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Opinions: Getting to grips with house building delays

Housebuilders face growing political pressure to put more homes on the market, as the housing shortage rises up the government’s agenda

Housing has moved up the government’s agenda in recent years, with various consultations, projects and initiatives to try to drive the 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 new-build targets. It believes it is on track to reach 300,000 per year, but recent Local Government Association data suggests the figures are going in the opposite direction.

More than 423,000 homes with planning permission are still waiting to be built – a rise of 16 per cent in the past year. In fact, developers are taking an average of 40 months from planning permission to completing a property – eight months longer than four years ago.

With this in mind, it is not surprising the government wants to get to grips with the reasons behind the delays. 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 given permission in areas of high housing demand.

The review is being led by Conservative 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 remedy it.

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 buildout is held back by numerous commercial and industrial constraints, including the limited availability of skilled labour, capital, supplies of materials and so on.

Matching the market

Interestingly, however, he is “not persuaded” these are the primary reasons behind the speed of buildout on large permitted sites. His preliminary findings, sent to the chancellor and the secretary of state for housing, communities and local government for whom he is working on this project, reaffirm the issues that have been raised by the rest of the industry.

He believes the fundamental driver of buildout 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 can 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.

What is more, 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.

One major area of focus is how
more homes can be built quickly

The investigation has also highlighted the impact of different tenures on buildout 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 other areas, including how increased competition could lead to higher buildout rates by having other types of housebuilders in large sites. It will also consider whether buildout rates in large sites would increase if major housebuilders offered sufficient variance in the types and tenures of homes, as well as 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 way mass market speculative housebuilders are applying their business model at the moment.

Having been huge beneficiaries of Help-to-Buy, and wanting more, they will be under pressure to change their 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 considered 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.

Aileen Lees is senior policy adviser at the Association of Mortgage Intermediaries

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