the UK...

And State "licensing" is one of the most problematical of all legal topics. The State assumes the power to select and nominate individual citizens (natural persons or companies) to perform certain functions, pursue certain trades.  What legal principles should govern that contentious process?  In recent years, conflicts have surrounded the allocation of TV franchises, railway franchises, the Lottery franchise, as well as a multitude of PFI decisions.  But it was the Patagonian toothfish, this week, that hit the legal headlines.

The Falklands fishing-grounds are prolific, but nevertheless under threat of over-fishing.  And in 2001, Robin Cook decided to introduce a system of licensing, to control catches.  The good ship Jacqueline, owned by the Quark Fishing Company, had fished successfully for the previous four years (1997-2000), landing 300-400 tonnes a year.  When the licensing system was introduced, the Jacqueline was refused a licence.  Only two ships were licensed, out of nine applicants. And the Quark company challenged the Government's decision.  The High Court upheld Quark, and HMG appealed.  This week, the Court of Appeal dismissed the appeal.  The Government has created a heavy rod for its own back, by refusing to accept the lower-court decision.

The licensing process, the Appeal Court held, had been unfair.  That invalidated the administrative decision.  It was not the Judges' job to re-take the decision, they could not replace Robin Cook's judgment with their own.  But, the Judges thundered, the administrative process itself was defective - the criteria for granting licences was obscure, and a key factor (loyalty to the fishery) wrongly discounted.  "I cannot see why that beauty contest should have been conducted in secret, as in my judgment it clearly was", said Lord Justice Laws.  The Foreign Office also showed a "want of frankness" in handling the Quark challenge.

For the administrative lawyer, this reasoning is like gold dust.  Rarely do the Government lawyers allow conflict of this kind to get as high as the Court of Appeal - indeed, this represents a cock-up on somebody's part.  As a matter of tactics, the Government should have accepted the High Court decision, and not embarked upon such a high-profile appeal.

For there are here two valuable principles of good administration.

  • First:  that the criteria for the allocation of public licences should be open, public, comprehensible - avoiding obscurity.  Applicants must be able to judge precisely where they stand.
  • Second: that the appraisal process should be in public, not behind closed Whitehall or townhall doors - and that will cause no little fluttering in the administrative dovecotes, for a system which is addicted to secrecy, "confidentiality".

This case-law - it should be noted - does not raise any "human rights" issue, nor does it rely on the European Convention of Human Rights.  It is entirely home-grown, rooted in the commonsense of English common law, interpreted by the judges in the light of prevailing conditions. 

  • I predict a distinguished jurisprudential future, for the Patagonian toothfish...

What do you think?  Drop me a line

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