CMA Report – something for everyone?

March 6, 2024 by philipbarnesblog Leave a comment

At 172 pages, plus a 21-page summary, the CMA report is a long read with hundreds of findings, conclusions and recommendations. But with two key headlines, namely that (a) the planning system is the key cause of housing undersupply and (b) that there are no competition concerns in relation to land banking or the land market. 

But from reading some of the media headlines in response to the report Government may be tempted to lose focus on this overriding requirement to deliver meaningful planning policy change in order to increase housing supply and improve matters for customers. And interesting that the CMA focused so heavily on planning system despite it being outside the original scope. 

The report covers a huge amount of ground and it is hard to disagree with the CMA’s own conclusion that, given their ability to secure internal documentation from housebuilders, land agents and land promoters, it is perhaps the most robust external assessment of the land market ever undertaken. I’ve not seen anything similar since the Barker Reviews and it really does warrant Government attention.

This blog gives my personal thoughts, purely from a land and planning perspective, on the ‘Top-10’ key findings, conclusions and recommendations. The relevant paragraph numbers are in brackets.  

PLANNING 

1. Planning permissions – the number of permissions being issued needs to be significantly higher to deliver 300,000 homes per annum. (4.15) But permission numbers have actually been steadily falling since 2018 due to the increasing planning risks and market uncertainties. (4.19)
2. Planning applications – in 2021 only 12% were determined on time, compared to 55% in 2009. (4.28 ). The cost to submit is typically £100-£900k, equating to c.£1,500 per plot (plus staff costs) for sites between 100 and 500 plots. (4.30). A huge barrier to entry for SMEs.
3. Planning timescales for housing applications are broadly the same, irrespective of who is submitting, whether housebuilder, land promoter or landowner. (4.64)
4. Available land – 44% of England is potentially suitable for development and less than 10% of this potentially suitable land is brownfield. The key delivery issue is that the landowners need greater planning certainty to be incentivised to sell their land (4.47)
5. Strategic land takes on average 7 years to mature but this is likely to be an under-estimate as this figure includes existing unconsented sites (4.88). Another huge disincentive for SMEs.
6. SMEs – planning delays and uncertainty is a far greater barrier to entry and variability than securing finance. (4.183)
7. Standard Method (SM) – the LPA targets within the SM only add up to 225,000 and the 35% uplift lacks evidential justification. (5.155). SM housing targets should only be adjusted when new household projections are published, to assist stability in local plan targets, (5.158) and should generally only be adjusted in relation to housing need factors rather than for policy reasons. (5.158). SM targets should be binding with limited discretion to adjust (5.153)
8. Council Funding – should be cut if no up-to-date local plan or if housing delivery is not meeting targets (5.163). There should be a clearer link between housing delivery and Government funding.
9. Allocated sites – applications on such sites should generally not go to planning committee given that the principle of development has already been authorised by the LPA. (5.173)
10. Statutory Consultees – the current review underway must consider whether no-response within 21-days should equal green light. (5.183)

LANDBANKING AND THE LAND MARKET

1. Housebuilder landbanks – they are a rational response to the planning system and if Government were to forcibly reduce them, it would simply result in lower completions. (4.103)
2. Land transactions – 83% of land which is purchased by housebuilders is purchased on the open market (4.56)
3. Smaller sites – more likely to be sold off-market than larger sites. (4.56)
4. Land bids – on average 6.2 bids are received when a site is put on the open market. Even when a site is sold via a shortlist an average of 5.7 bids are received. All indicative of a competitive land market. (4.56)
5. Imposing faster build rates – this will not increase volume, rather it will just bring completions forward. Volume can only be increased via more planning permissions leading to more sales outlets. Any market interventions to mandate faster build rates, for example by planning policies, conditions or obligations, must include flexibility for market changes and ‘force majeure’. (5.235)
6. Increasing prices – it impossible for housebuilders to unilaterally increase house prices when selling homes on a site as they are “burdened by the second-hand market”. Namely housebuilders are price-takers with the selling prices set by the local second-hand market which accounts for the vast majority of housing transactions. (4.137) New build house prices do not influence second hand prices. (4.114)
7. New build vs second hand prices – land is bought via the residual land value method. Namely Gross Development Value minus costs and profit = land value. This model requires housebuilders need to make “plausible but optimistic’ estimates of home sales values to calculate the GDV when bidding for land. Without making these ‘plausible’ price (and cost) estimates within land bids, land cannot be secured given the levels of competition in the market. (4.111).
8. Housebuilder acquisitions of land promoters – no evidence to suggest any land market competition issues as there is no current evidence indicating that the amount of land secured from the acquired land promoter, by the acquiring housebuilder, increases after acquisition. There is no market distortion. (4.76)
9. Local market concentration – there is not a single area of competition concern in the UK. Nine areas were identified where levels of competition appear limited, but this is generally due to low local housing targets which reduce the size of the market. (4.101)
10. Planning scarcity – if this is reduced it will lead to more sales outlets and more volume. But, in itself, a reduction in planning scarcity will not increase sales rates on individual sites. This is because housebuilders are price-takers and buy land via the residual method, which involves estimating second hand sales prices to make a land bid. (4.120)

Three final points:

1. These ‘Top-10’s are a brief summary of a long report, and they obviously reflect my personal standpoint.Others will no doubt point to other elements – such as the emphasis on more non-speculative housebuilding, more tenure diversity and the need for Government to consider policy trade-offs prior to accepting the CMA recommendations for fundamental planning changes to boost housebuilding. All sensible and supported.
2. Nevertheless, it does seem clear that Government needs a laser focus on responding positively to the CMA recommendations to get more planning consents out and hence more homes built.
3. Thanks to Chris Webber – our endless discussions on the CMA report, both before and after publication, have hugely influenced this post.