“It’s good to see the complicated and interlinked challenge of house prices, absorption and wages being considered. However, developers have a profitable model based on “homogeneity”, and whilst the skills shortage is causing several to look at different solutions, it will be interesting to see if any of them consider Letwins’ suggestion of more diverse sites to be equally as lucrative.
Although a sensible strategy, I suspect it will require some intervention or disruption beyond that available to the planners to make it a reality.”
Gwen Beeken – Managing Director Osco Homes
Article below originally appeared on Insidehousing.com in June, 2018 and was authored by Sophie Barnes
Letwin: large sites take more than 15 years to build out on average
Sir Oliver Letwin, who was tasked with looking into why there is a lengthy time gap between planning permission and completions.
The former minister visited 15 large sites, ranging from 1,000 homes to 15,000 homes in areas of very high housing demand. Five were in Greater London, nine were in the South of England and one was on in the North West. He also visited sites in Germany and the Netherlands to compare the situation abroad with the UK.
He found that the median build-out time period for these sites was 15 and a half years, with a median 6.5% of the site built out each year.
Sir Oliver concluded that “the larger the site, the more likely it is to have a low build-out rate”.
In his interim findings published in March, Sir Oliver said the “homogeneity” of the types and tenures of the homes on offer on these sites and the limits on the rate at which the housing market will absorb these homes “are the fundamental driver of the slow rate of build out”. In his latest review he added his further work has “reinforced this view”.
He concluded that if house builders offered more varied housing on large sites that matched buyers’ needs, “then the overall absorption rates – and hence the overall build-out rates – could be substantially accelerated”.
In his next part of the review – due to be delivered in time for the Budget – Sir Oliver will look at how government policy can help deliver more varied housing “without damaging the economics of individual sites or the financial sustainability of the major house builders”.
Sir Oliver said it would not be “sensible” to force major house builders to reduce the prices of the homes they sell.
He added: “This would, in my view, create very serious problems not only for the major house builders but also, potentially, for the housing market and hence the economy as a whole.”
Instead, the government could look at how to increase the number of smaller sites, either by “packaging” larger sites into smaller sites or to use the planning system to encourage more “naturally” smaller sites.
Sir Oliver said there may be advantages to taking on the planning system approach by encouraging local planning authorities to include a higher number of smaller sites in their land supply plans. However, he said doing this without increasing the build-out rate on larger sites is “not desirable” because larger sites provide the extra infrastructure needed and Section 106 agreements.
It would also be “counter-productive (to the point of absurdity)” to allow only small parts of, for example, brownfield sites to be developed at any one time.
On every one of his site visits Sir Oliver was told that the need for social rented housing “is far from exhausted; my interlocutors have regularly used phrases such as ‘virtually unlimited’ to describe the demand for such housing”.
While Sir Oliver said there is “little doubt” that the availability of labour is a “significant concern” for the major house builders, he said it would be “possible to meet these demands by raising the wage rates paid to other workers in order to draw them over from other parts of the construction industry – albeit with some consequences for the rest of the industry – until such time as the level of training [is] increased to reduce the shortages”.
However, there is an exception with bricklayers, he said, who are in high demand. He said that for the government to meet its 300,000 homes a year target it will require 15,000 extra bricklayers – almost a quarter of the existing size of the bricklayer workforce.
He said that while it is “encouraging” that the Department for Education has set up a new fund to increase construction training schemes, “my discussions with those involved in such training lead me to believe that there is no prospect at present of the training providers being able to produce such a change in gear in the required timescale, even if sufficient funding were forthcoming”.
He has called on the government to work with major house builders to set up a five-year “flash” programme of on-the-job training for bricklayers.
Major house builders have been accused of land banking to drive up their profits. Sir Oliver said that he could not find any evidence that developers are “financial investors of this kind”.
““Their business models depend on generating profits out of sales of housing, rather than out of the increasing value of land holdings; and it is the profitability of the sale of housing that they are trying to protect by building only at the ‘market absorption rate’ for their products.””