Accusations of housebuilders ‘landbanking’ regularly feature and now we have another Government review into the issue. This time we understand, and hope, that Mr Letwin is going to focus as much on process delays as on the flawed assumption that housebuilders hold back land for some later ‘pot of gold’.
Whilst every house builder must obviously carry a land pipeline to provide certainty that it has future land to build on, the wrongheaded criticism is that housebuilders try to secure additional profit by deliberately holding onto development-ready land in order to speculate on land price increases.
At Barratt we don’t ‘landbank’ but we did feel we we needed better data on land pipelines and their role in the UK housebuilding process.
Therefore, we commissioned research by Chamberlain Walker Economics to identify the size of the land pipeline needed by a typical house builder. Both to maintain steady state or to grow the amount of homes they build.
In simple terms, the report proved conclusively that whilst all housebuilders require a pipeline, they do not ‘landbank’, in the pejorative sense of the word.
Indeed, due to delays in planning and other parts of the development process, a typical housebuilder needs an operational land pipeline equivalent to nine years’ worth of current completions in order to grow its volume by 10% per year.
To further illustrate the point that Barratt does not ‘landbank’, we operate with a 4.5-year land pipeline, yet have grown our volume by 55% in the past six years. In 2015 we bought 17,092 plots and in 2017 our level of completions was 17,395. Hardly evidence that our fast asset turn business model permits ‘landbanking’.
Rather, as soon as a site is purchased, the pressure is on to deliver a return on that capital outlay.
With prices for consented greenfield housing land being broadly flat for the past five years it makes no commercial sense to carry the costs of holding on to acquired land in the hope of a land value uplift. Furthermore, as house builders build on consented land, rather than sell it, there is no further receipt to be received anyhow.
The research found that achieving detailed planning permission is by no means the end of the planning process.
Typically, it takes 21 months (1.7 years) to go from achieving the detailed consent to a start on site.
Pre-commencement conditions, Section 106 agreements, and a lack of planning department resources are the primary causes of the delay.
The report also looked at the different players in the planning process and found that 87% of outline permissions are held by non-builders. Namely the public and private sector landowners and land promoters, who are important to ensure an increasing supply of land into the market with outline consent.
Additional players can often add an element of process delay given the need for re-plans, site marketing, the transfer of the land to the builder and securing the detailed consent.
This is obviously completely normal, but even so house builders often get unfairly blamed for the additional delays arising.
So what can be done? Well, first house builders need to self-help. We need to ensure our detailed applications are based on rigorous pre-application discussions and can be approved quickly.
The applications must contain robust documentation including all draft conditions and we must ensure we get cracking on discharging the huge numbers of pre-commencement conditions as soon as we get our detailed consent. Also, we need a more persuasive delivery message, so that land can come into the hands of the builders more quickly.
For Government, and the Letwin Review, our message is simple:
- Let’s get far more resources into cash-strapped local planning departments but ensure it is tied to improved performance.
- Make it far easier and simpler to amend the content (density, mix etc) of outline applications. (They are only outline after all).
- Allow us to submit outline and reserved matters applications within the same timeframe for determination. Hybrids have helped but more flexibility is needed.