Encouraging House-Builders to Build

Written by Andrew Bithray on 21 March 2018

It has been widely publicised that Britain has a housing shortage.  And it has been high on the agenda of politicians, the media and of course the current generation of 20-somethings that are unable to purchase their own home.

Recent analysis suggests that just 160,000 new homes have been built each year in England since 1970, while it is thought that 250,000 or more new homes are needed each year to keep up with population growth; just in London,  the current population growth is staggering and is expected to rise to 9 million by 2020.

The government has announced a raft of initiatives in an attempt to tackle the problem, from plans to build a number of new garden villages, towns and cities to insisting that each local planning authority has a policy setting out how and where they expect to meet their residents’ needs for new homes.  Plenty of big numbers have been thrown around by various ministers, including a £1.67 billion funding package for London, but how and when will these cause house-builders to build more quickly?

In the 2017 Autumn Budget the Chancellor announced a review, led by Sir Oliver Letwin, to understand why new homes haven’t been built despite planning permission having been granted.  According to recent analysis by the Campaign to Protect Rural England the largest housebuilders held almost 400,000 plots with planning permission, up from 330,000 in 2006.  During the same period the same analysis found that the number of homes built by the companies fell by 13%.

Earlier this month Sir Oliver published his initial findings, focussing on these major house-builders.  Although he pointed out 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 – his findings to date indicate 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.

Sir Oliver identified three key questions which he hopes will lead to an increase in the absorption rate and hence the rate of house-building:

  • What would the effect be if large sites were ‘packaged’ in ways that led to the presence on at least part of the site of:
    • other types of house-builder offering different products in terms of size, price-point and tenure? Or
    • the major house builders offering markedly differing types of homes and/or markedly different tenures themselves?
  • What would the effect be 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?

Let’s hope Sir Oliver is able to answer these questions and provide practical recommendations by his target date of the 2018 Autumn Budget.