March 13th saw Sir Oliver Letwin deliver the interim report on his ongoing independent review of build out rates and obstacles to housing delivery in the planning system, to the Chancellor of the Exchequer and the Secretary of State for Housing, Communities and Local Government.
Writing to the chancellor Philip Hammond and housing secretary Sajid Javid, Letwin discussed that absorption rates are a key driver of determining how quickly a housebuilder builds out sites and stated that the review team had heard so far that the rate of build out of large sites was inhibited “by a web of commercial and industrial constraints,” including limited skills and materials availability, constrained availability of capital and difficulties surrounding land remediation.
These factors merit further investigation he wrote in his report, “But I am not persuaded that these limitations (which might well become biting constraints in the future) are in fact the primary determinants of the speed of build out on large permitted sites at present.”
Instead, absorption rates, the rate at which new build homes can be sold into the local market “without materially disturbing the market price” seemed to be the determining factor of build out rates once detailed planning permission is granted for large sites, Letwin continued.
“The absorption rate of homes sold on the site appears, in turn, to be largely determined at present by the type of home being constructed and the pricing of the new homes built,” Letwin commented. Adding that it appeared housebuilders could exert control over these sales rate drivers as “there are limited opportunities for rivals to enter large sites” to offer different types and tenures of home at different prices.
Letwin asked if the builder’s absorption rate and in turn the build out rate could be changed by other types of housebuilder offering different products on large sites, or by large housebuilders presenting “markedly” differing house types and/or tenures. He also went on to question whether a reduced reliance on large sites would influence absorption rates.
The Letwin review aims to produce “robust recommendations” during the summer, with the final report due in time for the Budget in the autumn.
The interim report has received mainly positive responses with The Royal Institute of Chartered Surveyors, who have provided evidence to the inquiry and will continue to do so, commenting that the interim report has a more collaborative tone than the Prime Minister’s recent comments about the industry.
Lewis Johnston, RICS parliamentary affairs manager stated that “RICS is encouraged by Sir Oliver’s interim report, which highlights how complex the planning and delivery processes have become and the many constraints builders face. Hearteningly, it sets a collaborative note that is very different to the Prime Minister’s recent call on builders to ‘do their duty’. Sir Oliver and his team are clearly intent on working with the sector to identify solutions.”
He added “If the private sector is not delivering the volume of homes needed then ultimately it’s the government’s job to widen participation as a means to find other ways of plugging the gap - we can’t simply implore and rely on volume housebuilders to build more.
“The only proven way the UK has ever built anywhere near 300,000 new homes a year is when the public sector has been fully enabled as a key delivery agent. That’s why RICS has called on the government to fully lift the borrowing restrictions that are currently holding back local authorities.”
David O’Leary, policy director for the Home Builders Federation’s (HBF) has said“Sir Oliver has grasped the challenge that housebuilders face in speeding up output on large sites. Increasing diversity of housing provision would help to expand the supply of housing but will require support from local authorities that are too often highly prescriptive over what precisely can be built.
“The vast bulk of the 74% increase in supply over the past four years has been driven by larger housebuilders and he is right to question the planning system’s current over-reliance on very large sites. Improving the availability of smaller sites would help to speed up delivery and create opportunities for SME housebuilders who have been frozen out by planning changes in recent years.”
The publishing of the report was tied in with the announcement, as part of the government’s Spring Statement, of extra measures to assist housebuilding which included:
£100 million to support the mayor of the West Midlands’ plan to deliver 215,000 homes.
Confirmation of a £1.67 billion funding package for London to build affordable homes.
£60 million to boost the Housing Growth Partnership fund which supports SME housebuilders, allowing them to invest in housing projects and develop their businesses.