Land banking review targets major housebuilders’ control

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  • 13/03/2018
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Land banking review targets major housebuilders’ control
Sir Oliver Letwin’s independent review of build out will begin by focusing on major housebuilders and why it takes them so long to build homes once they have gained planning permission.

An update letter by Sir Oliver on the review was today released alongside the Spring Statement.

It highlighted several key questions, including whether the same builder and house styles on sites can reduce the absorption rate at which properties are sold and built and, also limit competitor access.

This, Sir Oliver noted from his initial enquiries, could be particularly important considering affordable homes that are built in addition to, rather than alongside, other houses.

“The principal reason why house-builders are in a position to exercise control over these key drivers of sales rates appears to be that 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,” Sir Oliver wrote.

“It is also clear from our investigation of large sites that differences of tenure are critical. The absorption of the affordable homes (including shared ownership homes) and of the social rented housing on large sites is regarded universally as additional to the number of homes that can be sold to the open market in a given year on a given large site.

“We have seen ample evidence from our site visits that the rate of completion of the affordable and social rented homes is constrained by the requirement for cross-subsidy from the open market housing on the site,” he added.

Sir Oliver also noted that the demand for affordable and social rented accommodation on large sites would undoubtedly be consistent with a faster rate of build out.

 

Key questions

As a result of these insights, Sir Oliver raised several key questions:

  • Would the absorption rate, and hence the build out rate be different if large sites were packaged in ways that led to the presence on at least part of the site of:
    • other types of housebuilder offering different products in terms of size, price and tenure?
    • or the major housebuilders offering markedly differing types of homes and/or markedly different tenures themselves?
  • Would the absorption rate be different if the reliance on large sites to deliver local housing were reduced?
  • What are the implications of changing the absorption rate for the current business model of major house-builders if the gross development value of sites starts to deviate from the original assumptions that underpin the land purchase?

 

Other concerns

He also highlighted other concerns in the build out process raised by witnesses including: limited availability of skilled labour, limited supplies of building materials, limited availability of capital, constrained logistics on the site, the slow speed of installations by utility companies, difficulties of land remediation, and provision of local transport infrastructure.

As part of the review Sir Oliver added that he would be visiting Germany and the Netherlands to examine ways in which build out rates there were affected by the use of public or publicly-led mechanisms for increasing the variety of what is offered on large sites.

He did acknowledge that build out rates of smaller builders were a concern too, but concluded: “The importance of the large sites and large house-builders to the overall house-construction numbers is such as to make it sensible for me to devote all of my attention to them at this stage.”

The review was commissioned at the Budget in November and seeks to explain the significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand, and make recommendations for closing it.

 

 

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