Sir Oliver Letwin’s draft analysis of his independent review of build out rates has now been published, looking at the ‘significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand’.
The review confirms that the fundamental driver of build out rates once planning permission has been granted is the ‘absorption rate’, being the rate at which newly constructed homes can be sold into the local market without materially disturbing the market price. Having reached this conclusion, Letwin considers three areas which could attempt to change the absorption rate and subsequently improve build out rates:
Reduced prices: In positive news for house builders, Letwin concludes it ‘would not be sensible’ to attempt to change absorption rates by forcing house builders to reduce the prices at which they sell their current houses, as this could undermine their whole financial model as well as create very serious problems for the housing market and the economy as a whole.
Reduced reliance on large sites: Letwin concludes that there cannot be complete reliance on small sites and there needs to be a mix of both small and large sites, particularly as it is the larger sites that support the delivery of the infrastructure required to support growing populations.
Change package of products on large sites: Letwin finds this to be the solution of improving build out rates as the housing market does not just comprise of people seeking one style, tenure and size of house. Different housing types, designs and tenures have their own market and absorption rate, and Letwin concludes that having more diverse products on large sites could meet more of these needs whilst delivering housing at a much quicker rate.
Letwin also considers other potential constraints, finding a shortage of bricklayers to be a cause for concern. To meet the ambition of building 300,000 homes per year, an additional 15,000 bricklayers will be required, being an increase of almost one quarter of the existing workforce.
The review contains praise for major house builders, with Letwin being impressed by the way they manage large sites. The review also considers the controversial issue of land banking, finding that whilst major house builders do this to a degree through absorption rates to ensure house prices remain at the current level, they do not hold onto land and wait for house prices to increase before seeking planning permission or starting to build. Letwin robustly refutes this accusation, highlighting that the business model of major housebuilders depends on generating profits out of sales of housing so it is very much in their interest to build housing to sell and make a profit.
The review only analyses the issue of build out rates. It promises that policy options for ministers will instead be published by the Autumn Budget, which will include short and long-term policy levers to increase the variety and differentiation of what is offered on large sites, in a way that does not disrupt the housing market.
However, a number of policy levers covering matters explored by Letwin are already anticipated to be included in the new NPPF. For example, recognition of the need for a mix of small and large sites was clear in the draft NPPF, which proposed the introduction of a requirement for 20% of allocations within Local Plans to be on sites of less than half a hectare, alongside the recognition of importance of larger scale development, such as new settlements or significant extensions to existing villages and towns. In terms of tenure diversification, the draft NPPF recognised build to rent as a distinct asset class and included affordable housing for rent within the definition of affordable housing - enabling build to rent developers to bring forward sites more expediently without the need to engage registered providers.
Letwin’s recognition that some policy levers will need to be medium to long term in approach is welcomed. Seeking greater diversity of the type, design and tenure of products to be delivered on larger sites is likely to require time for house builders to diversify their own products, or to bring forward sites through the plan-making process where collaboration with developers of different products, viability, infrastructure, masterplanning and phasing have been considered from the outset.
So far, Letwin’s analysis appears to align well with the Government’s shift in housing policy away from an exclusive focus on homeownership and towards boosting overall housing supply. The detail of the policy levers Letwin will recommend to ministers in advance of the Autumn Budget are eagerly awaited.
As featured in Building.
Posted with the following keywords:
Letwin Review, build out rates, NPPF