Encouraging House- Builders to Build – An Update

Written by Andrew Bithray on 2 November 2018

I wrote an article back in March commenting on the initial findings of Sir Oliver Letwin into his review to answer the question: Why are new homes not being built despite planning permission having been granted?

These initial findings suggested a number of commercial and industrial constraints – including limited availability of skilled labour, the slow speed of installations by utility companies and the provision of local transport infrastructure – but his findings at the time indicated the main driver behind the speed at which houses are built is the absorption rate – the rate at which newly constructed homes can be sold into the local market without materially disturbing the market price.

Alongside the Budget held earlier this week, Sir Oliver published his final findings.  There had been much speculation that the report was to conclude that large house-builders were land-banking, the practice of buying up undeveloped land purely as an investment, with no plans to develop the land in the short-term.  However, the review found that speculative land-banking does not form part of the business model for large house-builders, nor that this is a driver of slow build-out rates.

The report instead concluded that the slow build-out rate was primarily due to the lack of variety in the types and tenures of homes built on the largest sites in areas of high housing demand. Sir Oliver makes several recommendations to overcome this, both in the short-term and the long-term.  His proposals include introducing planning rules specifically designed to apply to large sites in areas of high housing demand and giving enhanced powers to local planning authorities.

These large sites are defined as those with outline planning permission for more than 1,500 homes.  In London there are 15 such sites accounting for around 87,000 units.  Looking at the whole of England there are 107 sites of above 1,500 units with permission for approximately 393,000 units.  The report goes on to conclude that the current average build-out rate is equivalent to 15.5 years, implying only seven such large sites are completed each year.

The government has confirmed it will respond to the review in full in February 2019, but in the meantime the Chancellor confirmed in the Budget further measures to support house-building more generally, including a new scheme from the British Business Bank to provide guarantees to support up to £1 billion of lending to SME housebuilders.

Will this be enough for the Government to reach its target of 300,000 new homes per year by 2022?