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In areas of the UK with a high housing demand, there is a significant difference between the number of new houses being built and the amount of land allocated and permissioned for residential development.
Recently, Sir Oliver Letwin produced a draft analysis (the “Report”) to try to explain this phenomenon with a view to developing government policy on the back of the conclusions reached to change the situation.
The Report found that the average period for the sites examined from the moment when the house builder receives an implementable planning consent to practical completion is 15.5 years (referred to in the report as the build-out rate).
The Report examines in detail the following factors which have an impact on the build-out rate.
Sir Oliver has concluded that the fundamental driver for the slow build-out rate is the ‘absorption rate’. This is the rate at which newly-constructed homes can be sold without disrupting the developers’ market. The report concludes that house builders are in a position to control these key drivers of sales as there are limited opportunities for rivals to enter large sites and compete. This is a result, at least in part, of developers stockpiling land. In short, it has been suggested that the country’s largest housing developers can control the absorption rate by building-out a select number and type of housing development, which ensures maximum financial return for their products. In turn, Sir Oliver concludes, this dictates the new build housing stock available in the UK.
The report has concluded that UK’s “housing crisis” is exacerbated by the number of undeveloped permissioned sites which are held by house builders who have little motivation to build them out until much further down the line.
Commentators are looking to legislators to do more to tackle these issues. Some commentators have argued for the introduction of legislation to force major house builders to charge set reduced prices for certain products (particularly apartment blocks) or to increase build out rates by reducing reliance on large sites and forced variation of product type to address differing markets. Indeed, the next phase of the Report will consider what policies the Government should adopt to ‘close the gap’ and increase the overall rate at which land allocated for housing is converted into new homes. Sir Oliver Letwin will present his recommendations to the Chancellor and the Housing Secretary in time for the autumn budget.
If you are a residential developer and would like to read the Report please click here.
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