A scarcity machine

“This is a great day for Peckham.” So declared Cllr Sarah King, Leader of Southwark Council, on the occasion of a planning inspector dismissing Berkeley Homes’ appeal to build 867 homes on a brownfield shopping centre site four minutes’ walk from a railway station. The inspector found that “the benefits did not outweigh the harm to heritage assets”. The council found this vindicating, although when looking at pictures of the shopping centre, it is hard to see what heritage is being preserved. 

What Peckham itself got, in practical terms, was nothing. The alternative to the 867 Berkeley homes is not a better scheme with more affordable units; it is the continued existence of the Aylesham Centre, a low-rise 1980s retail block of the kind that urban regeneration programmes exist specifically to replace. 

Southwark’s own viability assessment concluded that the maximum viable affordable housing contribution was zero. The developer offered 77 units anyway, which apparently was not enough for the crowds, who didn’t appreciate that the choice was never between 12 per cent and something better, it was between 12 per cent and nothing. 

Which is exactly what Peckham now has.

This matters not as a criticism of any particular party to the planning inquiry — Berkeley, Southwark Council, the campaigners, the comedians who headlined the protest gig, all were behaving (somewhat) rationally within the terms the system sets. It is, however, a near-perfect example as to how the planning system reliably produces nothing from a set of inputs that, in any functioning market, would produce homes. 

The planning system has evolved into a mechanism through which affordable housing requirements, applied with sufficient rigour, can block all housing

As we have been told, heritage arguments provided the formal grounds for refusal, but the real battle (evidenced by the coverage of the process leading to the appeal and dismissal) was over affordable housing percentage. The planning system has evolved into a mechanism through which affordable housing requirements, applied with sufficient rigour, can block all housing. The campaigners are quite right that Peckham needs more affordable homes. They can well make a case that 12 per cent is insufficient. But Aylesham shows that they are wrong to suppose that blocking it produces 35 per cent instead.

The government, for its part, has identified the problem and prescribed a remedy. The Planning and Infrastructure Bill currently before Parliament includes provisions specifically designed to reduce the barriers to registered social landlord (RSL)-led development. These include accelerated consent, streamlined consultation requirements, a more sympathetic treatment of schemes with a visible social purpose, and so forth. The theory is coherent: private volume housebuilders face planning resistance in part because their benefit story is uncertain and their profit motive legible, while RSL-led development carries a public interest case that planning committees find easier to approve. Unlock the planning system for social landlords, the argument runs, and the supply that private developers cannot or will not deliver will flow from these non-profit providers instead.

The theory has only one flaw, which is that it misunderstands what RSLs actually do. The Aylesham decision was made in the name of the housing scarcity that RSLs are supposed to address. But the RSL sector, considered as an institutional actor rather than a collection of well-intentioned organisations, has no structural interest in resolving that scarcity. This is because its existence, balance sheet, credit entitlement, regulatory standing, and the daily purpose of every team it employs are all predicated on housing scarcity persisting indefinitely. An RSL that emptied its resolved housing scarcity would face an existential threat.

Consider what the RSL system actually does with money. A small social housing unit costs approximately £200,000 to build, excluding land. The moment it is occupied, the RSL carries it on its balance sheet at approximately £85,000 — the net present value of social rent income, discounted over thirty years. That same property would fetch an average of roughly £275,000 on the open market. 

The £190,000 gap between what the home is worth and what the RSL is allowed to value it at is not a loss in any conventional sense; it is value locked away because the property can only be rented at social rates. 

The bigger picture is that the public has spent £200,000 to produce an asset that the RSL books at £85,000 and the tenant cannot sell, cannot borrow against, and cannot pass on. After a lifetime of occupancy, the household that lived in that property exits it without a penny of accumulated wealth, and the property cycles back into the allocation queue to produce the same outcome for the next household behind them. And there are many of these families — 1.34 million households are currently on local authority waiting lists (the highest figure since 2014 and still rising).

Unlocking the planning system for RSL development will produce more of this: more homes built at £200,000, valued at £85,000, with forward maintenance and energy compliance liabilities that can exceed even that already discounted figure. They will also be occupied by households whose rent is covered by the state in 83 per cent of new lettings, and whose tenancy generates no transferable wealth regardless of how many decades it continues. The planning reform addresses the supply constraint, but it does not address the incentive architecture that ensures the supply it unlocks is structured to perpetuate dependency rather than end it.

The RSL sector builds when grants are available because building is a grant-dependent activity rather than an institutional survival condition. It manages a waiting list because managing a waiting list is what its systems, staff, and regulatory frameworks are designed to do. It has no mechanism — and, absent substantial and structural reform, no reason — to convert the locked value sitting in its existing portfolio into household wealth, to thus shrink the queue of waiting households rather than simply continue to administer it. The planning system reform the government is pursuing will produce more social homes built on a model that the RSL sector’s own accounting methodology values at less than half the cost of constructing them. This is not the abundance engine the sector needs but a scarcity machine, and one that is running at full pelt. 

What would change this is not more planning consent for RSL schemes (though that would help at the margin), but reforms to the institutional logic that makes RSL building a core competency rather than a sideline. The mechanism is direct, and one that has been covered at The Critic before: a tenant who has demonstrated ten consecutive years of good tenancy (rent paid, property maintained, compliance met) earns title to the home they occupy, without purchase price or financial barrier. 

At that point, the RSL’s balance sheet obligation for that property ceases, its maintenance and compliance liability for it ceases, and the housing benefit expenditure that funded the tenancy ceases. The freed property potentially enters the open market. The RSL, having transferred stock, faces an existential imperative to replace it — not because a government target says so, but because its portfolio, its credit position, and its operating base require the asset to be replaced. 

For the first time, building is driven by internal institutional necessity rather than external grant availability. The planning system reform the government is already pursuing becomes, in this context, genuinely useful: RSL-led replacement development, with a comprehensible public benefit story, proceeding because the RSL has to deliver it for organisational survival.

Southwark Council, in welcoming the Aylesham decision, was entirely sincere in its concern for Peckham. So were the campaigners, and the comedians, and the parties who raised £55,000 to make their case at the public inquiry. The problem is not the sincerity of any of them. The problem is that a great day for Peckham is another day on which nothing gets built.