25 Apr 2018

Letwin and the potential for his review to unlock Custom Build

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Letwin and the potential for his review to unlock Custom Build

The Letwin Review holds great promise for Custom Build, writes Chris Brown, Executive Chairman of Igloo Regeneration. His terms of reference were to “explain the significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand, and make recommendations for closing it”.

With his customary acuity, Letwin has put his finger straight on the problem in his interim report.

“The fundamental driver of build out rates once detailed planning permission is granted for large sites appears to be the ‘absorption rate’ – the rate at which newly constructed homes can be sold into (or are believed by the house-builder to be able to be sold successfully into) the local market without materially disturbing the market price.

“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 (when ‘type’ includes size, design, context and tenure) and the pricing of the new homes built.

“The principal reason why house-builders are in a position to exercise control over these key drivers of sales rates appears to be that there are limited opportunities for rivals to enter large sites and compete for customers by offering different types of homes at different price-points and with different tenures.”

Letwin is heading off into continental Europe next to see how things are done over there, so hopefully he will come back with a good understanding of the role Custom Build can play.

We at Igloo have learnt so much from our trips over the years, and next month we’re going back to Germany. This time we’re heading to Vauban in Freiberg, to see how this sustainable exemplar of community-led and Custom Build has matured, and to reinvigorate our mission to create better new neighbourhoods in the UK.

Solutions for stalled sites

With Letwin’s final report due in the Autumn, the key question will be what he suggests doing about the problem.

Letwin is nothing if not a political animal, and despite the Prime Minister’s apparent antipathy to the large speculative housebuilders, he is likely to be looking for an accommodation rather than a war.

The Home Builders Federation lobbying machine, which these days has all the appearances of an organised oligopoly, might be up for a fight, and it has no love for Custom Build. But it is mainly focused on Help to Buy right now.

This is due to run out in 2021, and, with deep irony, it is concerned because its members are buying sites now that they won’t have built out by then. Effectively, they don’t have a clue whether they will be selling houses at the Government subsidised price or at the real market price, and so have no idea what to pay for land.

This is doubly ironic because the Custom Build sector is currently desperately seeking the introduction of a Right to Build equity loan to reduce the competitive disadvantage the sector is fighting against.

This disadvantage is a story of Government policy failure. The constantly revolving door of ministers, civil servants, Government housing policy advisors, Homes England chairs and chief executives has created an almost complete lack of corporate learning on the policy front about Custom Build. And policy failure after policy failure.

I remember vividly my first introduction to Custom Build in Holland in 2011. It was a revelation. The HCA chief executive was there and was equally impressed. She left the role three weeks later. Today only one member of Homes England has been to the Netherlands to understand Custom Build, and she had to pay for herself.

So I’m hugely supportive of NaCSBA‘s Policy Commission. Government and Homes England want Custom Build to succeed, but they need those of us at the coalface to educate them, and they need to listen to us. And there are think tanks and No.10 policy advisors also champing at the bit to sort this all out.

The commission will probably need to explain to them the current multiple competitive disadvantages and give Government some options to allow it to grow the emergent Custom Build sector to a scale where it is meaningfully contributing to supply and able to stand financially on its own feet.

It’s good to see Places for People dipping its toes in the Custom Build water via its purchase of ZeroC, and that brings some equity and, potentially, a purchaser of parts of large sites from the speculative housebuilders, if that is the direction Letwin takes.

The sector needs to be able to attract equity in large amounts. It will only do that if it is on at least a level playing field with the speculative builders. And then it’s a really interesting option in Letwin’s armoury to unlock housing supply.

Click here for Custom Build Strategy’s take on Help to Buy.

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