Eric Pickles and me

Speech by Secretary of State Eric Pickles to the Policy Exchange on 14/10/13. Commentary in italics by moi.

"We all recognise that the nation faces an acute housing shortage, with too many young people unable to flee the nest and too many families stuck in homes they’ve outgrown after the collapse in housebuilding [policital content removed]

Yes, you did read that correctly. Someone has gone through this speech and redacted anything that might be deemed party political, such as that Ralph Miliband was a pinko, or words to that effect.

which pushed prices far beyond the reach of too many hardworking families.

Not to mention all the lazy ones. What is it with politicians and hard working families?

But speak it softly – the situation has been turned around thanks to schemes like Help to Buy and a revived Right to Buy helping people realise their dreams of homeownership.

Speak it softly because it's not true. The situation is as bad as ever and is about to be made worse by Help to Buy etc.

The numbers of first time buyers are now back at their highest levels since the economic collapse.

That's not saying much.

And housebuilding rates have climbed back too, with over 150,000 affordable homes since the election, and many more to come. House building starts are up by a third since this time last year, and houses are being built at the quickest rate for a decade.

Yeah, yeah.

Instead of the targets which built nothing but resentment, we’re giving councils which build homes a financial boost, we’re investing in bringing back empty homes into use and we’ve reformed the planning system to accelerate rather than stifle development.

The result has been renewed confidence among developers and buyers alike and it’s breathing new life into the market. But something else has been happening too, something which has largely gone under the radar, and that’s the blossoming of interest from people wanting to build their own homes.

[Policital content removed]. What can he have said here? The DCLG redacters have been working overtime.

It’s well known that the desire for homeownership is hardwired into the British DNA,

Nonsense: people just act rationally and sometimes irrationally - it's nothing to do with British DNA, if there is such a thing

but so many people don’t just dream of homeownership, they dream of building their own home too.

Custom building has traditionally been seen as the preserve of those with deep pockets,

No it hasn't, quite the reverse in fact

I am speaking as someone who has just replastered their house, I can tell you any building project requires deep pockets.

But while for a few people, self-building means a Grand Designs style project, many other people have more modest ambitions. And let’s consider the other benefits too - the boost to local construction and jobs, especially among small businesses.

In some European countries – Austria, Belgium, Sweden - as much as half of all new housing is custom build. Likewise in Germany, where there’s a strong tradition of co-operative building.

Actually I've no idea what he means by co-operative building here. I don't think the Germans are particularly into it anymore than anyone else.

I refuse to believe they are any more ambitious or creative than the British, but they have systems which support, encourage and reward self-builders. And we must do likewise.

The truth is that their national and local governments do not favour spec development like ours do: that's what Pickles can't admit.

In the past, self-builders found themselves tangled up in red tape before they ever got going. They had to bang their heads against the brick wall of a system which seemed designed to put them off.

Some truth in this, but the red tape issue is mostly red herring - it's not what stops selfbuild from happening.

This is a government which believes in supporting ambition - in fact, the more people who build their own home, the better. So we are addressing the problems which make people hesitate.

First: the lack of suitable land
Potential self-builders say this is the number one stumbling block - by selling off government owned land and encouraging councils to do the same. Not every housebuilding site has to be like Cranbrook near Exeter, which is going to deliver more than 6,000 homes.

There are some plots which are perfect for small projects and self-builders

Second: the red tape
We’ve changed the planning system so for the first time councils must take into account the needs of self-builders as part of their overall housing plans.

It's true. NPPF mentions custom build, the first time it's ever been in national planning policy. But an awful lot of local authorities have yet to pay any attention to it.

And finally, the money – or lack of it
We’re working with lenders to help would-be self-builders get access to the finance they need and because we believe that custom-building should not be the preserve of the wealthy elite we’re offering £47 million worth of loans to aspiring self-builders and community groups.

We’ve also set up a website dedicated to guide people through the practical process of DIY housebuilding and we have Kevin McCloud working with us as the industry champion to raise awareness of the opportunities are on offer and help them see that their dreams are within reach.

As a result the mortgage market for self builders is now more than a billion pounds. There are over 50 councils supporting self-builders

why aren't they all doing it? 50 out of 350 is a piss poor total

– by making land available or supporting individuals and community groups with their schemes and there were 11,000 custom-build projects last year

That's hardly success. It's always been around that figure. In Germany, the equivalent figure is 120,000.

That’s around 1 in 10 of all the new houses in the country - a £4 billion boost for the national economy.Hardly a boost as it's very close to the historical trend and has probably fallen during the recession.

But we believe we can go further - that with support and nurturing the custom-build industry can double in size over the next few years. We can make this a mainstream option not a minority interest.

Now that's what we want to hear.

That is why we will do even more to increase the land available with planning guidance that asks councils to actively assess the demand for self-build in their area. Councils will put together a register of interested people who can then benefit when suitable land becomes available. We will also carry out a review of the Homes and Communities Agency’s land to identify more land that is suitable for small scale projects and publicise that to would-be self builders.

And we will strengthen the Community Right to Reclaim Land so that more publicly owned land is sold off and brought back into use.

We will remove even more of the red tape. We rightly ask big developers to make a financial contribution to the roads, schools, parks and surgeries that are needed as part and parcel of large scale housing developments, but it’s ludicrous to ask self-builders to pay up in the same way

personally, I'm not convinced it is ludicrous, because in the long run it's the landowner who pays these impact fees, but if you want to give a subsidy to selfbuilders I'm not complaining

so we’re introducing a Council Tax discount for self-built family annexes.

Interesting, but what is a self-built family annex, and how would you define it?

And we also want to exempt self-builders from unreasonable section 106 charges and from the community infrastructure levy, potentially saving self-builders thousands of pounds - making projects that would otherwise be unaffordable a realistic choice.

Possibly? Possibly not - see above comments

And we will do even more to increase the finance available
…by working with lenders to extend the Help to Buy scheme to those who want to build their own home and we are putting £65 million of the Affordable Homes Guarantees programme potentially up for grabs for community groups.

[Political content removed] this government truly sees the potential in the market to help families realise their aspirations to create jobs and support small businesses and to make a real contribution to meeting our housing needs now and in the future.

We are taking the practical steps which will unlock that potential.

We are famously a nation of shopkeepers but we can be a nation of self-builders too."

Despite my carping, it's a fascinating speech and it's the first time Pickles has spoken on selfbuild, as far as I know. Being a consummate politician, he can't stop trying to score political points, which probably sounds better than it reads, but despite all this there are some very interesting titbits in here. Grant Shapps is now long gone from DCLG, but his initiatives live on.

The Welsh Sprinkler Conundrum

In 2012, the Welsh Assembly passed an amendment to their building regulations requiring all new homes in Wales to be fitted with sprinklers, thereby becoming the first territory in the UK to have such a requirement. This has always been seen as a controversial move because sprinkler systems are expensive, costing anything up to £3,000 per pop, and those trying to build homes cheaply resent this sort of intrusion into their business.

A year on and there is evidence that housing starts in Wales are dramatically down (32%) whereas in England they are up (34%). Now as the sprinkler requirement has yet to take effect, it seems unlikely to be the cause of this downturn, but this hasn't stopped the pro-business lobby making a big fanfare out of it.

The more you dig down into this story, the more interesting it gets. In fact, it's a good example of the wider sustainability debate going on throughout the construction industry and the related energy supply business. Just where should the standard be set? How much is it worth spending to save lives? Or atmospheric stability? Or whatever goal you want to achieve? Put another way, how much should we be interfering with the market?

As if to address this question, DCLG in London commissioned a report from BRE Global, which concluded that the sprinkler policy in Wales would cost £6.7 million per life saved over the next decade. The report suggested the policy will save 36 lives and prevent around 800 injuries between 2013 and 2022. BRE Global concluded that this was not cost-effective.

It's the horrible sort of calculation we'd rather not think about but I guess they have a point. If you simply set out to save lives, you could probably find far better ways of spending the money. And in general new homes are far safer than existing ones, many of which have only a passing acquaintance with Part B of the building regs. So by what logic should this ruling only be applied to the safest sector of the housing market?

But there is also a significant counter argument. The cost of homebuilding clearly impacts on the cost of building land. QED, if sprinklers add £3,000 to the cost of a new house, and sprinklers are made mandatory, then the price of the plot on which the house will sit should, in theory, decline by £3,000 to reflect the difference. In effect, it's the land seller who bears the final cost of this, not the housebuilder, nor the house purchaser.

The same arguments apply to almost all building standards. Whenever you introduce a regulation or a standard which the market would not normally meet, then you add a cost burden. If you are of a free-market libertarian persuasion, you can and will jump up and down and shout "Foul" and "Anti-Competitive", or some such, adding that they don't do this in China or, in this case, Shropshire. But our housing market is unusual in this respect because it contains a highly elastic cost component, the land. Whilst the final price of a new home is largely out of the control of the builders — it is usually set by the second-hand market which is ten times the size in terms of turnover — and the cost they pay to build a house is partly out of their control (planners and building regs), the price they pay for the land is very much in their control. Therefore it is generally no hardship for the builders if the government chooses to set high building standards.

It follows that the landowners are the disadvantaged group in all this and it is they who should be leading the campaign against Welsh sprinklers, not the DCLG or the housebuilders. But let's not forget that it is the government who decides which parcels of land can be built on and which can't. So landowners tend to keep their traps shut over matters like this, grateful as they are for the gift of building permits from the government which they are able to sell on for a fat profit.

Follow this line of argument to its conclusion and there really shouldn't be any reason for the government not to introduce loads more regulatory hurdles onto our housebuilding industry. Squeeze it right down to the level where the building land is worth little more than undesignated farmland. Let's have space standards. Let's have Passivhaus. Let's have SUDS and water saving and bike racks and bin stores and whatever else we think would be good. And let the farmers pay.

Is the Green Deal doomed?

Seemingly, the answer is yes. The government is only lukewarm in its support, which doesn't help. But let's also admit that retrofit is difficult and expensive. And without knowing what is going to happen to fuel prices in the future, we have no way of knowing whether it's really worth doing. I am not surprised by the low uptake.

How's that for a short blog post! Barely longer than a tweet.

On Grid Parity

Robert Wilson (@CountCarbon), in a comment on my last blog, raises the issue of grid parity, asking what it is in reality. It's a good question. In essence, the idea is very simple. It's when new forms of energy production cease to be expensive and cost the same as existing methods. The idea being when solar PV, or wind turbines, or whatever tickles your fancy, costs the same as gas or coal burning then, voila, everyone will switch to the renewables. They will have achieved grid parity - that means that the electricity they supply to the national grid costs the same.

But I don't think Robert was looking for the mundane answer. He's a bit of an expert in these matters — I think he will know full well what grid parity means in theory. What he is driving at is that the concept is a whole lot more complicated to understand than my simple explanation makes out. And it is. Take a look at my last blog post for starters — this post more or less carries on from there so it's not such a bad idea to read that one first in any event.

There I make the point that comparing fossil fuel burning with renewables (or nukes — I'm fond of nukes) is an apples and oranges scenario. Fossil fuel has to be paid for but the plant to burn it in is cheap to build. All the others are almost free to run but the capital costs of getting the kit up and running are high. So, given this, the concept of grid parity is immediately challenged because to get a true cost of the electricity produced you have to perform a series of calculations involving a number of assumptions.

For instance, how long will the low-carbon plant last? If it's 25 years, the cost of the power will be x; if it's 50 years, it will be half as much (or x/2). We don't really know how long this plant will last because we have only just started rolling it out in large quantities, so immediately we are in the world of guesswork.

Suppose we decide on a 25-year lifespan, so that we can then work out a cost per unit of energy. We then have to look at 25 years of fossil fuel burning to make a comparison. But what will the cost of fossil fuel be in 25 years, not to mention all points in between? We'll need to know that in order to make a grand total so that we can compare with our low-carbon plant costs. But who knows what will happen to fossil fuel prices over 25 years. More guesswork.

This is an exercise you can do and, indeed, it's been done already many times, notably using DECC's 2050 pathways calculator. This suggests that a low-carbon route is likely to be no more expensive than a fossil fuel, business-as-usual one. But it does all depend on the assumptions being made.

If this really is the case, and that DECC's calculator has got it right, then we have already achieved grid parity and we simply don't need any green subsidies to kick start the low-carbon energy drive. Apparently financial logic dictates that we should move towards low-carbon electricity right away because it's already as cheap and is likely to get cheaper over time (fracking notwithstanding).

But no one really believes this to be the case. Institutions are not falling over themselves to build offshore windfarms or new nuclear power stations, or anything else that vaguely fits the bill. They all want generous subsidies or guarantees to take away the risk that the assumptions made might be wrong.

In other words, there is an apparent lack of will here. It easy to carry on with the business-as-usual scenarios because they are perceived as being less risky, because there is less money at stake. The low-carbon plant would have to become a whole lot cheaper than it is now for the institutions to take the plunge and invest in expensive low-carbon plant without any subsidy involved.

Or to put it another way, grid parity is not enough. We need to get to something like half-the-grid price before new energy forms will start to take over off their own bat. Or maybe even less. Once again, we are speculating.

Even then it's not quite so simple, because we need to sort out the power storage issues before we get too far down this track. Before we can talk about one-for-one substitution, we have to have adequate methods in place to store energy from intermittent renewables, otherwise we will still be building new gas plants well past 2050. Power storage has to be built into the financial equation. Without it, each unit of renewable electricity is worth ever so slightly less than the one produced immediately before it. This isn't a problem with nukes but then again nukes have their own problems.

It's not as if the business-as-usual route is without risks. Even discounting the effects of climate change over the next 35 years, this route ties us into burning fossil fuels and who knows how easy these will be to obtain, especially if the emerging economies continue to expand on the back of fossil fuel derived energy. It may be that fracking and other technological breakthroughs will bring about an unexpected energy abundance. But equally it may not. There's really no more logic to the pro-frackers position than there is to the EnergieWende route, as espoused by the anti-nuclear, pro-renewable Germans. Except, of course, that the German route does at least address carbon emissions, something the frackers only pretend to do.

Which brings us back to the concept of grid parity. It's not really measurable, certainly not in terms of unit costs of electricity. Instead, think of it as a ravine that has to be jumped. As you travel along the side of it, the gap gets steadily narrower but at what point do you actually decide to jump? Wherever that is would be where grid parity is. We could hang out a signpost that says Welcome to Grid Parity. But we won't know where to place it until we get there. And there's no guarantee that we ever will.

More Expensive Than What?

We keep hearing that low-carbon energy is more expensive. It's a pretty consistent meme pedalled by the right-wing media on both sides of the Atlantic. The further right the media, the more ruinous the expense. The left wing media tells a very different story, insisting that low-carbon energy is an investment with a long term payback.

But there is a little point here that's often overlooked by both sides. Fossil fuel burning is all about building cheap power stations and then buying in the fuel at whatever the market price may be, whereas the low-carbon alternatives are all about upfront capital costs, followed by almost-free running costs. (I'm excluding biomass here - it's much more like a fossil fuel in this respect).

So immediately you have a problem in that you are comparing apples and oranges. There's no easy way to tell which energy source is more expensive because you don't know what the future holds. To do that, you would need to know the price of fossil fuels many years ahead - like 25 or 50 years ahead. Only then would you be able to calculate which method had been more expensive. In effect, would the cost of fossil fuel burning be greater or less than the cost of financing the building of the low-carbon plant.

Now problems like this are not unusual. Businesses face them all the time. Consider a timber frame company thinking about investing £1 million in a fancy cutting machine which could automate the production line and reduce manpower costs by £250k a year. Even after factoring in a finance charge for the machine, it seems to make financial sense to spend the money. The business will reduce its costs and thus be more competitive, which should bring in more work and the production people who would lose their jobs in the joinery shop may be found new roles in the expanded business.

But the decision is not without risks. For instance, the amount of business being done might collapse and the projected savings of £250k per annum might not materialise. On the other hand, without the cutting machine, the prices charged by the business might become uncompetitive and the business could go into decline. Only with hindsight can you tell whether the decision to invest in a cutting machine is a good one. The question facing the directors is "Is it worth spending the extra money on this machine?" not "Which option is the most expensive?"

It's not so very different with our energy choices. We are not in a position to answer the more expensive question - there is simply no way of knowing until the capital investments we make now have run their course. As it stands, the capital markets are too timid to take the plunge and invest without some guarantee that they will see a return. Their fear is that the future price of energy will still be set by the availability of fossil fuels (and not mitigated by a carbon tax) and that if the price of fossil fuels falls below their financing costs, then they will have to bear a loss on every unit of energy they sell. Whereas the price of fossil fuels can rise and fall in response to supply and demand, the cost of finance is fixed at the outset, and fixed for a very long time.

Hence all the subsidies which governments are using to kickstart low-carbon energy production. The subsidies are not there because low-carbon energy "is more expensive", but because investors don't want to take a punt on fossil fuel costs many years ahead. Hence the need to socialise the decision, or for governments to shoulder the risk.

The trap which the government has fallen into is taking the green subsidy money from utility providers. If low-carbon energy is seen as a social good — which it is — then the money to get it off the ground should come from general taxation, where it would be lost in the mire, along with spending on healthcare, education and my bete noir HS2. Instead we have it pegged to our utility bills and there it's bound to become more and more unpopular as the Mail and the Telegraph continue to highlight just how much of our bills is going on subsidies.

Nuclear 2.0 Review

The nuclear renaissance is a topic which continues to fascinate and one of the key figures in bigging it up is Mark Lynas, who is now better known for his pro-GMO conversion speech which received a lot of publicity earlier this year.

Mark has just produced an ebook called Nuclear 2.0 which is a distillation of his current thinking and seems to have come about as a result of his involvement with the film Pandora's Promise, the making of which involved filming in such well known holiday locations at Chernobyl and Fukushima. He knows his stuff — it's not an armchair treatise — and he marshalls his facts to present a cogent argument that we should be investing heavily in nuclear power and not just relying on renewables, energy efficiency and carbon capture and storage to build a low carbon energy network fit for purpose. I won't argue with this - in fact, I find myself in total agreement.

My only quibble is to wonder about who this ebook is written for? The vast majority of people I know are either totally disinterested in the whole energy debate, or are already in favour of nuclear power - certainly, they are not afraid of it. But then I don't know many Germans and they seem to have a more universal distaste for all thing nuclear (except of course down at their local radiotherapy treatment centres where cancer victims seem quite relaxed about being bombarded with radiation).

In this country, there remains a solid core of energy activists who have dug their heels in and continue to think that nuclear power is the work of the devil, and that the not-insignificant issues with its roll out (cost, proliferation, decommissioning, waste, terrorism, risk of accidents, to name but seven) are simply insuperable. The news is that they're not.

Actually, this solid core is not that small. There is Greenpeace and Friends of the Earth (although, as Mark points out, neither of these campaigns very strongly against nuclear power these days), there are a handful of leftish/greenish MPs and there are shadowy bodies like the Nuclear Consulting Group which is not really a consulting group at all but a bunch of anti-nuclear academics. Together this consists of a considerable anti-nuclear lobby with some well known names. My guess is that Nuclear 2.0 is written with them in mind, but I also think it's more than likely that none of them will be bothered to read it and, even if they do, they won't be convinced by its arguments.

Which is a shame. Nuclear power may well be expensive to build and difficult to maintain, but it still wins out as one of the less destructive ways of making electricity. The risks are overstated.