Friday, 7 November 2014

This could go either way...

Article by London's Deputy Mayor for Housing in City AM:

It is time legislation was introduced to enable that land to be transferred direct to the mayor for disposal, providing homes for Londoners rather than being left to waste. At City Hall, we have a “Domesday Book” of Greater London Authority assets. It offers more transparency and could be expanded to include everything from the public sector.

And instead of auctioning assets off, consideration should be given by public bodies to how to extract more value over the longer term, by partnering with developers. This sort of thinking is happening at some big landowners like Transport for London. These bodies have the potential to be the Great Estates of the future, like those who built large parts of central and west London.

Ho hum.

"Partnership" always sounds so cuddly and nice and is oft wheeled out by the UK government to justify giving large sums of money to its mates i.e. Private Finance Initiative and so on.

But if you take his words "extract more value over the longer term" literally, the blindingly obvious thing to do would be for the GLA (or whichever government body) to retain ownership of the land and ask a developer to build the building.

Whether the GLA and the developer split the future income in proportion to the relative value of the land (about three-quarters) and the cost of the building + profit margin (about one-quarter), or whether the construction costs are just paid off out of the first few years rental income* is minor details.

* Rents per square foot per annum = bare minimum of £10 in outer London fringe, all the way up to £100 and beyond in the top decile.

Build costs per square foot = £100.


mombers said...

I reckon they set up a company, the council gets 49% equity (i.e. 49% of rental profits) and the developer stumps up the entire building cost and gets 51% equity. Solves the problem of silly s106 agreements where the council insists on 'affordable' housing. This way they cream off the land value and can use it to offset their housing benefit liability. In very high rent areas, they could even afford to pay the council a lump sum or (preferably) a lease of some sort so that the council doesn't lose the land value forever.

Bayard said...

If it's sensible and doesn't make anyone a quick buck, then it won't happen.

Mark Wadsworth said...

M, we have discussed in person :-)

B, well, that's the thing. Round the corner from where I work is a massive site owned by Crown Estates and they are doing exactly what a private developer would have done, i.e. knock down a collection of ramshackle buildings and replacing it with some bigger shinier new ones.

The contractors, architects, building workers etc are all making a decent wedge, and the rest goes to the government.