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Land not n use and hoarding around it

The issue of how quickly proposals for new homes turn from a planning application to work beginning on site is hotter than ever, with Housebuilders being accused of Landbanking.

A panel of experts led by Sir Oliver Letwin, and appointed by the government’s new Ministry of Housing, is beginning work to examine the gap between the numbers of planning permissions being granted against those built in areas of high demand. The review will seek to identify the main causes of the gap and will make recommendations on practical steps to increase the speed of build out. The review comes amid accusations of landbanking against the major volume housebuilders and fulfils an autumn Budget pledge to investigate the issue, which the private sector has furiously denied.

Glenigan’s construction market analysis can offer detailed insight into the issue.

Firstly, more homes are starting on site than at any time in the last decade and this looks likely to continue with an even greater emphasis on housing.

National House-Building Council (NHBC) data shows that registrations rose 6% in 2017 to 160,606 units. Out of this total, 72% of homes starting on site were some form of house, 26% were flats and 2% were bungalows.

Glenigan’s data shows that the number of units included in detailed planning applications by private sector developers and registered social landlords (RSLs) leapt by 21% in 2017. There was a 23% increase in the number of private sector homes, which comprises 86% of the total planning pipeline in 2017.

Fig 1 - Percentage of private housing entering the planning system

Applications for social housing from registered social landlords (RSLs) also increased last year, but the rate of expansion slowed.

Fig 2 - Percentage of social housing entering the planning system

In 2017, the number of social housing units entering the planning system increased by 8% compared to a 20% year-on-year rise in 2016. This slowing can partly be ascribed to the fall-out from the Grenfell tragedy as RSLs and local authorities divert funds into essential maintenance.

Implementable Consents also on the rise

While starts on social housing in the short-term may not rise as quickly as anticipated, there is no such brake on private sector starts – apart from an implementable planning consent. Glenigan’s construction data shows these are increasing.

In Q4 2017 alone, Glenigan recorded the approval of 98,100 residential units, and schemes of 10 or more units provided 88% of this total. Private sector approvals totalled 84,800.

The overall number of units approved in Q4 2017 is up 7% on the same quarter a year ago and in 2017 overall, approvals for new homes in Great Britain increased by 21% - the highest rate of increase for five years.

Fig 3 - Planning approvals for new homes

So, if approvals increased by 21% last year, why did unit starts only increase by 6%? That is what Sir Oliver’s panel will seek to understand.

The Landbanking Conundrum

The answer is complex, but Glenigan’s construction data can offer insight here too.

The total number of homes with permission that had yet to start on site rose by nearly 16% in the year to March 2017 to 423,544.

To put that in context, the big three housebuilders – Barratt, Persimmon and Taylor Wimpey – owned and controlled 236,000 plots of land at December 2017, although not all of these sites will have planning consent.

Fig 4 - Owned and controlled land at the Big 3 Housebuilders

This leading trio and 15 other housebuilders are listed on the stock market, meaning their priority is to shareholders, who measure performance by return on capital (ROC). Land acquired and with consent but left idle does not benefit ROC.

Housebuilders need to satisfy Section 106 agreements involving a financial contribution to the local authority tied into the consent before starting work. Even then, housebuilders need a consent that is implementable.

At the end of 2017, Persimmon, for example, had an owned and controlled landbank of 77,067 plots but only 52,585 had implementable consent. So only 68% of the land that had been acquired had consent. At current build levels, that is a supply of just 3.3 years.

The opposing argument from the Local Government Association, which represents 370 councils in England and Wales, says that planning is no obstacle and that nine in every 10 planning applications are approved.

1,000 approvals does not equal 1,000 immediate starts

However, if a housebuilder gets permission for 1,000 units starting work on all those homes immediately would flood the market.

Those homes would not all sell at once, the cost of building them would damage ROC and marketing a swathe of new homes in a particular locale could also depress the price of both those homes and the existing properties in the local market.

Weaker house prices could actually make properties more difficult to sell, with potential purchasers and mortgage lenders wary that capital values could weaken further. This is why housebuilders seek to match completions to demand and build out developments in phases.

If work does not start within three years of a planning permission, then the consent lapses. That is why schemes are started and slowly built out.

Most approved schemes are starting on site 

Glenigan’s construction data shows that, at Q1 2017, the vast majority of projects yet to start on site had recent permissions. Just 7% of projects had approvals that were 2-3 years old.

At Q1 2017, 78% of units that had yet to start on site had only been granted permission in the previous 12 months, and 32% yet to begin construction had been granted permission within the last three months.

Housing compared to other construction sectors

So how does the housebuilding sector, which attracts so much criticism, compare to other clients in the gap between receiving permission and starting on site?

The shortest gap among the nine building sectors monitored by Glenigan is in the industrial sector, where the median gap between approval and a project starting on site in 2017 was 18 months.

Fig 5 - median number of months between approval and start on site

For private housing, the median time between approval and a start on site had grown slightly longer in 2017 at 26 months but was still below the 2015 figure of 27 months. Furthermore, this is still shorter than the median time taken for social housing projects to start on site.

Other sectors, notably retail and hotel & leisure, have a far wider gap as predominantly private sector clients wait on the economic wind to change before committing to spades in the ground.

Strikingly, largely government funded sectors such as health and community & amenity also have a longer transition period from detailed planning consent to start on site.

Those delays rarely attract much attention, unlike housebuilding, which Glenigan’s construction data suggests is not sitting on land for excessive periods of time after getting planning permission.

The housebuilders have been accused of this before and then been absolved. Sir Oliver’s enquiry may find ways of helping the industry speed starts up even further, but the charge of landbanking seems unlikely to stick.

For media enquiries, or to arrange an interview, please contact:

Allan Wilén, Glenigan Economics Director on: 0207 715 6433 or 0751 579 4625 or email: allan.wilen@glenigan. com

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