Over recent years we have seen housing move up the government’s agenda. It has embarked upon a series of consultations, projects and initiatives to try to drive the housing market to new levels. One major area of focus is how more homes can be built quickly, which has been underpinned by the government’s ambitious targets to build new homes. It believes it is “on track” to reach 300,000 per year, but recent Local Government Association data shows increases in the number of unbuilt properties and in the time taken to build them. More than 423,000 homes with planning permission are still waiting to be built, a rise of 16% in the last year. Developers are taking an average of 40 months from planning permission to complete a property – eight months longer than four years ago. It is therefore not surprising that the government wants to understand the reasons behind these delays, as this is an unsatisfactory trend.
It was announced in last year’s Budget that an independent review would be carried out into the “significant gap” between housing completions and the amount of land allocated or permissioned in areas of high housing demand. The review is being led by Tory MP Sir Oliver Letwin with support from a panel of five individuals and a team of officials. They have been tasked with identifying the principal causes of the gap and making recommendations on practical steps to increase the speed of build out.
An interim report was provided last month on the progress of the review. Letwin has so far met with housebuilders, land agents, local authorities and NGOs and been told that the rate of build out is held back by numerous commercial and industrial constraints including limited availability of skilled labour, capital, supplies of materials etc. It is however interesting that he is “not persuaded” that these limitations are the primary reasons behind the speed of build out on large permitted sites.
His preliminary findings, sent to the Chancellor and Secretary of State for Housing, Communities and Local Government for whom he is working on this project, have been objective and reaffirms the issues that have been raised by the rest of the industry. He thinks that the fundamental driver of build out rates (once detailed planning permission is granted for large sites) is the absorption rate. This is the rate at which newly constructed homes can be sold (or are believed by the housebuilder to be able to be sold successfully) into the market without materially disturbing the market price. Letwin has set out how housebuilders are in a position to exercise control over sales rates because there are limited opportunities for rivals to enter large sites and compete for customers by offering different types of homes at different price-points and with different tenures. Also, when large housebuilders occupy most of a large site, the size and styles of the homes do not vary greatly despite a recognition that more variation would create additional demand and lead to a higher rate of build out. The investigation has also highlighted the impact of different tenures on build out rates, as housebuilders rely on the sale of the open market housing to cross-subsidise the affordable and social rented homes required in the local plan.
As the review continues it will focus on a number of areas including how increased competition could lead to higher build out rates by having other types of housebuilders in large sites. It will also consider whether build out rates in large sites would increase if major housebuilders offered sufficient variance in the types and tenures of homes. It will also look at the impact of reducing reliance on large sites to deliver local housing.
An analysis of Letwin’s work is due to be published by the end of June when comments will be invited from industry experts. Based on the analysis to date we can expect the report to demand changes to the current way that mass market speculative housebuilders apply their business model. Having been huge beneficiaries of Help-to-Buy, and wanting more, they will be under pressure to change practices to get more support. Any change ultimately depends on how far the recommendations go and whether sufficient action is taken. This will depend on whether housing can be objectively seen as a long-term issue rather than for short-term political gain, and the strength of developer influence. There is little chance of “fixing the broken housing market” if these issues are not addressed.