Philip Barnes – Blog


Leave a comment

THE HOUSING DELIVERY GAP – CAUSES AND SOLUTIONS

One of the big questions for Ministers at the moment is, “why are build rates staying low when consents are increasing?” Or, more importantly, “how can we drive up build rates given the larger stock of consents?”

The evidence is clear.  Consents are currently running at over c250k/year but starts and completions remain stubbornly below 150k/year.

CAUSES

One of the key reasons for this delivery gap is the increasing proportion of larger sites coming out of the planning process.  This gives the illusion of lots more build opportunities but the reality is that a site with a consent for 200 units is not going to yield much more units per year than a site for 100 units.

Another key factor, linked to the site size point, is the lack of competition in the market. Whilst we at Barratt prefer sites over 100 units (to justify our expenditure on sales offices, show-homes and sales teams) smaller builders would be happy with units of say 10 or 20. And again 10 small builders on 10 different sites will likely sell more homes per week than Barratt on our 100 unit site.

Also the larger urban extensions can take longer to get started due to bigger up front infrastructure requirements. Moreover many are located outside the Green Belt around towns where the market may not sustain as fast a build rate as around our major cities. Our current urban extensions are at, inter alia, Aylesbury, Bedford, Didcot and Telford.

We have none around the major cities (where build rates would be higher) because of Green Belt which restricts such schemes.

Most housing consents are secured by land promoters rather than housebuilders.  This means that after outline consent has been granted various stages need to be gone through prior to construction. Namely the site needs to be marketed for sale and a preferred housebuilder chosen.  From there the builder will need to design a scheme and secure Reserved Matters consent.  Then there will be pre-commencement conditions to be discharged and Section 106 requirements to be complied with, followed by getting through the Judicial Review period and preparing the site for build.

This can take two years with everyone working as diligently as possible. Furthermore some land promoters may prefer to dispose of larger sites to housebuilders in smaller parcels in the hope of land values rising as the development gets built out and infrastructure is put in.

SOLUTIONS

So how can we narrow this delivery gap and speed up output?

Undoubtedly the key requirement is for the planning system to release a larger number of sites in a larger number of locations.  Put simply, in one year 10 sites for 100 units will yield around x10 the homes delivered on one site for 1000.  We builders need a greater range and choice of outlets not a few large sites in each district.

There is a need for more competition on the larger sites.  This means more smaller and custom builders building alongside the volume builders.  Given that the smaller builders can’t usually compete effectively on the land market there could be a useful role here for Government to subsidise smaller builders to be able to buy sections of consented sites at market prices. Perhaps such a subsidy could also be used to help PRS operators onto larger sites. PRS is good at creating fast occupancy rates and vibrancy on larger sites.

Meanwhile local plan policies could perhaps play a role in requiring custom builders to play a part in building out major allocations.  Albeit recognising the importance of ensuring that landowners and housebuilders are aware of the requirements at the earliest stage and are able to factor them into the site appraisals.

There could also be a role for public sector landowners to perhaps specify build rates when selling larger sites.  This will likely result in a lower land receipt because requiring builders to sell faster than market demand can only be achieved by reducing sales prices – which will reduce the land value.  However if faster delivery is the primary Government objective this can and should be considered.  For the reason given above this might not be likely to be attractive to private sector landowners.

Another idea would be a more pragmatic approach to phasing of larger sites.  This could perhaps be delivered in two ways:

a. Government subsidies towards the elements which drive faster build and sales rates, in particular on-site primary schools

b. Relaxation of phasing restrictions which often restrict larger sites to one or two outlets in early stages

My final suggestion would be to try and encourage builders to “swap” sites or parts of sites.  This is something that was more common prior to the financial crisis when the industry obviously had a greater risk appetite to grasp opportunities to share and swap sites.  It was often used as a way to drive up volume in a strong market by helping two businesses to secure two new outlets in different market locations.

With the scars of recession still healing there is far more aversion to the inevitable risks relating to site management, marketing and infrastructure delivery associated with multi-builder sites.  Perhaps Government or HCA could work jointly with the industry to both help address these issues and also create greater visibility on sites which are potentially available for swapping.

In summary there does appear to be opportunities for the additional housing funding released in the Autumn Statement to be used to encourage greater and faster levels of delivery.  Although not losing sight of the overriding need – namely to grant more planning consents for a greater range and choice of sites.