MIPIM is always a brilliant opportunity to take in hundreds of different views on a vast array of different subjects. This “opinion hoovering” enabled me to finally clarify in my own mind what is going on with land banking. It has long been a cause of curiosity because I know that Barratt do not land bank but there is clearly an issue with some consented housing sites not coming forward fast enough.
So what were the “eureka” realisations?
1. Firstly that land banking means different things to different people. For example a local authority member at MIPIM cited an example of land banking to me. When we delved into the detail it was a site where outline consent was granted a year ago and “nothing has happened”. The reality was that:
- the outline permission was secured by a land promoter
- after outline consent the site was marketed and sold to a builder
- reserved matters consent is still to be granted
- in fact, it may well be another 6-12 months before development commences – with everyone working as fast as they can to bring the site forward.
That isn’t land banking in my book
2. Secondly, another local authority member felt that if builders are not building out a site as fast as technically possible – that is also land banking. The reality is that housebuilders, as return-on-capital businesses are not able to build our products at a pace faster than our customers will purchase them, at the market value. We could in theory cut prices to speed up sales but as we have based our land purchase price on the estimated market values so we don’t have this option in practice. Similarly if we put lower sales values into our development appraisals when buying land we would simply be uncompetitive in the land market – our raw material.
In simple terms we build as fast as we can given the market in front of us and in recent years our sales rate has significantly increased. Across the Group we are now selling at 0.66 sales per week per site on average and faster in the stronger market areas.
3. It seems clear to me that housebuilders, LAs and others have different views on what land banking actually is. To me it’s people getting a planning consent and then deliberately either:
a) building out a site at a deliberately slow rate in the hope that rising house prices will increase site revenue, or,
b) delaying the start of a development in the hope that land values and/or house prices rise
4. In relation to (a) I have already explained that Barratt is a return on capital business and we build and sell as fast as we can. Indeed we are currently working with the Government and others on how we can further speed up build and sale without losing competitive advantage
5. In relation to (b) the eureka moment was a discussion with a planning consultant specialising in London. He revealed that:
- approximately 80% of current workload is housing
- it splits c80-20 with c80% for landowners/investors and c20% for housing developers
- for the 20% of work done for housebuilders, the project always proceeds to a site start when consent is granted
- for the 80% of work done for others the site does not then proceed to a site start in c50% of cases
Clearly a sample size of precisely one but it perhaps does show that there could be a geographical dimension to the “land banking” issue. Namely far more landowners, investors and speculators in the London land market some of whom appear to be using the planning consent for valuation purposes rather than construction purposes.
So my MIPIM 2016 sum up:
- Hopefully a few more people realised that Barratt does not land bank, BUT this relies on our definition of land banking as described in (3) above
- In terms of “our” definition of land banking there does appear to be an issue in London
- For those who think an unbuilt site which secured outline consent 12 months ago is “land banked” then all we can do is respectfully disagree. And the same for those who think land banking is building at a pace unrelated to customer demand
Final point would be my continuing frustrations as to how many people who cite the 475,000 unstarted consents figure without realising that:
- many of these consented units are on sites where there remains a requirement to discharge pre-commencement conditions so actually can’t be started yet, and,
- for a site which has started but has say 500 units left to build those 500 units form part of the larger (unstarted) figure.