|David J Rowlands AC|
|Hefin David AC|
|Joyce Watson AC|
|Mark Reckless AC|
|Russell George AC||Cadeirydd y Pwyllgor|
|Siân Gwenllian AC||Yn dirprwyo ar ran Bethan Sayed|
|Substitute for Bethan Sayed|
|Vikki Howells AC|
|Daryl Jones||Pennaeth Tir, Persimmon Dwyrain Cymru|
|Head of Land, Persimmon Homes East Wales|
|Gareth Davies||Cyfarwyddwr Datblygu, Coastal Housing (yn cynrychioli Cartrefi Cymunedol Cymru)|
|Director of Development, Coastal Housing (representing Community Housing Cymru)|
|Ian Stevens||Fforwm Polisi ac Ymchwil, Y Sefydliad Cynllunio Trefol Brenhinol yng Nghymru|
|Policy and Research Forum, Royal Town Planning Institute|
|Ian Wyatt||Cyfarwyddwr Gwasanaethau Cwsmeriaid Busnes, Dŵr Cymru|
|Ian Wyatt, Director of Business Customer Services, Welsh Water|
|Jane Carpenter||Cyfarwyddwr Cynllunio, Redrow De Cymru|
|Planning Director, Redrow Homes South Wales|
|Mark Harris||Cynghorwr Cynllunio a Pholisi Cymru, Ffederasiwn Adeiladwyr Cartrefi|
|Planning & Policy Advisor for Wales, Home Builders Federation|
|Simon Gale||Cyfarwyddwr Gwasanaethau Cynllunio, Cyngor Sir Rhondda Cynon Taf|
|Service Director Planning, Rhondda Cynon Taf Council|
|Tim Stone||Rheolwr Gyfarwyddwr, Redrow De Cymru|
|Managing Director, Redrow Homes South Wales|
|Robert Lloyd-Williams||Dirprwy Glerc|
|1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau||1. Introductions, apologies, substitutions and declarations of interest|
|2. Papurau i'w nodi||2. Papers to note|
|3. Rhwystrau sy'n wynebu cwmnïau bach sy'n adeiladu cartefi: Cwmnïau mawr sy’n adeiladu cartrefi||3. Barriers facing small home building firms: Large home building firms|
|4. Rhwystrau sy'n wynebu cwmnïau bach sy'n adeiladu cartefi: Cynllunio||4. Barriers facing small home building firms: Planning|
|5. Rhwystrau sy'n wynebu cwmnïau bach sy'n adeiladu cartefi: Dŵr Cymru||5. Barriers facing small home building firms: Welsh Water|
|6. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o'r cyfarfod||6. Motion under Standing Order 17.42 (ix) to resolve to exclude the public from the meeting|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Dechreuodd y cyfarfod am 09:41.
The meeting began at 09:41.
I'd like to welcome Members to committee this morning. I move to item 1. We do have apologies from Jack Sargeant, and we have apologies from Bethan Sayed, who is substituted by Siân Gwenllian. Welcome, Siân, to committee this morning.
I do ask if there are any declarations of interest. Please do declare them now.
In that case, I move to item 2. We have a number of papers to note this morning. One is from the Department for Transport in regard to our inquiry on autumn disruption last year, where they bring forward their comments. We have a letter from the North and Mid Wales Trunk Road Agency in regard to our state of the roads inquiry last year, and there is a letter to note from me on behalf of the committee to Ofcom in regard to responding to a consultation that we agreed some weeks back. Are Members happy to note those papers?
In that case, I move to item 3. This is in regard to our inquiry. This is our second session on barriers facing small home builders' firms. We have three sessions this morning, and the first panel is before us now. I'd be very grateful if the witnesses before us could perhaps introduce themselves for the public record. If I perhaps look to my left.
Morning, all. Mark Harris, I'm the planning and policy adviser for the Home Builders Federation in Wales.
I'm Daryl Jones, head of land and planning for Persimmon Homes.
Tim Stone, I'm managing director of Redrow Homes in south Wales.
Jane Carpenter, planning director with Redrow Homes, south Wales.
Thank you. Members will have questions this morning, but if I could start: 'the house building industry is facing a crisis the likes of which has not previously been experienced'. That was the view of a witness from our previous session, from Hygrove Homes. Can I ask the witnesses if they would agree with that view? Who would like perhaps to address that item first? Tim Stone.
Yes, absolutely. I think there are a number of challenges. I think the house building industry has been through challenges before. I think there is an enormous demand for new housing, and for housing numbers, and I think the industry is struggling to keep pace with that demand for a number of reasons. I think the development process is very complex and gets increasingly more complex in terms of the planning requirements, which I think you probably heard at the previous inquiry. We experienced exactly the same issues, so, in terms of skills and availability of land, I think, yes, it is a very challenging period because there is a demand out there, there's a requirement for new homes, but it doesn't get any easier. That's certainly true.
Thank you, Tim. Any others with comments on the opening statement I made, from that comment from Hygrove Homes? Mark Harris.
Hygrove Homes aren't members of HBF, but I have spoken to them and worked with them on a number of occasions, so I'm aware that they're a smaller SME who've not been in house building that long. So, obviously, to a certain degree, those comments are based on their position. But, as Tim said, I think everybody in the sector's facing challenges. We're here today to talk about SMEs, and I think that the comment from them is something I've heard in other discussions, that has been mentioned by lots of other SMEs—that there are lots of reasons, which I'm sure we'll come on to in other questions and other answers, as to why it is very challenging for them at the moment.
I look to other members of the panel as well, and perhaps if I extend the question, what I would like to draw out from you is, in brief, what you think are the main barriers that are challenging and facing the industry—perhaps not in too much or great detail, but if you can give an overview, that would, perhaps, help to set the scene. Jane.
Although my area of expertise at Redrow is town planning and strategic land, the point is that we bring in probably about 70 per cent of our land into our business via going out sourcing our own land and bringing our own planning permissions in. And I've been in the planning business for 30 years and it's changed a lot over that time. It is increasingly complicated, it is increasingly expensive as a result of the complications. We find that as a public limited company with the expertise of in-house teams and the experts we can buy in to assist us with problems. So, in terms of the SMEs, that is a greater challenge altogether.
Probably the one thing I think you're looking at are the barriers to entry, and then that's a whole new difficult level of people to get into the planning system, into house building in the first place. And the challenges with planning and the expense of engaging in the planning system I think is probably your biggest question that you need to address. The cost of entering planning, due to the complications in the system of planning, is going to be the biggest barrier to your SME growth.
Thank you, Jane. And there are questions that come from what you said, which I won't ask now, because I'm sure other Members will draw them out. Any comments, Daryl Jones?
My colleagues have answered the question, really. Persimmon would just reiterate the points being made, in that the cost of planning and what is required to be submitted with a planning application is getting more and more expensive and more and more detailed for actually what a small house builder is actually asking the planning authority for. A lot of the time they are looking for the principle of development, not necessarily the detail, and there are maybe changes to how small house builders would approach planning, rather than some of the larger developments that we have, which would help the small to medium house builder.
And if I could quickly add—and I'm sure we will come on to it, potentially—the funding is triggered by planning. So, most funders won't fund without planning permission. And even if you've got an allocation in a development plan, which arguably is an initial agreement that there's planning in principle, that no longer guarantees you getting planning permission at a detailed—[correction: getting detailed planning permission]. Or getting it quickly. So, that's why planning is so important, because it's the trigger to funding. And certainly new entrants, unless they're very lucky, don't have their own money to dip into. And even existing SMEs who are trying to expand will need funding at some stage.
I know that Members have questions around comments you've made there, Mark, which we'll come back to. Siân Gwenllian.
Mae gen i gwestiwn, cyn inni fynd i mewn i'r manylion a'r rhwystrau. Dŷn ni wedi cael datganiad y bore yma yn dweud bod yna alw am gartrefi newydd. Dwi'n meddwl y dylem ni jest edrych ar hynny ychydig bach cyn symud ymlaen i weld beth yw'r problemau sy'n wynebu'r diwydiant. Ydy'r galw yna yn alw am fath arbennig o dai? Ydy o'n alw sy'n fwy mewn rhai rhannau o'r wlad o gymharu efo rhannau eraill o Gymru? Dŷn ni'n gwybod, a dwi'n gwybod fel Aelod Cynulliad lleol, fod yna alw mawr am dai cymdeithasol, tai ar rent. Dŷn ni'n clywed wedyn fod yna alw am bob math o dai. A oes gennych chi dystiolaeth i ddangos beth yw'r mathau o dai sydd eu hangen ar bobl yng Nghymru ar hyn o bryd?
I have a question, before we get into the details and the barriers. We've had a statement this morning saying that there is a demand for new homes. I think we should just look at that a little bit before moving on to see what problems are faced by the industry. Is that demand for a certain type of house or home? Is the demand greater in one area compared to other areas of Wales? We know, and I know as a local Assembly Member, that there is great demand for social housing, rented housing. We then hear that there is demand for all sorts of houses. Do you have evidence to show what kinds of homes are required by people in Wales currently?
Can I start off on that? We, as Persimmon, look to the M4, but we are now looking towards the Valleys, and there is demand across the whole of Wales for new housing—not just affordable housing, but there are lots of people who are still living with mam and dad who actually want to get on the ladder. We're the only plc now that's actually into the north of the Rhondda and Cynon valleys. We're looking at opening up another outlet in Ebbw Vale because we know that there is demand in these areas. There's demand for affordable housing, but there's demand for two- and three-bed and small four-bed houses in these areas, and those are the areas now that we are focusing on as a business. So, there is a—
From what we are seeing, there is a lot of demand for two- to three- and small four-bed houses, and that is what we are primarily providing now as a product for our customers. And we've been surprised by the demand. We've got a site in Mountain Ash. We originally thought we'd sell about 30 units a year there, but we haven't been able to build them quick enough, because the demand is there. And that's given us confidence now to look at other sites in the Valleys, such as Merthyr, Ebbw Vale, and we're looking right across the whole Heads of the Valleys, as well as looking at Cardiff, Newport and Swansea, et cetera.
Siân Gwenllian, in her initial question, was talking about need, and the bottom end of demand starts to touch the top end of need. With regard to what you've just said, how many of those houses that you are going to build in the northern Valleys will be at the bottom end of the prices—say, £100,000 to £120,000, the kind of bottom-end affordability? And, included in that question, would a SME company be more likely to be able to build those kinds of value houses?
The developments that I'm talking about in question are brownfield sites. So, you need a sort of quantum of development in order to make those sites viable. So, I'm talking about 100 plus units. So, for an SME to make those sites viable for, say, 10 or 15 units, might be very difficult, because of the cost of development. We're on old mine-working areas, where you've got to do some remediation to the ground, decontamination, et cetera. So, the costs of the development are the barriers there, particularly in these Valleys areas, where maybe the revenues achieved aren't as high as what you would have in your cities—in Cardiff, et cetera.
Because the SME housebuilders didn't give us the impression that remediation was any bigger a problem for them than it was for you. So, if you build 100 houses, how many of those are going to be £110,000 kind of affordability?
For us, they'll be between 30 per cent to 40 per cent.
As well as the planning system as a barrier for smaller house builders, how would you asses the relative importance of access to finance? We had one comment, again from Hygrove Homes, that the traditional high-street banks, according to them, have all but ceased lending to most small home builders in Wales, as compared to England. Is that something that you would think is the case from your experience and knowledge of the sector?
It's probably quite difficult for us to answer, because we're funded differently. So, we can only really talk about what we hear anecdotally and talk about the barriers that we see, really. And I think investment is all about risk and reward. Unfortunately, if the risk is too high,—and we've talked about that already, if you haven't got planning—it's very difficult to get financing, because you've got no asset and nothing tangible to lend against. So, I think, from our own experience, as public limited companies we're funded differently, so we're not active in the market looking for finance, but I think the barriers that we see will affect whether you can get financing.
You used to be active, did you not, in the market for seeking bank lending? I understand now, Redrow, that you may just have moved to a sort of net cash position, but, certainly in the previous cycle, didn't you rely quite significantly on bank lending, as well as equity finance? And why has that changed?
Well, I think that's not simply because we're a division of a plc—it's not something we would be involved in. So, I just can't answer the question because it's something that would be managed by our group. We're a divisional office of a plc, so that would be handled centrally. So, it's just not something I could answer.
It's the same structure, I think, at Persimmon. Ultimately, if I want to buy a piece of land, I'm competing against the other businesses within the plc in order to gain funding to buy the land and to take that development. And, as a group, they will have to make strategic decisions as to where to put the funding that we've got available.
That's a very strong point that Daryl makes there. Where we vie for finance is against the other businesses within our group, and it would be the same for all the public limited companies— the investment has to give the same return as it could make in Kent, or Yorkshire, or wherever in the UK.
But, overall, haven't we seen quite significant expansion in your profit margins over this cycle on your house building? And doesn't that at least coincide with a big reduction in the contribution of SMEs to house building in the sector, and may it not be that those two things are connected?
I don't know that that's the case. I worked—. We were talking earlier on about when the SMEs were much more prevalent some time ago. I was in the HBF in 1996-98, and at that time there were probably 12 to 15 plcs operating in south Wales alongside a whole host of family-run SMEs, and everyone existed quite happily. The plcs reduced in south Wales partly through amalgamation, partly through some of them withdrawing from Wales and just operating in England only, but the SMEs declined at the same time. I think we need to explore what the impact of the reduction of plc activity and SMEs in Wales at the same time happened—. I think the growth in plc profits at the moment isn't linked at all to any demise of SMEs. I think, if you brought SMEs back into Wales and this exercise was successful, I don't think you'd see us complaining about that or being a barrier.
But wouldn't more SME activity tend to bid up the price of sites and bid up the price of labour and, potentially, inputs?
Only if we were competing for the same sizes of land, and I don't think we would.
Just to reiterate Jane's point, we are two separate—we would be competing for large parcels of land, 100-250 units plus, whereas SMEs wouldn't be competing for those type of lands when we're making bids. There are five plcs in Wales at the moment. You compare that to some of the areas in England, and that is quite low—where you've got 15 to 20 plcs competing for land and demand for housing.
Okay. So, would you argue that the increase in profit margins for your companies is not associated in any way with the decline in the SME contribution to house building and reduced competition from them?
I don't believe so. I would imagine that the SMEs have seen similar differences in profit margins compared to where they were. It's exactly the same conditions. I think the issue is there's not enough house building and numbers are dropping and are below the requirement, and that affects us as well as it affects them.
But given how—and I'm not criticising you for the size of these profit margins; you're companies that legitimately act in the interests of your shareholders and have done well by them in recent years. I just wonder, though, why we haven't seen more of an increase in house building, given how profitable it has become in recent years.
I think it's for all the reasons we've talked about really—the complexities of the planning system, availability of labour. There are so many reasons that hold us back. There's only so much we can do. There is a skills crisis. There's not an availability of workforce. That's one of the issues.
We've even tried to get business to 500 units a year for four, five, six years, and we're stuck at 400. Part of that is that we can't get the land through the planning system to allow the growth plans that we would like to have implemented.
And, just to add on that, the reason why Persimmon can maybe build more houses in Wales than Redrow is we've taken on a lot of our own workers. When other groundwork companies went bust, we've taken on those groundworkers and we've developed our own groundwork company. We've developed our own bricklaying company. And, from 1 April, we'll have direct carpentry as well. It's getting those skills, getting those people on board, so that we can then be in control of our own destiny to construct the houses.
Finally from me, Jane, you mentioned—planning is your area and you mentioned that as a significant barrier. I just wonder, looking specifically at the cluster development to the west of Cardiff, where I understand that Redrow is the lead developer—
Yes, we are.
—I'm watching some of those buildings going up at a reasonable speed, but what is the constraint on you building out faster than you are, given that's within the local development plan?
The Plasdwr scheme comprises three planning permissions. The buildings that are going up at the moment are the first two planning permissions, which we segregated off as smaller, so that we could get some early starts. The ones in the north are 600 units and the one at the south is 300 units. The big barrier to development is that we have a big planning application with something like 80 planning conditions on it, and, although we had the consent some time ago, we're still working our way through discharging these eighty-odd planning conditions. Once that's done, and then we can submit our reserved matters into the main application, we're expecting to see a big increase in delivery. The other barriers we've got there are actually very technical: Welsh water issues, drainage issues, we've got to ground some power lines, we've got to drive in some significant infrastructure into that site in terms of roads, the sewers and all the services, and some of the social infrastructure as well—the first primary school will go up shortly. It's going to take time to get that sort of scheme up and running, but there will be an increase in pace once we've got all of our approvals in place, planning and technical, and some of that work under way.
Just with the Plasdwr scheme, we are lead developer, and we will be building half and selling half. The model that we've got with the landowner is that we put a lot to the market, and some of what will go to market will support the SMEs. We've got two parcels that are under contract at the moment. One is to Bellway, as your plc. The other is Lewis Homes, which is a local SME. So, hopefully, as that goes on as well, you'll see the scheme's—these large schemes are actually supporting SMEs by providing them land with planning permission and services so that they can get on and build quite quickly.
I'd just like to pick up—. Mark Reckless congratulated you on your return to shareholders. The BBC Today programme said:
'The Persimmon money machine rolls on, profits past the £1bn mark and £2.2bn returned to shareholders in the past seven years, with the promise of more—much more—to come.'
'Persimmon has been an astonishing success for its investors, and of course its executives, who are benefiting from a giant pay scheme agreed in 2012.'
This is the housing market. Is it not morally right—morally right—to focus on small firm builders, given the situation we're currently looking at?
I think it's absolutely fair and right to focus on the SMEs and bring them back into the business and—yes. Yes.
I think, as we've talked about earlier on, it's not plcs who are stopping the SMEs coming forward. It's—
You're taking a big chunk of the money out of the market and distributing it to shareholders, aren't you?
Well, if you look at the demand, the demand is there for—. In Wales, we need to be building circa 8,500 houses a year. We're building maybe 2,000 less than that. So, there's still more market there for housing. It's just that, if SMEs could take up that 2,000 units a year, it wouldn't impact on the plcs, as we've discussed previously. We're in different market areas.
You're holding a great deal of money in the market, though, aren't you, which is distributed to your shareholders?
Well, if we're talking about—
It's not a barrier to SMEs.
We're talking about SMEs here, yes? Yes, so—
I don't think it's realistic to think that SMEs don't want to make profits either.
Well, they wouldn't be big enough to—. They obviously wouldn't be big enough.
That's just the scale of things. The reality is that there's no objection from us in supporting and helping SMEs, but the reality is you also need plcs to build houses in the volumes that are required for the market, and, if you didn't, the affordable housing wouldn't be built and the housing numbers wouldn't be built.
Exactly, and it's also the infrastructure that we can provide. The Plasdwr development is bringing forward a number of schools. Persimmon are building three schools in south Wales. It's the other infrastructure, you know—it's the links for the metro, it's the green infrastructure, the playing fields, et cetera, that we're providing as part of these large sites that, in the case of Plasdwr, small to medium builders can look to purchase parcels of.
But don't you feel, though, a £2 billion return to shareholders is a bit much?
I just don't think it's relevant to this conversation—
It's not, no.
I don't think it's what we came here to talk about today, if I honest. And it's not my company, I'm not defending it, but I just don't think it's relevant to the conversation.
I want to just carry on a little bit with the theme that Mark Reckless touched on, and that's the availability of finance, and particularly if we could look at that from the public sector, which would include the Development Bank of Wales. So, what are your views on the operation of the property development fund and stalled sites fund?
If I—. I've been asked—. I'd be happy to start on that.
I think the point we made is that our members don't use that facility, so it's difficult to comment directly. I go to quite a lot of meetings where Ifan from FMB—he's already given evidence to you—is at and these issues get discussed. I think one of the key things that's come out of the discussion I've heard is that they are good at supporting existing companies, but they're still not really geared up to bringing new entrants into the market, because there is a need for a proven track record to have a certain amount of funding. So, yes, they are doing a good job in terms of growing existing companies, but maybe where they are missing something is in getting new entrants in.
It's not something that we'd use. Anecdotally, I hear that it's starting to have some success, so I think it's absolutely a positive for the right businesses; it's just not something that we would use.
So, you've not come across stalled sites that you would want to look at, as such, then.
Well, if there was funding available to bring some of these large brownfield sites so that they could be remediated, et cetera, then we would look, then, as being the end user of that.
Well, Daryl, you just told us that you are looking now at the northern end of the south Wales Valleys and that, where I would imagine that there are a number of sites that would fall into that category.
So, you may be looking at them in future: is that what you're saying?
Yes. We are actively looking at some of these brownfield sites that have been allocated for decades to see if there are opportunities in bringing them forward, because that's a business strategy of ours. As I said earlier on, there is demand in the Valleys areas for the houses that we deliver, and we have had conversations with various politicians about bringing forward some of these sites by using such things as the stalled sites fund.
Okay. Can we have a look at a little bit of a broader support that might be available, for instance through the Welsh Government's economic action plan? Do you see any benefits in that for yourselves?
Yes. In terms of the priority for Wales plan—that's not the right name, but, obviously, housing is one of the five priority areas, so we're very supportive of that. I think, as soon as we start to move down into other documents, the focus tends to be on the affordable housing and less support for private house builders. As we've said already, the Welsh stats for last year show that we delivered a third of the affordable homes, so we keep reminding people that, yes, if you don't encourage private house building, you will lose a level of affordable housing. But we're also seeing registered social landlords and now even local authorities starting to build houses, so the market is changing in the way we're seeing housing delivered.
Yes. Mark, you touched upon local authorities, so can we just have a discussion about the support that might be available from local authorities? Because the Residential Landlords Association said that it's something of a postcode lottery, where some builders have greater support from the local authority, depending on which area they operate in, and where some have no support whatsoever. So, could you make some comments on that?
I'm sure I can see nodding heads, so I think other people will comment, but I'm certainly aware that there are some local authorities that definitely have got one of the arguments we've been making for a number of years around the economic benefits of house building, and not just—. And when I say 'economic benefits', it's as much social benefits, so we've mentioned the delivery of schools and the delivery of open space. The section 106s are the way that large quantities—and these guys will tell you some of the figures associated, potentially, with some of the bigger 106s; you know, we're talking about a lot of money. But there are some authorities where you go in the door and it definitely feels like they're not there to support you and help you, but other authorities definitely are.
I think there are probably two parts to it. One is that a lot of planning detail is delegated down to local authorities to decide how they want to do it—planning policies, affordable housing, finance packages, highway details. All these things are given to local authorities to decide for themselves, which makes—. From our point of view, we have 22 different ways of doing things. We would welcome a lot more centralisation of guidance where things are factual—a road width, a junction geometry, these sorts of things. Quite often, they're not published by local authority either, so we go in with what we think is right. The Vale will do things differently to Cardiff, which will do differently to Caerphilly, which will do differently to Merthyr—
The Vale, for example, is currently writing their document giving us their highway geometry standards. So, every time we go in, we get, 'No, it's not what we do.' 'Well, that's what we did six months ago.' 'No, it's different now.' 'Well, show us, it's not there.' So, they're currently writing something, but it just makes life very difficult for us when we're trying to do the right thing.
But it isn't just highways—it is all the different ones. So, in that respect, it's a bit of a postcode lottery and we do find some authorities much easier to work with than others in the planning area. But I think on the finance as well, with some of the authorities—it's much more viable to work in Cardiff or the Vale or Monmouth than it is to work in your Valleys areas. And when you're talking about one of six contributions, where there's more land value, there's more ability to actually give over money to the communities. If the money isn't there in the land value or the sales income, it isn't there to give back in profit to the landowner or to the local authority. So, there's a big discrepancy at the moment. In the Cardiff area, as what we're talking about—we've got some very big planning permissions in Cardiff—we're going to be delivering four primary schools and a secondary school amongst a whole load of other things in our big Cardiff site because the money is there to do it. You couldn't do that in Merthyr or Ebbw Vale or those areas. It's just not possible.
And we've heard, in several investigations, that the expertise available in local authorities just isn't there in the volume that's necessary, so their handling of planning applications et cetera is very, very much delayed. Is that something—? Should local authorities, especially the smaller ones in the Valleys, if you talk about Torfaen and Blaenau Gwent and Merthyr, be getting together and maybe having planning authorities that are joined up?
We find it very difficult sometimes because the planning process is such that they have to consult a number of different parts of our teams, whether internally or externally, and it's very difficult, because, there's a work-life balance now where people work part-time and it's very difficult to get hold of certain people. And also there's a resource issue, and it does seem as if that—. I worked myself in a local planning authority for 14 years, and over that time we could see that the number of people that we had working there was going down, and it hasn't gone back up. So, it's taking longer and longer to get a planning consent through.
It seems strange, because—. You know, planning costs money—you're paying into the local councils. I just can't understand why they can't keep the personnel there. The money's coming into that section, isn't it?
Yes—a couple of points. The money doesn't get ring-fenced, for want of a better word, so even when we pay for planning performance agreements, and there are even cases where actual officers have been paid for, it doesn't get kept by the planning department. I think it's important also that we've talked about planning applications becoming more complex. So, it's not just the fact that there isn't a planning officer there—it's the fact that you need a highway officer, a drainage officer, an ecology officer, a specialist in this, this and this. And they're all in shortage as well.
And what we are finding in particular is that Natural Resources Wales is becoming increasingly difficult to deal with on a number of issues. They have resource issues, but also what requirements they need as part of an outline application and what requirements they want the developer do upfront are becoming quite an issue for us.
Tim Stone, you've dismissed my argument that I believe that the large developers suck money out of an area and small and medium-sized enterprises are less likely to do that. You said it's not relevant. Well, I think it's up to this committee to decide what questions are relevant and, therefore, I think you've misrepresented my view there.
Let's take the Federation of Master Builders's view. They said:
'three quarters of the houses are built by five very large companies these days, but, essentially, only in more prosperous areas. They have an interest in places like south-east Wales, but, if you go to rural areas and less prosperous areas, they have less interest in building in those areas'.
It's classic oligopoly behaviour—a market dominated by five firms. Isn't that the case, and aren't the Federation of Master Builders right?
Well, I would like to say, from Persimmon's point of view, it's not right. We've go outlets in Hay-on-Wye, which is in Powys—that's Brecon Beacons. We're looking at outlets in the northern part of the Valleys communities. From our own Welsh business, we're looking to the Forest of Dean et cetera, which are quite rural areas. As long as we have got our large sites along the M4 corridor, which help to bolster the business—. But in terms of getting 100 to 250-unit outlets, we'll look wherever there is a market.
The comment I would add would be that the more you go away from the M4 corridor, you tend to find that sites, certainly in the northern Valleys, are more difficult to build on and tend to be smaller sites, and because—and there are a couple of factors—we've got a shortage of skills, we've got some very large sites coming online in Newport, in Monmouth and in Cardiff, so it's quite understandable, given that we've been asked to build more houses in those areas, that we can only stretch so far. It becomes less cost-effective the smaller the site you build, because a lot of the more rural areas are sites of 10 or 20 houses and it just doesn't make sense for plcs and that's where there is the market for the SMEs, without doubt. But the SMEs aren't taking them up either because there aren't the SMEs. So, that's why we're saying that there's room in the market for all of us. We can do what we do—we can build houses around transport infrastructure, we can build houses around where people work, which is where the biggest demand for houses are, but, yes, there are smaller demands in those rural areas, which is where the SMEs should be filling the gap, really.
Redrow and Persimmon, do you undertake an assessment of the economic benefit that you have in particular communities? Are you concerned that economic benefit is retained in the areas in which you build?
I think we do, yes.
We always look at the socioeconomic impact of any one of our developments and the investment that we put in, that our subcontractors put in, and that our purchasers put in, and all the sort of spin-offs from all of those as well. Quite a lot of our trades do come from the Valleys areas. The traditional builders and contractors, actually, we take from the Valleys areas.
Can you give us an example of the proportion of that and the assessments you've made on impacts on local supply chains?
Have we done that specifically?
No, I don't think we have. We do employ local people. As we've said, we build schools, we build infrastructure, we do make 106 contributions that go towards local facilities and communities. We also support lots of different charities and various things. We get a lot of requests for funding for local interests and we're always open to that. So, I do think we make a positive contribution.
We do have a policy with our staffing. We're not the sort of region where, as with some of our English regions, a lot of people move between companies—either Redrow companies or with other companies. In Wales, we have to grow our own skills. So, we have a huge investment in young people, whether they're apprentices or graduates or office employees. I think we've probably got— about a third of our staff are under 25, and a good proportion of those are on training schemes. We've also doubled up with Bell and we've got the training scheme on site at Plasdŵr for ground workers, and we're funding that as well. So, we are looking to bring on young people into the industry and do the best that we can and bring those on.
We've looked with one or two authorities as well, going forward, about whether we include training as part of the 106 package, using the Redrow facilities and also specific interests that those local authorities have. We haven't done it yet, but that's the sort of way we're looking.
Just to go on from that point of view, Persimmon, as we said earlier on—we've got circa 400 employees in ground works, bricklaying and carpentry, and what we're providing, then, is job continuity. We've given them opportunities to invest in pensions, health benefits and good pay for the skills that they've got, and we're investing in apprenticeships with local colleges. We've got three apprentice masters who manage the apprentices on site and liaise with local authorities and councils and colleges et cetera. We're based in Llantrisant, in the Rhondda, and the majority of the workforce are from the Rhondda or the surrounding Valleys areas. We find that people come to work—. It might be transient with regard to how house building is, but the majority of the people are from the south Wales Valleys.
And that's great, because we both cover Newtown, and the bypass produced 18 apprenticeships. So, it would be quite interesting for us in relative terms to look at the investment in the future, which is the apprenticeship and training, compared to spend, because we've got some figures where we know how that's produced. I say 'we'—I mean the Chair. But my specific question here is about availability of land for small builders and local authority land holdings, because you mentioned way back that local authorities are now entering the market, because they can, to build social housing. Do any of you consider—I suppose it's really for you, Mark—the procurement process that might deliver within local authorities? Because if they hold the land and they hold the permission for that land to be built on, they then make the decision of who builds. So, the procurement policy becomes the key player here. So, have you got any observations on that procurement policy?
My understanding of the situation is that if the local authority purely decide to sell a piece of land, that land may either be allocated in a plan or—. It's unusual, I think, for them to have got planning permission on it, it would probably—
I'm talking about building social housing, so that they have a determined application for that land.
Okay. But if they just sell the land on the open market, which is often what happens, there is no procurement involved there; it's just a case of them deciding what criteria they want to make the decision on. And if that's sold to a private house builder, that will then deliver an element of affordable housing, depending on the policies within the plan. We are seeing a recent trend towards local authorities not bringing land to the market and, for want of a better description, doing deals with registered social landlords. It's something that my members have brought to my attention, and it's something I've actually got a meeting with Welsh Government on in a couple of weeks' time to discuss. But at the moment, I'm not quite clear on how they're doing that and proving best value, but, yes, we have seen a couple. I think Monmouth is a good example, where they've sold some quite substantial pieces of land to RSLs.
I think what's worth noting on that is that there are a number of bigger RSLs who effectively are looking at becoming pseudo-private developers. So, for example, they're taking a site of, say, 200 houses. Of that, 100-odd will be sold privately. Whatever's left will become social housing. What they're doing there is doing it without any grant or help from Welsh Government and, effectively, the profit they make from the sales on the private is paying for the affordable. So, that is something that we are starting to see grow in Wales.
Thank you. Two follow-up questions from me. First of all, Daryl, I'm interested in the evidence that you gave about the socioeconomic benefits that you feel Persimmon bring to the area by retaining their own staff. It certainly doesn't accord with the evidence that I hear locally. For example, you'll be aware that in correspondence from my office regarding the problems on the Mountain Ash development, the defence that Persimmon were putting up there about the problems was that you had a range of contracted personnel coming onto the site with a high turnover of different contracted-out personnel. So, that doesn't seem to bear out the evidence that you gave there about your own expert workforce.
And in addition to that, I'm aware of several very skilled SME companies locally who have told me that they would have liked to have had the type of developments that Persimmon has won within RCT, and are fully capable of carrying out the remedial works that Persimmon are carrying out, and, instead, work has been contracted out to them, which obviously means a lower profit margin. So, I wonder what your answer would be to those two points.
Taking the first point in question, we have ground workers and bricklayers and carpenters, but you need more trades than that to build a house and a development. So, we still rely on a lot of subcontractors—painters, plasterers, roofers and scaffolding, et cetera and, in the case you pointed to there, it was those contractors that we had issues with. In terms of Mountain Ash, that site had been on the market for three years and still hadn't been sold before we came on and made an offer for it. So, if there were people interested in it, they could have made an offer and purchased the site. So, we made an offer on the open market and, like I said, it had been marketed for three years before we purchased the site.
Okay. And one final question from me on this section: much seems to be made, by the panel, of the skills or the experience that the big house builders have in open spaces and delivering those, but from where I'm sitting the evidence seems to be that those open spaces are being charged for for residents by estate management fees or, in the case of other developments, four years on, have not been delivered. So, if there is that kind of problem within the big house building sector, then why is it that SMEs can't deliver those? Is it because, for example, they morally wouldn't be happy with charging local people in the communities that they come from exorbitant fees from estate management companies, or is there another answer?
'm quite happy to start on that one. Public open space—you'll find in most local plans that there's effectively a calculation for how it's generated and, in most places, you need to get to a certain number of dwellings before you generate the need for onsite. We're also seeing, because of pressure with local authorities actually closing down their own existing play areas that, if you build in an area where there's an existing play area close by, then they are happy to take an offsite contribution to improve the existing facility, which, obviously, arguably, has a much wider use than—. Sometimes, you get this feel that, if an open space is put in the middle of a new development, it's only for those residents, when it's not—it's open for everybody.
The growth of management companies, quite simply, has come about as a result of local authorities, and the best example I can give you is Powys council, which has recently adopted their local development plan and followed it up with supplementary planning guidance, and that actually states in it, 'The council will not adopt open space.' So, they have policies requiring it from developers, but their guidance then clearly states they will not adopt it. So, if they won't adopt it, we have no choice but to use a management company. There are a number of other authorities that have said, 'We will consider adoption', but then, when you actually get into discussions with them, they go, 'Actually, no, we won't adopt it.' So, again, you're forced into a management company.
I think, in terms of SMEs, a lot of SME sites wouldn't require onsite provision; they probably would be able to negotiate an offsite contribution. So, therefore, it would be going to a facility that's already adopted by the local authority, so it wouldn't be an issue.
We have got just over 10 minutes and there are four different subject areas to cover. It's going to be a challenge, so we'll try and cover each subject area. Perhaps if I allocate four minutes to each subject area that's left, I've got Mark and then I've got Vikki and Hefin to jointly cover one subject area, and then Joyce and then Siân. So, we've got four minutes—no more than that—for each area.
I regret the delay, Chair, in terms of how the evidence session has developed and, notwithstanding the small size of it, I'd like to make a declaration that I have a shareholding in Redrow and I myself have invested in a personal pension that generates about £100 in dividends annually.
Can I ask about Help to Buy, please? The overall number for Wales is 35 per cent of sales for new developers coming from Help to Buy. Can I ask, for Persimmon, for Redrow, what your usage of the scheme is relatively?
I'm not sure that I can confirm exactly what it is, but it's a lot less than that.
I can't confirm the exact number, but about 45 per cent of our houses in Wales are sold through Help to Buy.
And can I ask Persimmon specifically with the upper Valleys work you're doing—I don't represent Mountain Ash, but both Merthyr and Ebbw Vale are within the south-east Wales area I represent, so, at least in principle, I welcome seeing the interest in that area in more house building. But how much will you be expecting to rely on Help to Buy on those developments relative to what you're doing elsewhere? Will it be a higher proportion?
Yes, it will be over 50 per cent.
And I also just wonder: we've had some discussion, but is it possible to ask both of the house builders here whether we can have some written evidence from you around what proportion of the people you are employing and subcontracting are coming from within Wales on the Wales house building and also potentially within the Valleys area, where we've had some discussion? I'd certainly be interested to see those numbers.
Finally, can I just ask on Help to Buy, we know what the UK Government is doing for England from 2021-23, keeping it going but on a somewhat reduced level and with some regional caps: what are your expectations or pitch as to what you think should happen in Wales for that period?
I'll start. We're pushing hard for it to be extended. We understand there may be some more limitations put on it. We're already in the high 70s per cent for first-time buyers. In England, they're talking about it only being for first-time buyers, so that probably wouldn't be the end of the world, because it's what we're delivering anyway. But yes, because we don't know what's happening, and the fact that most house builders work on a three or four-year cycle, the end is closer than we think, and we just want to avoid having it suddenly stop, because as we've said and the figures show, it's such a high percentage of the market, and what's really important is what's driving first-time buyers into the market.
You probably think I'm this anti-corporate left-winger from some of the things I've said so far, so let me take the views of Sir Oliver Letwin MP, certainly no anti-corporate left-winger, in his independent review of build out rates. One of the things he said was that holdings of large amounts of land had 'a plausible explanation' by large developers, but it may enable large developers
'to minimise market entry and...enable them to maintain market share while building out at a stately pace'.
Now, that's the view of the independent review of build out rates. Do you challenge that?
I think a lot of what was in that report was exactly what we've been saying for a number of years, which is that there's no real economic interest in house builders land banking. It's not something that we do, and I think it endorsed that. I think he talked a lot about absorption rates and about what the market can cope with in terms of numbers, and about different tenures and different types of housing. So I think a lot of the points made in that were sensible. I think there is a saturation point for the same type of housing coming forward—
But I wasn't referring to that point. I was referring to the point that he made that you are minimising market entry by holding land and maintaining market share by building out at a very slow pace.
I'm not sure he said 'at a very slow pace'.
Well, 'a stately pace'. I take 'a stately pace' to be a slow pace. I think that's the issue.
I don't think we build at a slow pace. I think we build at what the market can—
I don't think we build at a stately pace. I think we build at the pace that we can cope with in terms of our resources, the available labour, and what the market demand is, and I think that's sensible of any organisation.
I'm not saying I disagree with it. I'm disagreeing, probably, with your interpretation of it.
Well, I'll read you the quote:
'minimise market entry and thereby enable them to maintain market share while building out at a stately pace'.
Do you agree with that or do you disagree with that?
It's just one part of a very long report.
Yes, I think that's very selective.
I just want to make a point, which is that I'm not sure about Redrow, but in terms of Persimmon, what we would say is that we would say we have 20,000 plots, but in reality, with the majority of those, it may be we haven't even got contracts to buy the land—they might be option agreements, and they certainly wouldn't have planning permission. But people think that we have land holdings for 20,000 plots but we're only building a lot less per year. It's just the way in which we report things to the market. In reality, if we own a piece of land and we have a detailed planning consent on it, we will be building on that piece of land, and if we own a piece of land and we don't have a detailed planning consent on it, we'll have an application in with the authority.
Do you have a figure for the average length of time between the time you hold the land and the time you build?
We normally purchase the land once we get planning permission. As a company, we don't take a lot of risks in terms of buying land without planning consent. So, once we get a planning consent, we would normally complete on the purchase within a couple of weeks, hopefully, and once we've completed on that purchase, then we will be on that site within a matter of, sometimes, days. It could be anything between, say, four to six weeks, normally, between us getting planning consent to getting on site.
I think I would add, very quickly, that there is a link back to the planning system, and because we're seeing LDPs allocating much larger sites, those sites can only be held, promoted or brought forward by larger house builders. So, yes. the SMEs aren't—. So, if plans were allocating smaller sites, we wouldn't be interested in them and SMEs could be then promoting, holding and using those sites. But it's the nature—. If you look at Cardiff's plan, it's five large allocations, and then a handful or less than a handful of smaller sites. So, it's being driven, to a certain degree, by the way that land gets allocated within plans. And we keep getting told by Welsh Government, 'We're operating a plan-led system.'
It's something that we talk about—
Just briefly, then I'm going to come to Vikki Howells. Just briefly, Daryl.
I just want to say, on something we talked about earlier, actually—the length of time it's taking now to get planning consent—what local authorities aren't realising is that we have a workforce waiting to go onto that land and that, if we can't get that planning consent, then, unfortunately, that workforce may no longer be able to be employed by Persimmon because we haven't got the land readily available for us to work on sites.
You'll have seen in my written evidence there was a case study I included of an SME who got into real problems with that exact issue.
Thank you. Land banking is an issue that I'm very much interested in, and from my perspective, what I see across the Valleys now are very small pieces of land that are being land banked by individual landowners. What I'm interested in from the perspective of an SME builder is: do you think the Welsh Government's proposed vacant land tax is going to help to free up those plots for the benefit of SMEs?
I'm going to ask only one member of the panel to answer that question, because we're short of time. Who would like to address that? Mark?
I sit on the vacant land tax working group with Welsh Government. I think, from what we know at the moment, the simple answer is 'no', unfortunately. But we've got a meeting on Monday where we're looking at a piece of research to understand what are actually stalled sites and what's being held up. And I think once we understand what's holding sites up and what sites are held up, then we can decide whether or not vacant land tax is the right way to go.
There could be a lot of unintended consequences.
Right, I'm not going to rehearse all the problems you told us about planning—because I'm on to planning—but I want to ask specifics here, to Mark. So, we know the problems, we're here trying to take evidence to resolve some of them. So what specific actions, in your opinion, could be undertaken by the Welsh Government or local authorities that improves that planning system for the small builder? And if you had to name three, in priority order, that would be quite useful, please.
Okay. I think it would be around a simpler process at a certain threshold. So, the threshold that's often referred to at the moment is a major development. In Wales, that's 10 units. Now, if we raise that to 20 or 30 units and then said development under that size can go through a simpler process—the pre-application consultation report system, for instance; that's triggered by 10 units, so get rid of the PAC system and look at what other areas of planning you could reduce so that it takes away the risk, the time and the cost associated with getting planning for up to a bigger number of units.
There's lots around that. Obviously, then, the other one is around funding. We've seen a very good model with self-build, it's whether or not a similar model could be expanded to SMEs who develop maybe five or 10 units, where a lot of the funding for these upfront costs is borne by someone else.
The Welsh Government and local authorities do have an opportunity to improve the planning system, because the Welsh Government have said that local authorities ought to set a locally determined target for delivery of housing on small sites. So that would specifically—or ought to—help your sector. So, should we, perhaps, maintain a register of those sites so that we have got some indication of how that market might be helped?
I think a lot of what's being talked about at the moment is linked specifically to the self-build project. I think it was interesting that RCT, who did the initial work on it, took over a year to sort out about 10 plots of land they thought they owned. When they actually started looking at it—all the little ransom strips and difficulties with services and everything—. So, it's not just about putting red lines around bits of land on plans, it's doing a lot more work. As I understand, of the £40 million, £10 million is available to local authorities to do that work. We met with the Minister on Monday and she said, 'I want shovel-ready sites.' That's the idea of that programme. That's just for self-build, but if that could be expanded into smaller SMEs who are building four or five units, then that would make a lot of sense, I think.
Dŷn ni wedi cyffwrdd ychydig bach ar hyn yn barod, sef y diffyg sgiliau o fewn y diwydiant adeiladu. Ydy o mor ddrwg â'r hyn rydym ni'n cael tystiolaeth o wahanol lefydd yn ei gylch o? Beth ddylai Llywodraeth Cymru fod yn gwneud am hyn?
We've touched a little on this already, namely the lack of skills within the construction industry. Is it as bad as we're led to believe from various evidence we've received? What should the Welsh Government be doing about it?
I think it is a big limitation. I walk building sites regularly and the age of some of the guys doing it does make you worry because—particularly in ground works, which is a particular issue for our industry—most of the guys I see are over 50. You don't see the youngsters coming forward in certain trades. I think it is a massive issue, and you could repeat that—it's not just on the trades on site, it's the expertise that we need before. We've got shortages in terms of commercial, technical—things like that as well. From our point of view, we've just got to keep training people. I think that's where we need the support, really, to provide us with the opportunities so that we can keep investing in training as we already do.
And there's a particular gender gap. Is that part of the answer, maybe, that you get more women into the construction industry?
As it happens, on Tuesday, I was with Redrow and we brought together some of the senior women to actually start doing a mentoring scheme for other women, to create opportunities for women to come into Redrow and then actually get them to be a mentor through the scheme to the senior levels. I've done very well at Redrow, I've been in house building for 20 years, and I've seen very few barriers as a woman in the industry.
There aren't many on the construction sites, but we have got a programme to get women assistant site managers being trained up to site managers now as well. It's a very deliberate programme that we've started—recently, admittedly, but it is a deliberate programme that we've started. We don't yet have any women on our apprenticeships, have we, in south Wales?
There are some in Redrow.
Yes, in Redrow, but not in south Wales.
It is changing, but it is slowly changing.
Would you mind providing some details on that following the meeting? It would be helpful to have some more information.
On our diversity programme?
Then, of course, the elephant in the room is Brexit and what happens to the skills gap. Will that get even worse facing Brexit, because you're reliant on—?
I don't think it's going to have as big an effect in south Wales as it will in other areas, because we're not as reliant on that immigrant workforce.
Our worry might be, if London is severely affected, whether our trades go to London as a knock-on effect, rather than it immediately impacting us here.
Linked to that—I was going to make the point earlier when we talked about local people with local skills, certainly on the north [correction: north and south] Wales border with England, it's very difficult to get tradesmen in England to come to work in Wales because they just don't need to. There's a lot more house building going on in those areas and the pay is better. So, we have to find our workforce locally because there just isn't the ability to attract people back the other way. The other thing on skills we've got to watch at the moment is that there's a lot of talk about the way we build houses changing and a whole different set of skills being involved. So, if you were currently thinking about skilling up at the moment, although we're desperate for bricklayers, would you be thinking about investing in bricklayers when the word is you won't be building houses out of bricks soon? So, I think we've just got to be careful about the messages around modern methods of construction as well and that we're not diverting training away from the basic skills we still need and will probably need for a quite a long number of years.
That's very brief. Thank you, Joyce. Comments on that—apprenticeship levy.
The apprenticeship levy is handled by our head office. They're a Welsh company, so they know a little about it, and our human resources team has been heavily involved with the Welsh system, and, as far as I understand, it's working okay.
Do you want to give us some more detail, since you've gone and got it?
I'd have to get it from the people that know about it, but from what I gather, it's actually a little bit easier in Wales than it is in England.
I can get you the information from our group.
Thank you, Joyce. That was brief. Thank you.
Can I thank you all for your evidence this morning? It's been very helpful for us as a committee. You're all busy people and we appreciate the time you've given to come to committee and to give us evidence ahead of committee as well. We will send you a record of the proceedings this morning, and if you feel like you want to add to anything that's been said, then please do, and if you are watching the remainder of this inquiry, and there are other comments you've got to make, please do let us know. I think you've agreed a couple of points. I think Mark Reckless asked you for some further information and Siân Gwenllian and Joyce as well. So, we'd be very grateful if you could spare the time to provide us that additional bit of evidence as well. But can I thank you for your time this morning? Diolch yn fawr.
We'll take a five-minute break and be back at 10.51 a.m.
Gohiriwyd y cyfarfod rhwng 10:46 a 10:56.
The meeting adjourned between 10:46 and 10:56.
[Inaudible.]—item 4 with regard to our inquiry on barriers facing small home builder firms. We have a panel in front of us this morning with regard to planning, and I'd be very grateful if the witnesses before us could introduce themselves for the public record. If I start perhaps on my left.
Okay. Bore da. Good morning. Ian Stevens, here representing the Royal Town Planning Institute in Wales.
Hi, my name's Simon Gale. I'm director of prosperity and development at Rhondda Cynon Taf council, but I've also been working with the housing theme lead with the city deal Cardiff capital region, and I've also been supporting Welsh Government in terms of some innovative work around plot shops, which no doubt we could pick up on later.
Bore da. Good morning. My name is Gareth Davies. I'm director of development at Coastal Housing Group, a registered social landlord based in Swansea, operating across Swansea, Neath Port Talbot, Bridgend and Carmarthenshire. I'm here on behalf of Community Housing Cymru, the umbrella body representing the housing association movement in Wales.
We're very grateful to you for being with us and for your written evidence as well. Can I ask perhaps if you could briefly outline what you think are the challenges that are facing the industry—the significant challenges?
We've done, in Rhondda Cynon Taf, over the last 18 months, some quite significant research right across the sector into why housing sites stall. The first thing to say, I think, actually, is that there is no silver bullet and when you scratch the surface, there are peculiarities with each individual site, with each individual house building company, then, as to why certain difficulties arise. But I think there are some clear themes that emerge, and the one thing that really struck me in terms of small and medium enterprises and their ability to build houses is that, since the housing market crashed about 10 years ago now, it seems to me that those small house builders, particularly in the Valleys communities, used to build two houses or four houses, they'd sell those and they'd use the cash they got from those to build another two—they seem to have disappeared off the landscape completely. And the feedback we're getting is that even though there is relatively more confidence in the house building sector now and the house building industry, these businesses are still really struggling to access finance and they're seen as a risk by the main lenders still. And what we're seeing and the evidence is that they're retracting into doing things like building house extensions because they're using other people's money, or perhaps contracting to some of the big house builders as well. I think there's a big challenge for us in terms of getting those types of businesses building in our communities again.
Yes, I would echo that. I think it is a resource issue. It's about money, but it's also about how challenging, I guess, the pre-construction process is in terms of planning, the requirements of the planning system, and whether small builders are able to resource planning applications sufficiently enough? Are they, on the odd occasion, able to appeal decisions where committee members have probably judged against an officer's recommendation to approve a particular scheme? Without land that's affordable to deliver and without a planning consent, you can't deliver housing and that can be a costly process. So, the availability of finance is a key issue for that.
The other thing I think is capacity, and by that I guess I mean skills. It's widely known that the construction industry is challenged around not only trades but surveyors, planners, and all those sorts of professions that help deliver housing schemes. I work for a housing association and it is not uncommon for us to tender projects—10, 20, 30 houses—and for us to have a tender list of say, three or four contractors, but then contractors pull out of those tenders with about two weeks to go, because they have got so many other opportunities that they are pursuing. Anecdotally, I've been speaking to an MD of a small building firm who has told me that he won't be looking at new opportunities over the next 12 to 18 months because they have enough on their order books at the moment, and the reason why they won't continue to look at new opportunities is because they don't have the site managers, the foremen, to deliver those schemes on the ground. So, they're dealing with what they've got in front of them, but in order to anticipate and deliver a future programme and a future turnover for themselves, they're limited in their ability to do that.
And, Gareth, what do you think would be the advantage for us, and the benefits, of having a greater proportion of houses being built by smaller companies? What would be the advantage and benefit to that?
I think particularly in Wales—and Simon will testify to this—you do get those small builders who want that turnover, and want that opportunity. I know there are examples, because a colleague of mine in Coastal spent some years out in Australia, and I know there are examples out there where large development sites—we're talking 1,000 or 2,000 homes, I guess, in a Welsh context—wouldn't necessarily be built out by your traditional house builders, your Persimmons, your Barretts, your Bellways, your Redrows and the like. They would actually be parcelled up in a way that would allow small builders to deliver 10, 20, 30 houses on a much larger site. That allows them to build capacity, it allows them to develop their business and establish turnover, but also to really, really invest in the skills agenda that's clearly pressing at the moment.
Just to touch on the opportunity for potential benefits, I think certainly increasing the number of players in the market for building—it sounds a very principled idea after all, and it could be a good contributor to building more homes, having that diversity in the range, the types of house builders. When you think about the market principles and what the planning system is there to do in terms of intervention within that system, it's an opportunity, then, to share and learn best practices and experiences. You're not so reliant on one model per se. Larger sites, of course, have benefits in terms of that critical mass. But also small-site opportunities are a critical component to the house building sector when you think across Wales in general, particularly outside of urban areas, where you're looking at smaller rural sites, market towns, villages, smaller settlements in general, where developments within that council's jurisdiction may be more dispersed anyway across several geographic areas. So, you're thinking about the cumulative impact, then, of having those smaller builders all out there building. There's a potential benefit, certainly.
But in terms of the initial challenging barriers, again I would echo that the rise in volume house builders coupled with the impact of the recession over 10 years ago was almost a double whammy in many respects for the small house building sector. The skills shortages and the access to finance and lending—I think, with all those things cumulatively, a lot of smaller house builders perhaps haven't returned to the market since the financial crisis over 10 years ago.
Can I just say—? You said that the rise in volume house builders has had an impact on the small business market. We've just been told by Persimmon and Redrow that that's not the case, because they build in entirely different ways. So, you actually dispute that, the evidence we've just received—that they operate in, effectively, different markets?
Well, perhaps from the perspective of the RTPI working in preparing local development plans, for example, you tend to look at larger sites to allocate and to bring forward for development over a longer period, say 10, 15 years. So, there's always an element of small windfall sites to come forward, but I think what we're saying is that there's the need to look, I think, perhaps more at the windfall, element and to see how those smaller sites can be brought forward.
And the system is skewed towards the big house builders in that sense, in that the big sites are available and the smaller sites are not.
I can't comment, of course, on the availability of those and what happens in the land market, but, yes, I think that's skewed towards the system, then, in terms of allocating those larger sites.
Okay—I've shuffled all my papers now. Right. I want to discuss the challenges faced by small home builders and access to the finance. The evidence that we've received previously said quite clearly that there's an awful lot of front-loading of finance needed before you get even to the planning stage—and you're nodding your head, so that's obviously a factual statement—and that there could be a postcode lottery within that system. So, if that is factual, and our job is to try and do something about it, what is it that needs to be done?
Can I perhaps start on that one? I think the thing that stood out most for me when we undertook this piece of work, using financial consultants to help us and advise us as well, as to why sites stalled was this issue of peak cash flow. And, effectively, even on a viable site, you've got to start spending quite considerable amounts of money to get planning permission, to buy the land, to decontaminate the land, to start putting access roads in, to start putting drainage in, and you've got to start building houses. You've got to spend a lot of money before you start making money. And obviously there's a point in there when you reach what is termed 'peak cash flow'. That's the maximum amount of money you need to spend before you start making money. And across the forty sites we studied, I think the average peak cash flow was £1 million.
Now, going back to the point around the difference between plcs and SMEs, plcs generally—to make assumptions here—have got the financial machinery to absorb those upfront costs, as long as the numbers at the end work. SMEs just simply haven't. They haven't got £1 million to risk before they start making money. And, as we said earlier, rightly, there's more rigour in the planning system now for all sorts of right reasons in terms of raising the bar in Wales, in terms of energy efficiency, the Well-being of Future of Future Generations (Wales) Act 2015—there's more and more rigour in the planning system, but, of course, that costs, and that certainly is a barrier to small and medium enterprises even thinking about developing a site, let alone getting to the stage where they've got planning permission and can do it. And I think we need to come up with some form of complementary funds. I think Welsh Government's got great funds out there now through the Development Bank of Wales and the property development fund, but even to get to that stage, you need planning permission. So, how do we get to a stage where we support small businesses to get to the stage where they can access the finance that is already on offer?
One of the other areas that I'd like to pursue is the development of social housing and what that might mean, but also the part that can be played by the bigger players within that field, so that's local authorities or registered social landlords. We heard evidence just earlier on that, that on the bigger sites they can fund schemes where the small builder can't and then reinvest, because it'll be a split site sometimes where money will be made in part to reinvest in the other part. Now, that sounds like a co-operative solution to me. Are you looking at those things, in terms of letting the market move to where we want it, and that it's delivering the needs for all, really?
Yes, I'll come in on that. I think you've got a split with the market in south Wales, and it will be interesting to see how the impact of the Severn bridge toll removal will focus house builders' attention in the south-east, I think, of Wales.
In Swansea, at the moment, we aren't seeing too much activity from the major house builders, but at the same time, the local development plan in Swansea, which was adopted only last week or the week before, still demonstrates that there's massive housing need in that part of Wales. So, the question is: who's going to deliver that housing need if the house builders aren't active because it's not economically viable at the moment for them to operate in that area? Or it might not be that it's not economically viable—it's just they've got the resource that they want to focus on a more, I guess, prosperous area in the south-east.
So, with Swansea Council as a good example—they've started house building again. They are an organisation that's obviously retained their stock as opposed to transferring it into another housing association. So, we are working closely with Swansea council. We are working with other partner housing associations, in fact, on Welsh Government land in a part of Swansea to deliver a site that would hopefully realise around 160 homes. Ordinarily, that type of site would be a site that would interest the house builders. So, I think there are examples of us starting to do that, but the scale is the issue: 7,000 affordable homes are still needed in Swansea between now and the end of the local development plan period, which I think is 2025. That's still a significant number per annum to deliver at scale when you've got Swansea Council, Coastal Housing, Pobl and other housing associations, and in the absence of the large house builders not really operating in that area. And going back to the earlier comments around challenges facing the small house builders market, are they able to meet the delivery requirements that we need as housing associations because of the lack of skills within their workforce?
So, I'd like to, if I can, Chair, pick up on the lack of skills, because you've mentioned Swansea several times, and that's fine; I cover Carmarthenshire. But there is a scheme, a Cyfle Building Skills scheme, and they're set up for this purpose. So, are you engaged with the Cyfle apprenticeship? It's the biggest apprenticeship scheme for building in Wales. And if you are engaged in it, and yet you're still saying there is a shortfall, do we need to enhance that scheme? And if we do, how do we do that?
Yes, we are, to answer your first question, involved in Cyfle. A colleague of mine is actually a board member of Cyfle, and we use them absolutely to promote apprenticeships across the schemes that we deliver. We deliver 300 homes a year, which is around £25 million to £30 million. So, typically, for every £1 million or £0.5 million to £1 million that you spend, we're asking for one or two apprenticeships. So, that's possibly 30 apprenticeships for each of our projects that we deliver.
I think the statistics are quite stark in terms of the trades within the construction industry. people will have read Mark Farmer's 'Modernise or Die' report, where there is clear evidence that older people are leaving the construction industry, retiring, and that a new generation of people just aren't coming in to replace them. And the reason why I'm saying that we deliver 300 homes a year is that the need for housing in Wales is much, much more than that across Wales, and we're only playing at the fringes, I think, of what the requirement is in terms of apprenticeship numbers.
We hear about challenges within the local colleges in terms of their funding. I guess that's not part of what you're looking at today, but it clearly is a factor further down the line, where colleges are struggling to be the breeding ground for new apprenticeships and traineeships coming through, but we are absolutely doing our bit on it. And any expansion of something like Cyfle I would welcome, certainly.
I know we've got some more questions on skills a bit later as well. Hefin David.
Can I just ask you, Gareth Davies: how do you decide what new housing to build and where to build it?
Sure, okay. So, like any housing provider, we have to make sure that the houses are occupied at the end, so the predominant part of our remit is to deliver affordable housing for rent. We do have a subsidiary business called Pennant Homes, which is developing housing for outright sale. So, like any occupier in the market, we need to make sure that people are going to be housed. The local development plan identifies numbers across the areas that we operate in in terms of households that are needed, and houses that are needed to be delivered across the local authority area. When we get a site in—when we get a developer that comes to us with a site, when there's an agent that's marketing a piece of land, we will look at it. Depending on the area within the local authority, we will ask housing enabling officers at each local authority that we work in to give us an idea as to the housing demand and the housing need in that area, because they will be receiving enquiries, they will have a housing list that will support the evidence for the need in that area. We also have a team of housing officers and housing managers within Coastal who we will liaise with. So, if a site, for example, has the ability to deliver 20 homes, we will make sure that the houses that we deliver are addressing the demand data that we have, which we hold not only within Coastal, but the local authorities hold.
And would you have a preference at that point to contract to small, local developers?
I can only speak on behalf of Coastal here, but what we've done over the last three or four years is that we've realised that a lot of the larger contractors don't operate really in our value areas in terms of construction value. We've had lots of examples of big, big contractors like Cowling and Leadbitter being taken over by multinational businesses like Bouygues and Balfour Beatty. They aren't interested in £4 million or £5 million developments in Swansea, Neath Port Talbot, Bridgend, Carmarthenshire.
So, what we've done is developed a framework, if you like, or an approved list of contractors that offers a value band for the types of schemes that we deliver. On average, the value of our schemes will be about about £2.5 million to £3 million. So, we've got regional contractors who deliver that. I'm talking about companies like JEHU who are based in Bridgend, Morganstone who are based in Llanelli, R&M Williams who are based in Cardiff—Welsh firms that are delivering the bulk of our programmes.
Under £1 million, what we've decided to do, and we've got evidence of this, is that we've worked with much smaller contractors, T.A.D. Builders based in Llanelli, CJ Construction based in Port Talbot, who up until the point that they were working with us hadn't got the opportunity to work with housing associations. Or, if they had, their exposure to continual work was limited. So, we all had to start somewhere once, in my view, and I think it's only right that we give those small firms an opportunity to deliver smaller schemes and to nurture them and allow them to grow and then give them the opportunity to do bigger schemes, once we're comfortable with their quality and their ability to deliver financially.
Obviously, anything above—I think the threshold is £4.5 million, we have to go through the procurement rules. So, anybody can bid and tender for those projects.
Perhaps we could really look at the elephant in the room, which is the planning system, as such. What does the panel think of the Federation of Small Businesses's view that the planning process currently acts as a significant disincentive to small house builders from entering the market due to the time and costs involved?
I can certainly understand that point of view, and I say that as my trade is a town planner. Like I said, compared to what the planning system was 30 years ago, it's far more robust, there's far more rigour in it. But, clearly, that comes at a cost as well. There are a few things I think we can do. The Welsh Government carried out a review of the planning system within the last five years, and fundamentally the conclusion was that the system's not broke for the most part, it needed tweaking around the edges, but a lot of it was to do with culture and behaviour. I think that still rings true now.
I think there's more we can do as local planning authorities to get an arm around small businesses to take this fear away from them, to help them, rather than being an adversarial situation. Certainly, there is plenty of evidence out there, there will be plenty of examples where people have had horror stories with the planning system and you hear about them. People complain to you, they complain to their local members, they complain to the press.
There are plenty of examples out there where things have gone really smoothly in the planning system as well and big developments have gone through quickly, but you don't hear about that so much. People complain about the bad side of it. The reason why things go well is the behaviours and the culture of people engaged, whether that be the planning officers, the members of the planning committee, the applicants themselves, the consultees, the solicitors involved. When everyone puts their mind to it, the planning system can work. Yes, it's not perfect, and I don't think we'll ever get to a system where everyone loves the planning system. But I think there's a lot to be said about people engaging positively in it. I think there's more we can do as local planning authorities to help small businesses, definitely. There should be guidance out there for small businesses, there should be guidance on how they can find land, how they can get through the planning system. But first and foremost, we just need to open our doors to them. I think we just need to get our arm around them and help them.
We heard earlier on about the lack of personnel in planning departments, and the skills that are involved—that that can be a major barrier to getting planning done in the time frames that it ought to be being done in. Would you agree with that?
I think it's a matter of fact, and the Welsh Local Government Association have issued the statistics that, I think, planning departments, out of all council services, have taken the biggest cuts in the period of austerity.
Right. So, should councils now be looking cross border to amalgamate council planning? In my area, you've got Torfaen, you've got Blaenau Gwent, you've got Islwyn—which is part of Caerphilly. But if you think, they should really be combined in these planning departments, surely, so that they've got enough skills.
I think that will be a decision for the individual councils. But I think you've got to deploy your resources depending on your own circumstances and what your priorities are. So, just as an example, in Rhondda Cynon Taf, even though we were going through that austerity period, as a planning department, we dedicated resources within the planning team to deal specifically with housing planning applications. Because we believed getting housing applications through the planning system was a priority for us. And—[Interruprion.] That is at the expense then of other types of planning applications.
But the money isn't hypothecated. But I have to move on. Just to say, Ian, for yourself, you point out that there are a lot of obstacles for small businesses, such as the markets for buying and selling land, and for buying and selling houses, and in terms of social housing, in their procurement practices. So, can you expand on that just a little?
Yes, I think the point we were just making there was that the planning system—it's not just the planning system itself that's limiting the engagement of small and medium house builders—it's how builders get hold of the right land, the right type of land, serviced land, land with planning permission, land that's ready to go, potentially, subject to certain requirements. That certainty, I think, within the system again, in terms of, as I mentioned earlier on about having the LDP in place, that almost trickle effect then through the process, identifying the sites, having that certainty then that the site is going to come forward, that it's a viable plot of land to develop, the infrastructure can be put in place within reasonable timescales. So, I think how builders—small and medium builders—get hold of the right land will of course influence that, which is why we welcome measures such as the small sites register. Again, I don't know if we're going to come on to that later on. But measures such as that, in terms of the openness, the transparency, they're having that dialogue and that conversation in that more open forum.
But I think, as Simon mentioned, there have been those restrictions, limitations on planning departments since 2009-10. I think the figure was a 53 per cent reduction in local authority resources devoted to planning departments, which was the biggest reduction in any service department. At the same time, however, the expectations of the planning system have increased, and the planning system is there to do many things—and some might say too much, some might say too little. But it's trying to balance many, many competing needs. So, I think we're just trying to say that the planning system—the planners—in the local authority, in the consultancies, are working within that wider context.
That very point. I'm wondering about unintended consequences. And if you are going to change the planning system to benefit SMEs, relax certain rules to benefit SMEs, won't it have the unintended consequence then of deregulating the large firms and their behaviours? And, God forbid, they don't need any of that.
I think the point that we would like to make is it's an issue of proportionality. I've seen some of the other evidence, when they talk about, for example, the amount of reports, technical evidence, that's required to submit a planning application on a small site, a minor development. Certainly, we believe that it's just a question of proportionality, rather than perhaps sweeping away a certain level of threshold common sense. I appreciate that's a catch-all, but common sense is often required and it is a degree of proportionality on those smaller sites where you may still require ecological surveys, flood-risk surveys, and highways and technical surveys. They will increase once you get to your large-volume house builders in terms of the proportionality of what is required. So, I don't think it's a complete blanket requirement from a small all the way up to a large-volume house builder on a strategic allocation in that council's LDP. It's often not the case that those local authorities, whether it's through their validation requirements, again in terms of transparency, set out upfront, 'This is what we require for certain sites: different impact assessments, different studies and structural surveys.' It's not a question necessarily of them saying, 'We want this for the sake of it.' There are reasons that the planning system does have to evidence and justify why they are asking for these things—
Following on from that, and I'll open it out to the whole panel now, the Federation of Master Builders says that the threshold of what is considered to be a large housing development should be raised from 10 dwellings to closer to 50. So, it would take out a large proportion of those extra development planning needs. We talk about things like flooding and stuff like that—that that could be taken out if they are smaller developments. Do you agree with that—that it should be raised to above 10?
I suppose the threshold for major developments in Wales is 10 houses or more and that then goes up to 10,000 houses and there's clearly a massive difference between what's involved in building 10 houses, compared to 100 houses, compared to 1,000 houses. So, there is certainly an argument that we need more thresholds, in a sense, than the single one we've got. If that then enables us to de-risk to a certain extent sites that will clearly get built by SMEs, because your big public limited companies are not going to touch sites of 10 houses, then that's something that should be explored.
So, you would say that it should be raised, whatever that figure to raise them to is—they say 50, and I would think that that's a pretty reasonable number.
I think it is a reasonable number. I think it depends what the drivers are behind that, because you can have 10 houses on a site that would be one of the trickiest sites you will come across. Compared to 100 homes being delivered on a bigger site, the 10 houses could occupy much more of your time because—
But that could be looked at independently by the local authorities themselves—they could make those decisions. But, if you say, 'Look, you've got to look at it at 10—if there are 10 houses, you have to put in these—. They have to come forward with all of these different reports, et cetera, which they have to commission from different people'—that could be taken out if the local authority decided, 'No, we don't need those on this particular site.' It could be taken out at that level, couldn't it?
Can I just add on that point? One of the other areas I think that have been mentioned in terms of the proportionality is the pre-application process, and, yes, there is a mandatory, standard requirement then on major developments. I don't think we're advocating necessarily that that should be taken away because it's been in for about two and a half years now, I believe—since 2016. Arguably, there may be some good and bad—you know, success stories in terms of how that's operating and being rolled out across Wales, but it's a standard requirement. We wouldn't like to advocate taking away any requirements for community engagement, necessarily. A lot of volume house builders or larger sites may have been doing this practice anyway, so it may be second hand to them—they may be aware of that. I think it really just comes back to that point about proportionality.
And it comes back to the discrimination you talked about earlier, actually, with regard to—the local authority should make the decision. But if they are bound to bring in certain regulations with regard to 10 houses, whereas if it's 50 houses, they could use their discretion on it—that's what's important, really.
I have to come on just lastly because of the timing, but the RTPI suggested that there should be a planning advisory service for smaller builders. Can you perhaps expand on that, Ian?
Certainly, yes. We made this recommendation in our submission in terms of trying to improve the engagement and interaction and the understanding of the planning system in Wales for small and medium house builders. We thought that perhaps one model could be a specialist type of service, like a planning advisory service with a central resource. It could be something that's channelled perhaps through the Federation of Small Businesses or the FMB. We haven't looked into any specific model—it's more that general suggestion at this stage—and funded, somehow, by the three subscriptions or some sort of model along those—having finance into it. We don't have that specific model in mind at this early stage, but we do think having that central resource would be important. Others could therefore look at how it's funded, and it could, in effect, act in a way like a business support scheme—a forum service for sharing ideas, having discussions, sharing best practice across. It's really trying to give some access then to those small and medium-sized house builders to the kind of information or quality of information that perhaps the larger volume house builders would get through their planning consultants that they would employ to take them through the process.
With regard to viability of land, is it actually harder for SMEs to find viable land, and by that we mean land that needs remediation? Is it harder for SMEs to find that land than the larger firms?
From Coastal Housing Group's perspective, we don't find it difficult to identify land. We would ordinarily lead the land purchase process and then contract out. There are plenty of opportunities that are coming to us.
Yes. The challenge is about the expectations of the landowners, really. So, it might be that they think their land is worth x, but, with remediation being a key issue, it will be x minus whatever the cost of that remediation is. And it's really about managing their expectations from the outset. But sometimes we might be the second-hand recipient of a deal that has already been negotiated in the background, and, when we punch our figures in, it's not necessarily working to support the land value that's already been agreed.
I think, from my point of view, in one sense, small house builders can make land more viable just because of the way their economic model works. Obviously, the plc's got a number-crunching exercise, and, unless it ticks all the boxes, they go on to the next site. But I think, as a matter of fact, it has to be more difficult for small and medium-sized enterprises to decontaminate a site, to take on some of the sites that we've got in our communities that are blighted by the coalfield legacy or the industrial legacy. The big builders have got the machinery to deal with these things.
That's the thing. SMEs haven't got the wherewithal to deal with those sites, and we have to find a way of de-risking those sites for them.
One of the things that surprised me when I asked them—. I think it was Hygrove that came in and said, 'Well, the Welsh Government grant scheme is too bureaucratic—it wouldn't help us.' So, do you think there is any way that the Welsh Government can fund remediation of land to make it easier for SMEs?
I think, certainly, the stalled sites fund that has been introduced with the Development Bank of Wales is genuinely a step in the right direction, because the property development finance from the development bank is very much loans, and those loans are recycled for the next development and the next development, which is a great thing, but the stalled sites fund has got an element of grant in it as well to deal with those viability issues that are caused by difficult sites—so, definitely a step in the right direction. But, clearly, there are some significant sites across all our communities that are still in need of some form of viability gap funding, which is caused by contamination and shallow mine workings and all those things that we experience.
And do you think that's the reason why small sites tend to be excluded from LDPs? Is that the main reason?
And I guess increasingly so, because Welsh Government, for all the right reasons, are saying, 'To get a site in the LDP today, you have to demonstrate that it's viable and deliverable', and deliverable in particular. Now, perhaps in days gone by—you may echo this—it was probably easier to get sites in LDPs, but then they sit there for 10, 20, 30 years and then never get delivered. And that probably doesn't do anyone any favours either. So, definitely deliverability of sites in LDPs is more and more an issue, and then that's why you don't get the types of sites perhaps SMEs could pick up being actually put in LDPs.
No—just to echo, in general, I think through the LDP process, yes, demonstrating the deliverability per se of sites is a higher barrier, perhaps, than it was a few years ago. I think it just comes back to the earlier point about several competing interests and needing to demonstrate the environmental, social and economic sustainability of these sites.
Can you just elaborate on why that would be—why that's beneficial and how quickly it'll be operational?
Certainly, yes. We welcome the introduction of a small sites register. I think it comes back to the earlier point about openness and transparency, and trying to really demonstrate or have that open dialogue, then, with the development industry to say that, 'There are these sites available and we want to work with you to bring these sites forward'.
In terms of the implementation now, of course, I think we need to bear in mind where local authorities are at with their LDPs, because a lot of this evidence, perhaps, will come into reviewing those local development plans, and seeing where they perhaps could allocate a smaller site in the future, that—
So, we're waiting for the next round of LDPs to be produced before we—
Yes. I wouldn't—. Yes. To a degree, yes, but I wouldn't necessarily say that that stalls everything, perhaps, because, as you'll probably be aware, local authorities have to do their five-year housing land supply reviews every year and demonstrate a five-year housing land supply. Perhaps there could be further work, then, through that process—doing a call for sites and trying to build up that evidence base to have that ready even before they go out with their next iteration of the LDP.
Finally, can you expand on the evidence you gave us that:
'The skill set around understanding viability within LPAs and other stakeholders could be improved'?
I understand 'viability' to be profitability. Is there more to it?
I think it's just recognising again that there are so many policy demands on planners today, and we understand this. You also have your other sectors, then—departments within the council, highways, flood-risk demands. You talked about remediation as well on different sites, contaminated land. I think it's just the point about understanding this and the viability of the skill set.
From my experience, as a former Caerphilly councillor, I felt that the planning officers in the council did understand that—I mean, it's a vastly complex area. Are you saying that there are planning authorities that don't have planners who understand those issues?
Well, that's just—. Yes, go on.
In my experience, I think they do. I worked in Caerphilly, and I think they do understand those issues, absolutely. I think it's, for me, when they're doing the viability assessments of sites in the LDP, at what depth, how granular, are they getting into that detail. Because you may have a site that—. I don't imagine for one minute that an LDP planning officer is commissioning site investigations with machinery going out and looking at soil samples and all the rest of it, which is what has to happen before you buy a piece of land. So, they're probably taking a very umbrella view, with some desktop information. So, I think there's probably quite a bit of work to do to understand absolutely whether a site is deliverable because of the contamination that exists within it. But I do think they understand the issues, yes.
Can I just add one thing, and perhaps just—? In my own experience, I think we've learnt a lot, as planners, about viability, and very much about understanding the amount of cost that's involved in development, what profit comes from that and what's a reasonable profit, and then how residual land value works. The big eye-opener for me was this issue of peak cash flow. So, even if the figures work at the end, the big issue for SMEs is still the amount of money you've got to spend upfront and the amount of risk that's involved in that, bearing in mind that a lot of the time it's their own money—they've got their own family employed in these businesses as well. I think that's the thing that perhaps we need to understand better, and understand the fact that—you know, if you're anticipating that in three months' time you'll get your planning permission, you've got to start lining your contractors up now to be on site. So, you line them up to be ready to come on site in three months' time, but then there's some delay to your planning permission being granted, you've then got to stall your contractors—you may still have to pay them; you might not be able to get them back. It's those things we need to understand more—how things work on the ground in the real world.
It's really critical from a small—any small business, cash is absolutely critical. There are cases where organisations—big organisations—aren't paying their contractors in a timely manner, and that's not right. That isn't right.
Well, the FSB has got exactly that campaign going at the moment—Fair Pay Fair Play.
Thank you, Chair. I'm interested to find out more about RCT's plot shop. I know that it's being trialled there on behalf of the Cardiff capital region. If I understand it correctly, these are small council-owned plots suitable for perhaps one dwelling, and each of those plots would either have outline planning permission or local development orders, and there is a choice of—I think it's five different plans for properties that people can actually take off the peg for that. It sounds like a fantastic way of infilling those different sites that we all know of around our communities. To what extent is that being targeted at self-builders versus small house builders?
So, if I go right back to the start, probably about two years ago, we were doing some research around the housing market in RCT and what was getting developed, and perhaps the wider housing market, and what jumped out was that, over the last few years, the percentage of new homes built in south Wales as self-build was as low as 2 per cent. When you compare that to England, where it's around 8 to 10 per cent, and then you get into western Europe, where it's anywhere from 30 per cent to 80 per cent of all new homes that are self-build or what people are calling it now custom build, you then ask the question, 'Well, what's happening in Wales? What's happening in RCT? Why aren't people building their own homes?' And then you get to somewhere like the Cynon valley or the Rhondda valley in particular, and you see that 96 per cent, probably, of all the houses in the Rhondda, for example, are terraced housing. Yes, there are areas of deprivation, but there are still plenty of people there who are in good employment, earning good wages, and want to live in something different from a terraced house. The only option they've got, really, at the moment, is to move out of the valley, and I don't think that's good for our Valleys. I don't think that's good for sustainable communities, viable communities, in the long run. So, that started us on this pursuit, then, of: how do we encourage more self-building? How do we get to the extent that local people can build their own house in their own community and stay there, where their support network is, where the grandparents look after the kids, where their friends are—all that sort of thing? Why should they have to move out of their own community?
There are three clear barriers, and the barriers are probably exactly the same for a self-builder as they are for an SME, and that is: access to land, getting through the regulatory system, whether it be planning or building regulations, and access to finance. When we did some research in terms of the finance side of it, we couldn't find one of the high-street lenders that did a self-build mortgage. I picked the phone up to Principality and said, 'Why don't you do self-build?' They said—well, a couple of reasons, really. Fundamentally, it is much harder to administer, in a sense, than your standard mortgage, because you've got to performance-manage the staged payments, but they didn't feel there was a market for it. So, we've got the market saying there are no lenders, and the lenders saying there's no market. So, straight away, you could see that this is where the public sector needs to intervene.
So, we looked at, then, how could we sort out the land issue. So, we went to corporate estates and we went right through our land estate and found various plots, right through RCT, which were off the back of the footpath so you didn't have to put big roads in or anything like that, that were doing nothing—all we did was cut the grass every now and again—and said, 'Could you divide this up into, say, three plots and make that easier for people just to access, put them on the market?' And the last thing we did then was we went to the school of architecture in Cardiff University, and they produced what we call a patent book—like you said, a range of different house types that would fit on these plots. So, the concept is, effectively, that you have a one-stop shop where you can go on, choose your plot—. And we've had the plots valued, so you haven't got to go to auction or anything like that; you know it's £20,000 or £30,000, which we think is not going to put people off. We think going to auction puts the general public off. We've got the house types, so they can work out what house they want to put on there. They haven't got to worry about going to architects. We're in the process of getting outline planning permission on all of these plots. There are a couple already approved. There are some going to planning committee tonight. Like most developers, we've had trouble getting some of them through the planning committee—for all the right reasons. That's what the planning system is there for; it's to test these things in the community. And then finally, then, we've been working quite closely with Welsh Government around the finance side of it: how do we enable self-builders to finance the building of their own home? And working with Welsh Government and the development bank—and the Minister launched this just after Christmas—effectively, there's a fund there now where, once you've chosen your plot—let's just say that that plot's £20,000. You choose your pattern-book house type, you know how much it's going to cost you to build that, you can get a builder to cost it for you, so let's just say that that comes now to £110,000. You go to the development bank, you borrow £110,000 off them, you make no repayments for two years, so you've got two years to build your house—at that point you've got a completed house that you can now get a standard high-street mortgage on. You get that mortgage, you pay the development bank back, and the beauty of it is, in theory, what the house is now worth compared to what it's cost you to build it—there's enough difference there that means you don't even need a deposit on your mortgage. For us, that gives you a fantastic way, an affordable way, that most people in their communities can now afford to get a bit of land and build their own house and stay in their community. The beauty of it as well is that, generally, if you're building your own house it will be of a higher quality. You're going to be far more interested in energy efficiency because your own bills are involved in it, and, again, it provides this quality and choice that I think anyone who lives in our communities should be able to expect.
So, how many plots of land have been identified in RCT and are you able to put a ballpark number on the number of homes that could be created?
So, in terms of the number of plots, it's very much a pilot—we're trying to do proof of concept at the moment. So, we're looking at about 25 plots maximum. We're also looking at a second tranche of bigger sites, and part of the Minister's announcement after Christmas was that there was £10 million set aside available now for local authorities to actually start going and putting some infrastructure in. So, actually, you can now put, perhaps, a spine road down the middle of a site and actually have 10 houses off this side, 10 houses off that side. So, that's a really good thing as well. So, we're looking at bigger sites as well at the moment. And then in the second week of April I'm going, along with Welsh Government—we're doing two events, one in north Wales, one in south Wales, with local authorities, because the key thing we need to do now is get local authorities putting land into this system. So, the more plots we've got the better. Once we've got a good suite of plots there with planning permission, we can then get out into the small and medium enterprises, the small builders, and we can get out into communities and really promote this.
So, it's certainly got the potential to be upscaled, and I'm wondering, as well as looking at council-owned plots of land, those really intransigent, privately owned derelict plots of land—do you think that in the future, when the scheme is up and running, there's the potential maybe to even look to negotiate with those kinds of private landowners to roll out something similar there?
Definitely. I think we're focusing on local government land at the moment. There's no reason why you can't look then at things like Welsh Government land, the health estate's land, but definitely private sector land as well. There was a point made earlier around splitting sites up—some of it social housing, some of it private housing. These difficult sites—the more I think you can chop them up into different types of delivery, the better. So why not, if you've got a difficult site that you can perhaps get 60 houses on, that maybe 20 go with an RSL, and there's the social housing grant that helps break the site open and get some infrastructure in, 20 built by a small-medium enterprise, but the last 20, the infrastructure is then there to allow people to plot shop and build their own house as well.
The plot shop concept—is it also for small house builders to be building a handful of homes, or is it just for the family who wants to build, or custom build, their own house?
So, the initial launch will be specifically targeted at individuals building their own homes, and they will then be required to live in that house for, say, three years after, as one of the conditions of the finance. But that's not to say—. If you look on the continent, just south of Amsterdam, there's a plot shop site there that is 2,000 houses. I think it was a massive piece of derelict land that was in the public sector, and it's been put out there. When you've got sites of scale, there's no reason why some can't be for individuals, but then five plots are released for a small house builder and five plots released for an RSL. I think the potential of this approach, and ratcheting it up and widening it, is exponential.
And the Wales development bank funding—what sort of interest are they charging on that, and when is it paid?
Effectively, I think it's a relatively low rate of interest, albeit I suppose it's a commercial rate, albeit interest rates are low. But effectively you will only pay—you won't make repayments when you borrow the money. You only pay it back once the house is built and you've got your mortgage to pay it back. I think there's a two-year window of opportunity to do that. But say you borrow £120,000, there will be a small rate of interest attached to that.
Okay. And, finally, can I just ask quickly about the issue of skilled labour and the suggestion that there are shortages within it? Why is the market not functioning for the labour rates to rise to attract more people in to shortage positions? What's the market failure in skilled labour for construction?
I'm not really sure. I think one thing that strikes me—and this is a personal opinion, this is not me representing Rhondda Cynon Taf, or anything—is great, over the last 10 to 20 years, our children have had this aspiration to go to university and I think the schools are geared up to enable as many of our kids to access higher education and university education and degrees, which is absolutely brilliant. I think that might be at the expense of kids aspiring to go into the construction industry. And if you actually look—. I had a plumber fit my boiler last year—I bumped into him in Saundersfoot last summer, and he's got the biggest BMW I've seen, he's got a luxury caravan, he's got a jet ski. If you told kids, 'Is that the sort of thing you aspire to? And if it is, you don't have to go to university'—. Apprenticeships, further education college and going into the construction industry isn't a second choice, it isn't failure. I think there's more to be done around that.
I think when you hear the figures that are touted at the minute that bricklayers are getting paid £1 a brick, and they can lay 350 to 500 bricks a day—that's a significant sum of money. Each of us in this room will be connected to young people in some way. I've got a 15-year-old son; has he got the aspiration to be on a cold and wet building site? I've worked on building sites in the middle of August when it's chucking it down with rain and it's a miserable place to be. We need to create some excitement, I think, about the construction industry.
One issue I have—I guess this is a personal view—is the school system: A to Cs, and that's great, but there are kids there who aren't necessarily academic, and we need to be working with those children to really, really try and encourage them and foster their interest in industries that we do need—certainly in two or three weeks' time, when we're out of the European Union, potentially. We do need to foster that interest and engagement in what is a very, very exciting industry. Look at things like Crossrail in London. It's absolutely incredible what you can do with a career in the construction industry, and we need to really raise that excitement again, I think.
I'm sure you didn't intend to, but I'm going to make sure you didn't, suggest that there's no academic requirement within the construction industry.
No, I didn't mean that at all.
I absolutely didn't mean that at all. I think the focus—. My wife is a schoolteacher. I've got an O-level in English. I can remember Macbeth quotes, but they're not helping me here today, are they?
The point I'm trying to make is that I think that there are certain academic subjects that don't lend themselves to children who have the potential to go into different arenas.
More creativity. That's absolutely not the point I'm making about academic—
No, I knew you weren't, but if we hadn't drawn that out, then we're looking at not delivering a really good message. To that end, in terms of selling the aspirations to go into the building trade, I think that where the mistakes are made is the focus—and I'm afraid I'm going to pick you up again. First one: men entering the system; you didn't mention any women. But also the very limited trades that you've recounted: bricklaying and plumbing. And yet you did mention earlier on the design, the architecture and civil engineering. The range is massive and the opportunities to progress within the building sector are equally significant and wide-ranging. So, is it not the case that what we really need to do, and CITB is doing a lot of this, is to promote the real opportunities, the opportunities for diversity, and also the fact that we are moving into a new system of building, so it isn't going to necessarily be the case that you're going to be outside in the rain, but the new emerging technologies offer really exciting opportunities for people going through the science, technology, engineering and mathematics subjects? I have to pick you up, I'm sorry.
Would any of you like to make just a brief comment? Well, I'll come to Gareth to make a brief comment—we are over time.
We're heavily involved in the modular offsite agenda, and we're hopefully going to put a bid in to Welsh Government shortly about developing a factory. I'd probably want to come back to the point—just to make absolutely sure that the point is well made—I think CITB do a fantastic job, and they do go into schools, and we go into schools, but I think the school curriculum needs to respect the demand for particular types of jobs further down the line and create a GCSE or a series of GCSEs and/or A-levels that offer the opportunity to those creative individuals to really focus on skill sets that are needed for this industry.
Can I thank you for your time with us this morning? We're grateful for your evidence and written evidence as well, so we appreciate your time this morning. A transcript of the proceedings will be sent to you, so please review that. If you've got anything further to add, then please do let us know. Thank you very much. Diolch yn fawr.
I do move to item 5, and this is our last session for today. I do welcome Ian Wyatt, the director of business customer services at Welsh Water. So, thank you for being with us this morning—just about. If I can just ask the first question. In your written evidence that you've kindly provided us with, you state that the provision of new water and sewerage infrastructure is substantially open to competition and allows developer customers to choose their own installer. So, I would be grateful if you could perhaps elaborate on how that works in practice.
Yes, so there are two aspects to competition for new development and new developers that—. Yes, there are two options for developers to access competition in the water and sewerage sector. The first one is what is termed inset or new appointments and variations, where, effectively, the developer customer can choose to replace the incumbent water company with another company. So, in other words, in our case, they can replace Welsh Water with another water or sewerage undertaker who can provide the services within the confines of the development site. And they will also go on to be the actual water and sewerage company for the people who reside in that development as well. That involves a formal process to Ofwat, the industry regulator, and as a consequence of that process, the developer has got the choice to effectively replace the incumbent.
The second option is where the developer chooses not to replace the incumbent undertaker, but they wish for another party to actually install the infrastructure, be it water or waste water, on their site. And basically, on the sewerage side, the substantial majority of all onsite infrastructure for sewerage is undertaken by a contractor or a provider that the developer chooses. So, we hardly do any of the sewerage onsite infrastructure ourselves. What we do in that space is actually adopt that infrastructure once it's constructed and made to a suitable standard.
On the water side, and this is mainly driven by recent changes—so the Water Act 2003 that came in. Typically, prior to that, all water infrastructure had to be provided by the relevant water company—it wasn't open to competition up until that point. But, since 2003, the self-lay market, as it's termed, allows certain accredited companies to install water infrastructure on that development site where the developer chooses that option. And what happens in that case is that we will make, basically, an asset payment—we will pay money for adopting that asset at some point in the future, once it's laid to the appropriate standard. And the way that we go about promoting competition—because actually we've got no incentive to undertake this work ourselves; we've got a legal duty to provide the water and sewerage infrastructure the developers ask us to do, but there is actually no real incentive underneath that. So, what we do is we very carefully guide our developer customers to the options that they have got, and they can make their choices on the basis of what we clearly set out. And that's no different from being Welsh Water or any other water or sewerage company in England or Wales.
Yes. Just to try and understand it, you said that there is competition in the market now. But is that competition real? You also said that it can only be carried out by accredited companies. So, in terms of having an opportunity to become an accredited company, what sort of cost is there behind that?
Throughout England and Wales, there are a few hundred companies that are accredited, on the water side, as part of a scheme called the water industry registration scheme, which is, effectively, administered by Lloyd's Register. So, there is quite a sizeable amount of self-lay contractors, or providers, out there in the market. There is a process and a fee that they go through that I think varies—I'm not too sure exactly the detail around that. But there is a process and fees that are payable to become accredited. But the real issue underneath this is that the take-up of self-lay in a water market is very variable throughout England and Wales. So, in some areas, you have no penetration of self-lay activity; in other areas, you have very high levels of self-lay activity. And there are probably a number of different factors that actually drive those variances.
Some of it will be down to whether that self-lay provider sees it as commercially viable for them to operate in particular geographies. So, if you've got very low areas of development activity, then it won't be as prosperous, I suppose, as where you've got very high levels of development activity. So, just like any commercial business, they will potentially focus in on those sorts of areas. But that's no different to what water companies will see in terms of their own supply chain as well. So, where we will try and procure services across our whole region for our core maintenance and replacement activities, we will relatively easily get people interested, contractors interested, in work that's associated around our border area, in Cardiff, and all the way up to the Kinmel sort of area, and the middle parts of north Wales. But if you stretch further west, then you tend to see that these providers who are interested in the work that you're offering will subcontract that to more local contractors. So, you have this tension around the—commercial viability is how self-lay providers see it.
If we go to our position on self-lay, we have around about 5 per cent of our new water installations delivered by self-lay providers. So a relatively small, but an increasing, amount. And they are generally centred in the areas that I've just outlined—they're typically to the east of Swansea, and to the east of Kinmel park.
The other aspect to this is that the areas where you've got very high levels of self-lay, so, areas such as United Utilities—so, up around the Warrington, Manchester and Liverpool area, and you've got a high level of self-lay activity in the Severn Trent area and the Thames area as well, and Anglian—there are some aspects as to why that might be the case. One is back down to that commercial viability in that they've got very high levels of density in particular conurbations there. But the other side of that as well is that customers generally vote with their feet. So, if they've received a very bad service from any provider—a water company in this particular example—they will tend to look at what other options that they have to choose to make sure that they get things delivered in a timely and the most cost-effective way. There are some suggestions that that might have happened in the past, where certain companies might have had those sorts of challenges before and customers will look to other opportunities.
I don't know whether you answered this, because, I'm sorry, I missed the very start, but there has been a suggestion that you have the monopoly.
So, we have a monopoly, and all water companies have a monopoly from the perspective of household domestic customers in that you can't— . Similarly to your electricity or gas providers, for example, you've got the ability to switch. In the water sector, existing customers who are householders, for example, cannot switch. But in the developer services market, a range of options are available for developers to choose, regardless of what size they are, an alternative option other than coming via—
Okay, if I can, and sorry to cut across you: in terms of the work scheduling—that's what I should have put—.
Yes, so I've noted the evidence you had from Hygrove Homes and I must admit that I'm not totally clear what that scheduling aspect is talking about, but maybe I can answer the question in a slightly different way. We've got some substantial competition requirements of us as a business because we are a monopoly and we are an incumbent undertaker, no different to the other water and sewerage companies in England and Wales, and as a consequence, we have to make sure that, no matter what option a developer chooses, we treat them with equivalence and we measure all of our performance, whether it be us delivering that infrastructure or whether it be a self-lay provider or contractor, delivering infrastructure. And what I can quite clearly say, if that is what is meant by the scheduling aspect, is that, actually, our performance in supporting the self-lay providers is better than the performance that we actually deliver ourselves. It's not hugely different—it's sort of 99 per cent compared to 100 per cent. That's the type of apsect there, but there is nothing that we would do or see that would undermine that competition aspect to the market.
Okay. We've got about six or seven questions, I guess, and about quarter of an hour, so just keep that in mind in terms of questions and answers as well. David Rowlands.
Let me just look at some of the fees, perhaps, that you charge. The current application fee for a developer requisitioning or laying a water main is £2,000 per application, payable upfront and is non-refundable. Could you explain to the committee what this application fee covers and how has the £2,000 figure been set?
Yes, so just to clarify, that sum is actually a deposit rather than an application fee. So, what that £2,000 actually does is: we will take that application fee, and a reason behind us taking that fee is that we historically have accepted applications where we didn't have a fee and we found that around about 50 per cent of all of those applications were speculative and actually didn't materialise into anything. And what happened as a consequence is the costs involved in delivering those services where nothing happened actually ended up resting with other bill-paying customers. So, the £2,000 is a deposit, and what happens with that deposit is that we will look and offset that £2,000 against whatever costs we incur. So, if we only incur £500 in delivering that activity, the £1,500 of that would be effectively refunded. Similarly, if we go and we spend more than £2,000 on a particular piece of work then we will be undertaking that work at risk and we will be looking to recover that additional cost from the developer customer at some point later. In terms of how we set that £2,000, that has been set on us looking at a whole range of projects that we deliver and coming up with what is a typical but a reasonable assessment of some middle ground between the sort of costs we'd incur for different sizes of schemes.
You use a cost-effective approach to these things, so in setting these developer service costs, can you tell us how that works? Going back just a little, when you say that it may cost £500 or £2,000 or whatever, are you open in how you come to that calculation? Does the customer then see your calculations on that and how you've incurred those costs?
Yes, they will get a very clear breakdown of how those costs have been built up, all the way down to individual time sheets of people who have been involved on that scheme or materials or whatever other things that have been used to deliver that scheme. In terms of how our costs are derived, we are required by statute, the Water Industry Act 1991, to only recover our reasonable costs incurred. The way that we undertake that is we undertake an annual review of our scheme, and our charges are published on an annual basis. We make sure that those are legitimate and based on past costs that we've incurred, so they are informed and they're justifiable. What we also have to consider is that clearly any customer who's got an issue with our charges can go to the regulator and challenge those costs. That's a very intrusive and a very detailed process. So, we've always got two parts in mind. One is we want to be clear and transparent with customers, but there's the other part of it where we need to be very clear that Ofwat could take a look at some of the costs involved.
You'll be aware of Hygrove Homes's evidence. As a committee, we're concerned about this, as to the finance and the barriers to small house builders. The criticism they made was that charges were having to be paid upfront. In your written evidence, some things are in arrears. I don't know what proportion you would say is which. But, don't you consider that a valid point has been made and that you as Dŵr Cymru have better access to working capital and cheaper rates for borrowing and funding than certainly small house builders have? In light of the evidence we got from Hygrove, even if you don't accept all of it, don't you think a point has been made that justifies your considering as a company whether you might be able to allow more of those costs and charges to be paid after the service and to have less upfront contribution being required?
I think where we're legally able to not charge upfront then we certainly don't charge upfront, but there are quite a sizeable range of services that we need to deliver where the legal requirements are triggered for a payment, such as land entry and other activities that we need to undertake. So, unfortunately, we're quite constrained in terms of what we can and can't do there. There are changes proposed to the developer services charging arrangements that Ofwat are currently consulting on, which may well change that type of arrangement. But at the moment, if we want to act legitimately, then we have to effectively follow that legal process appropriately.
And in the meantime, you're seriously telling me that there is no aspect of your charging where there is any discretion that you could accept payment later in the process than you currently are.
There are options within the legal framework where a developer can defer payments, such as requisition of water mains, so instead of paying, effectively, an upfront commuted sum, they can decide to take a 12-year agreement. I could go into a lot of detail on that, but that effectively is assessed on an annual basis, and they would just pay any deficit that would materialise over those 12 years that occur. But, other than that, sewer adoption is one area where we're not required to get an upfront payment, and we don't get upfront payments on there. We will facilitate and undertake that work, and then we will recover our costs at the point where we deliver that service. Similarly, with advice and all of the upfront work that we can provide developers of all sizes, there is no charge in and around those aspects. But, once a legal requirement is invoked, that's where, typically, we have to follow that process and make a charge.
And, briefly, just one very specific point about requiring a bond from a financial institution where the sum is over £2,000—could you not consider accepting cash for sums somewhat in excess of £2,000, rather than forcing the developer to go through the rigmarole and bureaucracy of arranging a bond?
So, I probably need to just clarify the matter about bonds, because, when I read the Hygrove evidence, that seemed to imply that we ask for a bond in substitute for a payment, as it were, or an immediate payment. Actually, the bond is more to do with ensuring workmanship, and also that the developer or whoever is constructing the new infrastructure is there and completes that work to a satisfactory standard to protect homeowners and suchlike there. So, the bond is a slightly separate issue to costs. The reason why the bond is set at the level it is from a cash perspective is that our legal advice is that, if a developer who has provided the cash bond actually enters into administration, then a receiver can actually gain access to that cash bond and therefore leave the resultant risks with water bill payers in general. So, we've taken a view that the £2,000 limit on cash bond facilitates the small builders and others who might not have such an ability to access a bond from a financial institution, so it does allow some of that to go, so there is a reasonable balance of risk, but we do keep our bond levels under review, and we do that on a risk-based approach.
Just to take that case in point, which was the sewerage delayed payment—you don't have to take upfront payments for the sewerage works—do you do that universally? Is that regardless of the size of the firm?
Yes. It's universal, yes.
So, wouldn't it be better to differentiate and say, 'Well, the large firms, they don't need this kind of—you know, they're 75 per cent of the market; they don't need this kind of delayed payment. We should specialise in offering specific services to small firms'? You don't seem to—. You're very keen on this level playing field, but, actually, small firms don't need a level playing field; they need an advantage.
So, we have to provide the level playing field, given the nature of our role in the market, in that we are an incumbent and a dominant player there. I don't think, when you look at the size of the costs that we're talking about, whether it's a large or a small developer, they are that—they're not that significantly different in the way that those charges are calculated.
But the gross impact of the charges on the relative profitability of the firms will have a greater impact on the small firm than the large firm.
They may well have, or they will have, a greater impact, but what I'm probably trying to say is that, when you look at the fees that are payable, whether you're a large or a small builder, whether we took the view that we could actually change our approach to small or large developers, I don't think, materially, it would necessarily—
Well, that's contrary to the evidence we've just received, which was that cash flow is a huge issue for a small firm, which, although they maybe make a profit at the end, which is what the large developers look at, for a small firm the initial costs may be so high that, even if they could make a profit at the end, it prevents them from developing. So, I would disagree with you there and I'd say that you do need to differentiate, because those small firms are at a disadvantage because of those cash flow issues. And I'm not convinced from the evidence I've heard that you appreciate that.
We do appreciate that, and the way that our charges are set up, particularly around sewer adoption, is very much in a way that there is a banded approach, and we do, effectively, treat small-scale developments in a very different way, in terms of a cost point of view, compared to the larger scale developments. So, when you look at the cost differential between what's involved in assessing and the work involved in undertaking small-scale sewer adoption applications compared to the larger scale, there is a very big difference in those charging arrangements.
So, therefore, you would agree in principle there should be a more lenient approach taken to small firm developers?
So, our charging approach is very much based on that. What I'm saying is that, in terms of the timing of the payments, I don't think there can or should be that differentiation.
So, within the current regulatory framework there seems to be very little room for manoeuvre for you, is that correct?
There is very little room for manoeuvre. As I said, the charging arrangements that are due to change through the new rules that Ofwat have been consulting on and are working forward, are likely—or hopefully likely—to provide a far more free approach to how water companies will set charges for developers going forward.
Okay. And, finally, just as a question separate to the operations of Dŵr Cymru, do you appreciate that it is incredibly difficult for small firms to make progress in the housing market?
Yes. We can see that there are difficulties, and we undertake quite a lot of engagement with all of our developer customers, both large and small, and they've got very different challenges that are there. I think if I—. One of those will be around the charging arrangements and how those charges can affect maybe a smaller, rural type development compared to maybe a more urban, larger scale development, which the new charging arrangements should hopefully give us the opportunity to address.
I think the other one that I'd probably flag is—and I know you've heard evidence in respect of this, but one of the problems that we have is we can see in a pipeline larger developments, because they're allocated in a development plan and we have good foresight of it, so we can invest appropriately and make sure that the capacity et cetera is there in our networks, whether they be water or waste water. The more challenging issue is where we've got very small developments that aren't allocated, in rural communities in particular. They can have a very large impact on a very small asset infrastructure base. Therefore, I think if we could get to a point where we have better visibility of those sorts of sites coming forward, then we could certainly plan a lot easier and make sure that we support all of that development appropriately.
Okay. Is it not possible to charge—? Just speaking off the top of my head, is it not possible to charge the larger builders more for services to subsidise the smaller builders in those circumstances?
So, it's not able to be done in the current arrangements, but, when we get to a point of the new charging arrangements, subject to wherever Ofwat land with that, then there will certainly be opportunities to understand what can be done to facilitate maybe helping smaller scale or rural developments, or wherever the most need is, to effectively average out costs across a broader area, rather than the current approach, which is very much whatever you need for that specific site is what, effectively, the developer customer needs to pay.
Is there anything you feel that you want to add that's not been drawn out through questions this morning?
I suppose the only thing that I would say is that we've talked about charges and such like, and one of the important things I would just draw out is, actually, in terms of the provision of water mains and the provision of sewers, where we or a self-lay provider are used, the developer customer doesn't actually pay for that infrastructure. It's actually the people who buy those properties and occupy those properties on the development site that, effectively, pay for that infrastructure. Therefore, what the developer actually incurs is, effectively, the deficit between what the capital and borrowing cost of that scheme is versus the revenue that we will get over a 12-year period. So, I think it's just quite an important point that, actually, it's the new occupiers who pay for the main spine infrastructure here, rather than the developer. It's only where there's a deficit that the developer will incur those costs.
Thank you. Can I thank you for your time this morning? We appreciate you coming to committee to give your perspective, thank you. Thanks, Mr Wyatt. Diolch yn fawr.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).
Cynigiwyd y cynnig.
I move to item 6, and under Standing Order 17.42 can I resolve to exclude the members of the public from item 7 and 8? Are Members content?
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 12:25.
The public part of the meeting ended at 12:25.