Outlets, outlets, outlets.

February 28, 2024 by philipbarnesblog 1 Comment

……..So the CMA report has finally landed………

Amongst its many conclusions, perhaps the clearest is that to increase housing volumes we need to increase the number of sales outlets. Which means dramatically increasing the number of planning permissions. They also confirmed that speeding up build rates, absent an increase in outlets, doesn’t increase volume at all – it simply brings it forward.

………Amen to that……or so I thought………

Even before the ink was dry some in the housing commentariat were out with their their well-worn tropes that actually CMA are wrong and private sector housing volumes are driven solely by levels of demand and are wholly unaffected by planning policy or the planning system. Whilst they are only a tiny minority, they have goaded me into providing a perspective.

 ..…….why not just open more outlets……?

The first point is perhaps obvious, namely that to grow or maintain completions levels when sales rates per outlet are softer, housebuilders need to open more sales outlets. But, unlike many retailers and manufacturers, we can’t just go buy a new outlet. Unfortunately, a new outlet requires the purchase of land with planning consent to build homes on, and the supply of such land is capped by the planning system. A system which doesn’t simply double the supply of consents if sector sales rates have halved.

 Therefore, when falling sales rates cause reduced completions in the short term, our ability to respond by opening new outlets quickly is highly constrained due to the new homes caps set down in local plans. And worsened by the laws of supply and demand whereby the scarcity of planning consents places upward pressure on land prices and hence downward pressure on development viability. A factor which has inhibited new land purchases since the Truss Budget and was acknowledged by the CMA.

 …….. what would happen if more consents were available…….?

The CMA did not consider other planning systems, perhaps a weakness given that the American Mid-West shows clearly that with a plentiful supply of consents and available sites, housebuilders can and will respond to softer sales rates. Namely housebuilders are able to capitalise on the opportunity to draw-down undeveloped consented plots from a good supply of serviced sites awaiting housebuilder purchasers. Helped by land pricing which matches the prevailing market conditions – namely a good supply of land serving a softer sales market. In Texas high recent build rates are placing downward pressure on rental prices – another good example of what happens in a market where supply and demand can respond to each other.

 Closer to home, Milton Keynes is only 50-minutes from central London but with house prices just above English average due to strong new build land supply. 

 ………what’s actually happening with demand……….?

It’s also important to address this notion of falling demand for homes. From a Barratt perspective demand is as strong as ever with resilient levels of web traffic and interest. And reservation rates above the same time last year. The issue is that since the abolition of Help to Buy (H2B) and the interest rate increases of September 2022, some customers who would love to buy simply can’t finance it. As Nick Boles said when housing Minister, “nothing is more deeply embedded in the UK psyche than the aspiration to own one’s own home”. With the UK close to full employment, Barratt  wants to work with Government on measures to overcome barriers to that aspiration. As H2B only represented about 50% of the new build market, and new build is only c.10% of the whole market, we obviously agree with the 2019 National Audit Office Report which confirmed that H2B supported higher new build volumes (from 119k in 2013 to 219k in 2020) rather than causing house price increases. With 82% of the additional supply focussed on first time buyers. It also drove up transactions across the whole market, also acknowledged by CMA.

 ……..but back to land supply…….

Whilst young families are crying out for some demand side assistance the CMA makes clear that any such help must be in association with policies to boost supply. The 2021 ‘Taking Stock’ report by Lichfields confirmed that England needs 520,000 housing consents per year consents to support 300k per year delivery. With recent ONS population projections showing that population growth will be far higher than previously projected, housing targets, planning consents and completions need to massively increase in response, otherwise conditions for FTBs will worsen further. A radical Government truly committed to addressing the housing crisis would impose a mandatory target of at least 500k consents per annum, distributed to LPAs. Especially given the catastrophic decline to just 21,300 new home starts in England in Q3 2023 and the 31% drop in the number of sites securing consent over the last 5 years, according to Savills.

 …….justice delayed is justice denied…….

Even if it were possible to quickly increase housing targets to boost consents, land supply and housing completions, the timescales for achieving planning consent and delivery act as huge brake. The Lichfields ‘Start to Finish’ report confirmed that for larger sites it takes, on average, 8.4 years from the validation of the planning application to completion of the first home. For Barratt, the time taken to secure outline planning permission, from the LPA, is roughly double the time taken via a non-determination appeal. Surely another confirmation that the broken planning system is holding back the delivery of much needed homes as much as the weaker sales market.

 Conclusions and solutions

Firstly, physician heal thyself – with (a) insufficient planning consents, (b) market barriers for some customers, and (c) smaller balance sheets due to softer sales rates, housebuilders are looking harder for capital-light opportunities to secure more outlets – land swaps with peers, partnerships with PRS operators and housing associations, plus build-licence deals. All with the aim of securing more sales locations to protect and boost volume.

 For the Government – one simple action could be to identify and call-in the 100+ large planning applications, on allocated sites, which are currently stalled due to delays with statutory consultees. All crying out to be recovered, quickly approved, and quickly started. According to CMA they shouldn’t have even gone to Committee.

 Finally – a shout-out to the brilliant LPA planners on the front line trying to get more consents out, despite ever-decreasing resources, ever-increasing complexity, and ever-increasing political interference. More power to your elbows – you are not the problem.