Philip Barnes – Blog


Leave a comment

DELIVERY GAP AGAIN

Once again we have more media articles this week which target housebuilders and developers for landbanking consents and once again, from a Barratt perspective, it is a picture I simply don’t recognise.

This time the criticisms seem to be in two parts. Firstly that we don’t build out the consents that we secure fast enough and secondly that we don’t build faster than we can sell.

Consents

So what does the Barratt data tell us? In FY15 we secured planning consent for 17,092 units. This compares with completion figures of 16,447 in FY15 and 17,319 in FY16. I haven’t the greatest eyesight in the world but I simply don’t see any evidence of landbanking there. If there was we would be taking action because, as a return-on-capital business, we need to start building and selling on all of our consented sites as quick as possible. Indeed we are quite proud of the fact that despite significant labour market shortages and difficulties in securing some key materials, we are maintaining our actual output broadly in line with our planning approval and budget projections.

Build and sales rates

And building faster than we can sell? Not really sure how we could do this given the scale of costs and risks in selling houses. Our aim is to have the fastest sales rate as possible but our business model does not allow us to build more homes than local customers to sell to. Selling prices are set by our main competitor (the second-hand market) which, given the residual land value model, determines the price we pay for land. Whilst in theory we could cut selling prices to accommodate a faster build but that would simply mean an unprofitable development – a highly unattractive prospect for our shareholders and the loss of capital to invest in other sites. Of course the real issue and opportunity is to broaden the supply base of those building new homes as covered in a previous blog HERE. Barratt, as a volume housebuilder has done its bit with a 53% increase in volume over the last 5 years but we need help.

Solutions

Other providers, large and small, public and private, also need to step up. In my view the sites which allow those with patient capital to provide serviced sites in good locations to housebuilders are a great opportunity. Our JVs with Places for People in MK and with Newcastle City Council in Scotswood are great examples. Again I would stress that housebuilders tend to be return on capital businesses without the benefit of such patient capital. We sell what we build so have nothing to lend against.

Draft Local Plans

And my final point – what about local plans delays? Barratt alone currently has 20,000 units allocated in draft plans awaiting adoption. These are sites where we are desperate to submit a planning application and start building. However we can’t because they are currently locked up awaiting adoption of the local plan. Many (by no means all) of these plans are severely delayed. Therefore sites long accepted as being developable are being held up year after year. To us, that perhaps ought to be regarded as landbanking…….


Leave a comment

BUNGALOWS

Lots of comment recently about the need for bungalows and how naughty and greedy housebuilders are by not providing them. So what’s the position from our perspective?

Land

As is often the case is comes down to land and policy. Land is our key raw material and we have to compete extremely hard for it. And as we all know consented housing land is a scarce resource, albeit slightly less so thanks to NPPF.

Barratt wins the competition for land when the land value we bid (forecast site sales revenue minus the costs) is higher than the competition. Unfortunately bungalows tend to take up broadly the same land area and cost as a house but generate far less revenue due to the reduced floorspace and rooms per plot.

As result if we have 10 bungalows on part of a site where our competitors have 10 houses we have broadly similar costs but dramatically less floorspace and forecast revenues. Result = we generate a lower land value and the landowner does not sell to us the site. So no bungalows.

Policy

Easy answer though.

If the LA produces the following:

  • demonstrable local need for bungalows,
  • reflected in the SHMA,
  • set down in policy, following public examination of need and viability
  • backed up by a site development brief requiring 10 bungalows.

Then competing housebuilders will work up land bids which reflects the need for 10 bungalows. Whoever wins, the 10 bungalows get built.

This is not one of the things that keep housebuilders awake at night. If we are required to sell bungalows by policy we will buy land on that basis and build them. They generally tend to sell OK when we have to provide them by policy – the issue is simply that they don’t generate a strong enough land value when bidding for a site where there is no policy requirement in place.

Demand

One myth that needs busting is that the ageing population means there is a huge unfulfilled demand for bungalows and that affluent downsizers will not leave the family home unless they can get one.

The reality is that some want a bungalow but many others prefer a good spec apartment in a great location. Higher ceilings, bigger rooms, high quality taps and kitchen units, independent shops and cafes nearby. Maybe a Waitrose. We are developing products for this market and the initial signs are, that in the right locations, they can work both in terms of generating a land value to win the site and then also delivering a decent sales rate.

Maybe planners and landowners can help us address these customer demands??