Builders shrug their shoulders at Theresa May's plans to solve the housing crisis
When Theresa May stood up in front of a brick-effect background last week to announce that she was kick-starting a “major overhaul” of the planning system, the scepticism in the industry was palpable.
Would tweaking the planning process really make enough of a difference, as the country tackles a widespread, persistent housing crisis? Among the changes to make it easier to turn shops into homes, and stronger protection for ancient woodlands and coastlines, many observers sensed an underlying adversarial tone from the Prime Minister. Developers would no longer be allowed to “just sit on land and watch its value rise,” she said.
Mrs May spoke about the “perverse incentive” that exists for housebuilders because when there is less supply, house prices rise on the back of increased demand.
Councils that did not promote building would be stripped of their powers, she warned. Some suggested that Mrs May was making the announcement rather than Sajid Javid, the Communities Secretary, to show that the Government is serious about tackling the problem.
But where does the blame for the shortage of homes lie? Is it with the housebuilders who aren’t, as Mrs May put it, “doing their duty”, councils that drag their heels when approving planning permissions, or communities that block development?
Privately, housebuilders think they got off lightly – councils were hit far harder by Mrs May’s suggestion that they needed to approve the building of more homes, even when it might be politically unpopular. But tucked in the small print of Mrs May’s pitch were two thorny issues on one theme: land – who’s got it, and who needs it. The idea that housebuilders are sitting on land is a long-running issue.
The latest research from the Local Government Association suggests that 423,000 homes have been given planning permission but have not yet been completed, suggesting that housebuilders are holding land unnecessarily for their own gain. Housebuilders argue that this oversimplifies the problem.
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“The reality is that land banking by commercially-focused developers is largely a myth,” Dean Clifford, the co-founder of London developer Great Marlborough Estates, says. “Buildout delay is caused by the plethora of legal uncertainties, constant policy change, rising construction costs, difficult debt markets and volatile market conditions, which mean that firms will often have to wait a while before they are able to develop.”
Other housebuilders have argued that they need a pipeline of land in order to sustain a constant level of profits and revenues. The truth of whether landbanking is a problem or not could come to a head this week. A report, following a review by Sir Oliver Letwin on the extent of the practice, will coincide with the Chancellor’s Spring Statement on Tuesday. There have been five similar reports in the last 15 years, all of which have found in favour of developers.
Far from being abundant, the lack of availability of land is a real barrier to building, Jolyon Harrison, the chief executive of northern housebuilder Gleeson, says. Mr Harrison says he could build more if more land became available. “Local authorities would make it easier for everyone if they released land,” he explains.
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Gleeson builds and sells low cost homes to working class people in deprived areas of the north of England – a demographic largely ignored by other private housebuilders, Mr Harrison says. Big companies don’t want to build homes in places such as Rotherham and Toxteth, or if they do, don’t know how to make money from doing so. “Other housebuilders look at these sites surrounded by council housing and think ‘bandits’ and we think ‘customers’,” he says.
But housebuilders might be forced to look at cheaper sites if plans to tighten the “viability” criteria for developments are implemented. At present, housebuilders must pledge to deliver a certain number of affordable homes as part of any scheme. It is possible for them to negotiate this level with the council – some local authorities have suggested that up to 50pc of all new homes must be affordable, where others are more likely to let developers build fewer.
The lower the number of affordable homes, the higher the average selling price of the new homes and the greater the viability of the development. However, critics have suggested that giving developers flexibility allows them to wriggle out of their social obligations.
Polly Neate, the chief executive of housing charity Shelter, says the Government’s suggestion of tightening the rules would make for a fairer land market.
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“We particularly welcome moves to stop developers overpaying for land and then using viability assessments to recover their costs down the line,” she says. Andrew Whitaker, the planning director at the Home Builders Federation, says while he thinks the Government’s proposals were broadly “sensible”, he has some concerns about whether tighter viability criteria would stop some sites being brought to the market, because the cost to build on them would be too high.
“Removing the option to negotiate affordable housing levels on each site necessitates local authorities to set [affordable housing] levels at a sensible and deliverable level,” he warns. “If they don’t, it will prevent sites coming forward and so reduce both affordable and overall housing supply.” Housebuilders’ profits are under even greater scrutiny after a £110m bonus for Persimmon boss Jeff Fairburn sparked widespread fury.
A line in Mrs May’s speech suggested that housing bosses should be paid based on the number of homes they build, rather than on their profits or share price. One housebuilder, who did not wish to be named, called the idea “ludicrous”. The availability of land will remain at the heart of the issue. Without sites to build on, there is no hope of even scratching the surface of the estimated 250,000 homes the country needs each year.
