When I started this site I had two goals. Firstly to uncover the kinds of practices that allow a small group of people to make vast amounts of money off the financial misery of the majority of Londoners. Second I wanted to do something about it.
I was perhaps driven by a slightly naive belief that the decline in local media and good quality investigative journalism meant that many people in power simply didn’t know what was going on in their backyard, and if they were only to be made aware of it they might take action.
To my great sadness, I have found that when it comes to the built environment at least, that simply isn’t the case. Instead we have a class of regulators that cares little about doing their job, which is making sure that professionals working in their industry work to high standards, both technical and ethical, and put the best interests of the profession and the public first in their work.
Readers of this blog will know that a lot of my work has focused on bad practice within the surveying industry.
Surveyors are valuers. Their job is try to understand the true value of a property and to communicate that value to people with an interest in that property. The opinion of the surveyor as to what the value of a home is has important economic consequences. Say a surveyor is acting for people seeking to buy or sell a home, for example, then if the surveyor undervalues the home then the buyer benefits. If he overvalues it, then the seller benefits.
The key question is therefore this. Should the surveyor act in the best interests of his client, and adjust his valuation accordingly? or should the surveyor instead at least attempt to come to an accurate, honest and reasonable, objective opinion on value?
The statute of the Royal Institute of Chartered Surveyors, the body that regulates the profession, is clear on this matter. The surveyor should act in the public interest (which is unquestionably to produce accurate valuations), rather than the simple economic interests of whoever is paying them.
This website has uncovered a number of documents that provide evidence showing that for a fee many surveyors will create bespoke economic studies which undervalue development proposals. These valuations allow a developer to argue for the removal of affordable housing and other planning obligations from their schemes, on the basis that they are barely profitable. This process is carried out via the viability policy, which you can read more about here. This practice has become one of the primary reasons that town planning has failed to deliver good quality affordable housing in our city, and a decent built environment.
Concern about the the viability policy, and how it has been manipulated by the surveying profession is now widespread. Academics, some local authorities and even a committee of the House of Lords have come to the conclusion that the economic viability system is failing us.
Given that the purpose of the Royal Institute of Chartered Surveyors is to make sure surveyors act in the public interest (and not just their own) and to uphold the ethical standards of the industry, I shared with RICS my findings, hoping that they would use the opportunity to take action.
Getting anyone to listen
I quickly found that the first challenge was to get anyone within the organisation to take the issue seriously. I first wrote to Tony Mullhall, a director at RICS responsible for planning practitioners in December 2015. He forward my concerns to Christine O’Rourke, the Head of Conduct in January 2016. In February I received an email from an officer at RICS saying that my information had been forwarded to the investigations team.
Eight months later, after seeking to follow up on where my case had got to, I receive an out of office reply from the investigator, Ms Rahul to tell me that she no longer works at RICS. After 8 months of waiting for RICS to do anything, after some very serious allegations had been made about several of their members, the investigator assigned to my case simply had disappeared, without passing on the case to anyone else. Clearly the institution was simply not taking the issue seriously.
I write to RICS again, who assign a new investigator in September 2016. I am invited to meet with Mr Shaw, the new investigator. He tells me that RICS is aware of many of the issues being raised and is looking into producing updated guidance. I leave the meeting with the distinct impression that RICS will do nothing about the serious evidence of impropriety I have found in the cases I put to them.
The case is finally concluded in November. RICS find no wrongdoing on the part of their members.
Inflated costs and deflated revenues
From the point of view of simple economic theory, some of the practices that had been uncovered in the documents I had found were pretty indefensible, and in defending them RICS exposed themselves as being uninterested in making sure their members provided honest and true valuations for the purposes of delivering planning policy.
One of the most absurd practices was the way in which surveyors would use current valuations (i.e. the valuation today) when working out the potential revenues of a scheme, even though by the time the scheme is built inflation will have raised sales values. However, when it came to working out the costs an allowance for inflation was added.
Profit is revenues minus cost. Using deflated revenues and inflated costs is guaranteed to underestimate the profitability of a scheme, and benefit the developer in any negotiation with the local authority over affordable housing. That is because under the viability policy a minimum profit for the developer is protected. Using inflated costs in this way is the economic equivalent of placing your thumb on the scales. There can be no reasonable argument for carrying out a viability appraisal like this if the purpose of the exercise is to get to an accurate understanding of true value. There can be no clearer example of a surveyor trying to manipulate a valuation for the benefit of their client than using this technique.
So what is RICS’s view of this practice? I discover, in their reply to my complaint, that not only do they see no issue with their members artificially deflating profits during viability negotiations, they encourage it. The response from RICS was as follows:
The FVA process is centred on current market values and the RICS GN reflects this adding that costs of inflation for works etc in developing could be added to the financial viability report.
No obligation to tell local authorities the truth
In other cases I had found that surveyors acting for developers had commissioned two valuations for potential sales values in a development. A lower valuation was submitted to local authority when working out the appropriate level of affordable housing. Another they submitted to investors with significantly higher sales values, telling them just how much money they will make.
Even if the developer will argue that these valuations look at different things, one valuation may for example be looking at future price growth, surely the fact that they have commissioned two valuations should be disclosed to the local authority. If the developer expects prices to rise significantly during the time that the development is being built, then that information must be of importance to evaluating the viability of the scheme. After all, the RICS guidance stresses that the reason why viability information is kept confidential from the public, is to allow developers to be as open an honest with the planning authority as possible.
According to RICS however, there is no obligation on a developer or a surveyor to inform a planning authority that they have undertaken a second valuation which shows that the scheme was more profitable than claimed for the purposes of working out affordable housing.
Passing the buck
One of the most surprising admissions from RICS in their response to my complaint, is their willingness to outsource the regulatory function to private sector consultancies with serious conflicts of interest. According to RICS, the outcome of the viability process at the Shell Centre, where surveyors wiped off hundreds of millions of pounds off the paper value of the development in order to make the argument that they could not build affordable housing is unquestionable because at the time the figures were checked by BNP Paribas on behalf of the planning authority. The RICS response to my complaint on this issue was as follows:
These reports as part of the FVA process were reviewed by BNP Paribas. Although BNP Paribas were paid by the developer, which was on the instruction of the LPA, there is no evidence that they have also been involved in the suggested conspiracy. Therefore the evaluation of the report is considered to be independent and professional. They found some areas for review and accordingly these were discussed and some adjustments made.
In the eyes of RICS it does not matter that BNP were paid by the developer themselves to perform this important regulatory function. It does not matter that BNP Paribas were not told that the figures given to them were much more pessimistic than the figures the developer had given to investors. Because BNP Paribas are a firm of surveyors their conclusions are unquestionable. The public it seems have no role.
Time for a new regulator
Surveying, the process of determining the value of land, is an incredibly important economic process. There is a clear and obvious need for the profession to be held to high standards and for surveyors who do not meet those standards to be held to account. When surveyors make mistakes, either accidental or deliberate, then there are real world consequences.
With RICS acting as a regulator, it is little wonder that London is losing so much affordable housing. Under their watch, the regulatory system, far from seeking to ensure that a fair an honest valuation process leads to a fair deal for the public, seems entirely focused on how its members can maximise their profits by providing their clients with the maximum economic benefit at the expense of the public.
Again, this is not a conclusion I have come to alone. The proposal by RICS to allow the market value of land to determine whether or not a scheme is viable (a process which would inevitably lead to developers bidding up the price of land and squeezing out planning obligations) has been roundly rejected by the Mayor of London, who sees it for what it is. A mechanism to further undermine the planning system.
If we are to have any chance of fixing London’s increasingly damaged built environment than it is time for RICS to be relieved of its role and for the public, acting through their representatives in parliament to set up a real and effective regulator for the surveying industry.