How the findings of the Letwin review highlighted key issues and dispelled market myths

Originally announced in last year’s Autumn Budget, late June saw the publication of the findings of a review undertaken by Sir Oliver Letwin into why hundreds of thousands of homes have yet to be built despite having planning permission.

It was conducted in two phases, with Phase One involving a review of large housing sites where planning permission had been granted, and consultation with local authorities, developers and non-government organisations. Phase Two then went on to consider practical steps that could be taken to increase the supply of new homes to the market.

In his findings, Sir Oliver believes that he lays to rest some of the myths surrounding issues such as the alleged ‘land-banking’ by major house builders, and whether there were intentional restrictions placed on build-out rates to maintain house prices at a high level.
 

Build-out rates and absorption

Having visited 15 large sites that ranged from 1,000 to 15,000 homes situated in areas of high housing demand, the review panel also visited sites in Germany and the Netherlands for the sake of comparison.

Sir Oliver found that the median build-out time period for these sites was 15 and a half years, with 6.5% of the site being built each year on average, and concluded that the larger the site, the more likely it was that the build-out rate would be low. However, he believes that the rate would not be increased by reducing the current reliance on very large sites.

He expressed the view that the fundamental driver behind the build-out rate was the ‘absorption rate’. This is defined as the rate at which newly-constructed homes can be sold in the local market without destabilising prices. He went on to state that if either the major housebuilders themselves, or others such as housing associations and local authorities, were able to offer a greater range of housing variety, design and tenure more in line with community requirements, then in his view the overall absorption rate could be substantially accelerated.

The study found that large sites can have a beneficial effect on affordability, an important factor in dealing with the UK’s current housing crisis. It concluded that it would not be sensible to solve the problem of market absorption by forcing the major house builders to reduce prices.
 

Investigation into ‘land banking’

Sir Oliver found that whilst major house builders were ‘land banking’ in that on large sites they construct and sell homes at a rate that matches the market’s capacity to absorb them, he found no evidence that they were locking away land before seeking implementable planning permission. In his opinion house builders were seeking to protect the profitability of housing sales, rather than profit from the increase in the value of the land.
 

Potential constraints

The review also referenced other factors holding back housing completions, many of which have been apparent for some time in the construction industry, such as a shortage of materials and skilled labour, and delayed installation by utility companies. Sir Oliver called on government to address a number of pressing issues such as the lack of financing for SME builders, and a shortage of both bricks and bricklayers.

His final recommendations on improving build-out rates will be published in the autumn.