Philip Barnes – Blog

THE DANGERS OF OPTIMISM BIAS

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Particularly glad to start this week. Why – because last week was a difficult one which brought home the possibility of optimism bias in the land market potentially causing Barratt’s housing delivery to stall.

The previous week I had blogged about the need for realism in the land market given the economic uncertainties over Brexit and the possibility of a market slowdown in the next 5-10 years given the current stage of the market cycle. The blog stressed that Barratt is committed to growing our volume and we want to buy more residential land. We bought more land than anyone else last year and aim to do the same this. We need more land in order to support our growth aspirations. We need to incentivise landowners to sell to us.

Just to prove I am not myopic to Barratt I then read a positive city analyst’s report (on one of our key competitors) stating that the said competitor ‘continues to be disciplined in the land market and sensibly cautious given the macro risks’.

And last week’s very positive trading statement from Persimmon nevertheless refers to, ‘uncertainty surrounding the potential impact of the EU referendum result on the UK economy may continue for some time’.

Yet last week we bid for a huge site, where we will be trading right through a possible down turn and beyond the end of Help to Buy. We considered our bid to be sensible and realistic but we were then accused by the land promoter of having submitted an “insult” rather than a bid. All very frustrating and pointless given that we don’t get upset if the site is sold to a higher, more cavalier bidder. That’s how competitive bidding works.

There seemed no recognition that high land prices in the 2004-2007 period caused significant problems to all those trying to sell homes in the 2008-2011 period following the credit crunch. We are simply not going to repeat that on very large sites today. There also seemed little recognition that the bid, of many millions of pounds, was for a site worth c£10k/acre as agricultural fields prior to the recent planning consent.

Nobody on the Barratt bid team is prepared to leave our successors with a huge financial mess for them to sort out later. We all know that Barratt, even today, is trading at a loss on some sites due to cavalier bidding in the pre-recession period.

On reflection last week was perhaps about people getting angry because a post-referendum land bid on a very large site wasn’t as high as might have been anticipated pre-referendum. Maybe that is an understandable human response and maybe everyone needs to be sharing data and information better.  Something for Barratt to consider going forward – avoiding nasty surprises is always best. We know we need to provide a best-in-class price and service to landowners if they are going to want to do business with us.

The vast majority of our land promoter and landowner partners are a pleasure to deal with and recognise that if we are to build the additional homes that the nation needs there always needs to be sufficient commercial incentive for a “willing landowner and a willing developer” – to quote NPPG. We are committed to ensuring that all our landowners have both the right price and the confidence we will deliver. Indeed the attached testimonial sheet provides evidence of that.

Barratt is doing its bit to increase volume, however we can’t prejudice our financial future in the chase for more numbers. All that glitters is not gold and actual delivery of homes driven by landowners and housebuilders working well together is what is required.

land-brochure-testimonials-final

Author: philipbarnesblog

Group Land and Planning Director for Barratt Developments PLC. FRTPI, FRICS

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