01 Jul 2018

Landbanking by financial speculators and not developers threatens build out rate, say Letwin

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Landbanking by financial speculators and not developers threatens build out rate, say Letwin

Sir Oliver Letwin has issued a draft analysis of his review into build-out reviews and landbanking, following his interim report in spring. Specifically the remit was 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”.

In his first report, he indicated that it was the absorption rate into the market that limits house building, ie the rate at which new homes can be sold “without materially disturbing the market”. Key to this was the conclusion that a greater range of designs, types and tenures would help speed up this rate.

His latest analysis indicates that he finds no evidence of developers slowing the market through landbanking.

“Their business models depend on generating profits out of sales of housing, rather than out of the increasing value of land holdings; and it is the profitability of the sale of housing that they are trying to protect by building only at the ‘market absorption rate’ for their products,” he says.

However, he identifies that landbanking by speculative financial investors does seriously impede delivery.

“It would therefore be perfectly possible for financial investors of a certain kind to seek to make a business out of holding land as a purely speculative activity,” he says in the report, which he indicates is a serious issue for the planning system.

His findings indicate that the typical build out phase for a large site is 15 years, and although he was expressly not looking at small sites he does state that: “the ‘build out rate’ on small sites is intrinsically likely to be quicker than on large sites”.

While unsurprising, this is a positive note for Custom Build and community-led housing projects when it comes to discussing their projects with planning, as speed of delivery is a target area for Government.

In fact, he looks at the issue of increasing build out rates by reducing reliance on large sites.

“There are two principal ways in which we could increase the number of small sites. The first would be to find some means of “packaging” large sites into smaller sites. The second would be to use the planning system to encourage the use of more “naturally” smaller sites.”

However, his conclusion points to the needs of both types of site to for build rates to truly improve: “We will continue to need more new housing both on smaller sites and on large sites.”

Letwin’s final recommendations from his analysis will be published in the Autumn.

Credit: Cabinet Office/Creative Commons

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