May attacks ‘perverse incentive’ of housing industry bonuses

Theresa May will hit out at the “perverse incentive” of housing industry bonus structures paying out millions of pounds to chief executives as a result of company profits rather than the number of homes built.

The prime minister will make the comments as she unveils a series of measures, previously outlined in the government’s housing white paper, to rewrite the rules on planning in an attempt to boost the speed of housebuilding and ease prices.

She will call the “national housing crisis” one of the biggest barriers to social mobility and argue that she “cannot bring about the kind of society I want to see” without tackling it.

May, who wants to make housing her number one domestic priority, will say she expects “developers to do their duty to Britain and build the homes our country needs”.

Under the plans:

  • Local authorities will be able to take into account how quickly a developer builds on a site before issuing future planning permission.
  • Independent inspectors will be given the power to take over decision-making in local areas if “nimby councils” fail to publish housing plans quickly enough.
  • Staff working for councils and hospitals will be given priority when public land is sold off.
  • Homeowners will be able to add two storeys to existing properties.

The prime minister will tell the national planning conference in London that developers must play their part too. “The bonuses paid to the heads of some of our biggest developers are based not on the number of homes they build but on their profits or share price,” she will say.

© Reuters Britain’s Prime Minister Theresa May“In a market where lower supply equals higher prices that creates a perverse incentive, one that does not encourage them to build the homes we need.”

The comments come after a decision to pay the chief executive of housebuilder Persimmon a £110m bonus was widely criticised, with some describing it as “corporate looting”. Jeff Fairburn collected the first £50m worth of shares on New Year’s Eve, while 140 members of senior staff were also in line for more than £500m, with more than 80 receiving in excess of £1m.

While the government cannot force a change in bonus structures, May will hope to pile pressure on companies.

Areas where action can be taken include “allowing councils to take a developer’s previous rate of build-out into account when deciding whether to grant planning permission”, May will say.

“I want to see planning permissions going to people who are actually going to build houses, not just sit on land and watch its value rise. Where councils are allocating sufficient land for the homes people need, our new planning rulebook will stop developers building on large sites that aren’t allocated in the plan – something that’s not fair on residents who agree to a plan only to see it ignored.”

May will argue that the aim is to improve affordability so that more people can achieve the dream of home ownership.

“I still vividly remember the first home I shared with my husband, Philip. Not only our pictures on the walls and our books on the shelves, but the security that came from knowing we couldn’t be asked to move on at short notice,” she will say.

But she will admit that in much of the country millions who ought to own cannot do so, and prices are being pushed upwards.

“The result is a vicious circle from which most people can only escape with help from the bank of Mum and Dad. If you’re not lucky enough to have such support, the door to home ownership is all too often locked and barred.”

Polly Neate, the chief executive of the housing charity Shelter, said the planning system was not delivering and welcomed the move, but said the evidence would be in the building figures. “It appears the government is waking up to the scale of our housing emergency and the critical need for action which is urgent and bold,” she said.

Steve Turner from the Home Builders Federation said: “We welcome measures to speed up the planning system and stimulate all parts of the market from starter to retirement homes. The industry has delivered big increases in recent years and is committed to working with government to go further and match supply to need.”

However, the shadow housing secretary argued that May should be embarrassed to be “fronting up these feeble measures first announced a year ago”.

“After eight years of failure on housing it’s clear her government has got no plan to fix the housing crisis,” John Healey said.

One industry expert questioned whether linking planning permissions to former build-out rates was workable. He pointed out that permissions were attached to the location, not a particular developer, and many were held by landowners or promoters who would then sell on the site to a housing company.

May will promise to retain protections for the green belt, saying boundaries can only be changed if every “other reasonable option” for places to build needed homes had been explored. Downing Street pointed out that only 10% of England has been built on and only 13% is covered by green belt. But Mark Littlewood, Director General at the Institute of Economic Affairs said the commitment to the Green belt meant the proposals fell “at the first hurdle”.

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