Creating the Housing Shortage: The Role of the Volume
House builders; Findings from a study of new housing
development in Northampton and Milton Keynes
Bob Colenutt
Northampton Institute for Urban Affairs,
University of Northampton
October 29th 2013
The housing shortage
Why the shortage of new market housing in the
UK?
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Usual reasons;
(a) Demand factors: supply of credit and lack of affordability of new units
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(b) Supply factors: Prices not rising fast enough for make development viable; lack of land and
planning permissions for housing;
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“The underlying constraint on housing is the supply of land” Barker. Interim Report p.10, HM
Treasury 2003
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BUT it is our contention is the key to understanding low levels of new market housing delivery lies
not in the supply of land but in the way the landowner/housebuilder business model works.
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This model of delivery has achieved almost complete domination of public policy about new
housing supply in the UK over the last 20 years.
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What does our research on new housing development in Milton Keynes/Northamptonshire 20012013 tells us about the nature of this domination and its implications?
Large Housing sites: the case of
MK/Northamptonshire
• The Sustainable Communities Plan Growth Areas Programme 2005
highlighted need for more land to be allocated for housing
• In MK/Northamptonshire 50% of the new housing growth was
designated in large sites with 1000 plus homes; i.e. approx 70,000
homes to be built over 20 years
• The large housing sites are called Sustainable Urban Extensions
(SUEs)
• Assumption: if land was designated in Core Strategies, then the
main barrier to delivery would be removed; and, because it was
part of the new spatial planning system, new development would
be “joined up” and sustainable
• See “Building an Affordable Utopia” paper to IBG Sept 2013
• The Crash exposed the naivety/delusion of this assumption; but the
problem lies deeper than boom-bust cycles
Sustainable Urban Extensions (SUEs)
• 24 SUEs were designated in our study area; several of the
sites had been in Local Plans for some years before
• Most have planning permissions to major HBs
• Only 5 started on site (4 in MK on former NT land) by 2013
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Is the lack of progress due to a slow planning system?
Lack of infrastructure? e.g. A14 widening
Local objections? Limited in our area
To understand whats really going on we have look closely at
the landowner/HB business model and how it operates on an
area basis.
Housebuilders Business Model
• Land is bought in advance (betting on future price rises in that
area). They have significant upfront costs on land and
infrastructure but house sale prices reflect original land
costs, plus costs of infrastructure and a profit rate of 20%.
• But HBs are not simply housing development companies.
Profits are also made from land by the way they manage their
land banks; by trading in some land, or by holding on in order
to get the benefit of rising prices
A closer look at land banking
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There are two types of land bank (a) Short term “oven ready” land banks with planning
permission (b) Strategic long term land held mainly on 15-20 year options
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The major housebuilders hold a large portfolio of sites in each category, on a sub-regional
basis as in Northamptonshire or MK, bringing them forward in a carefully managed way in
relation to competition and forecast price movements.
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Although the main stated reason for landbanks is to maintain a “pipeline” to plan future
development; in fact it more complicated than that. Some sites are held to keep out others
and maintain prices. Overall they manage the portfolio to ensure that final house sale prices
meet or exceed their target prices when they bought the land, balancing this against holding
land as an investment
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Because land value for housing rises considerably faster than the rate of growth of the
economy as a whole (see chart), Strategic Land is also held for trading and for investment.
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i.e. There is no business necessity for a large HB to bring all the plots he controls in an area to
construction quickly BUT rather to promote the likelihood of development in the future by
continual engagement with the planning system. This keeps options alive while values
increase over the long term with house price inflation. This appears to be the case in our case
study area.
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Here’s why strategic land is so important
The volume builders are especially important in
this process
• After each crash and recovery (1973, 1989, 2008) the large
housebuilders have grown larger and taken a greater share of the
new homes market
• Over the last 20 years the large builders (over 500 homes pa) have
increased their share of the total new homes market by 20% to
while smaller builders have reduced their share by 20%
• Land banks have increased proportionately, and continue to do so.
Locally hope values have been spread out further around all major
towns and conurbations as they succeed in getting more land
optioned to them
• Just the top 5 builders, who deliver 35% of total UK supply of new
housing, have 12 years of UK total annual supply (at current rates)
in their land banks
Dominance of large HBs
Land Banks on top 5 Housebuilders in
Numbers of Plots
Company
Short term
land bank
2010
Short term
land bank
2012
Long Term
land bank
2010
Long term
land bank
2012
Annual
completions
2012
Bellway
17602
22300
15200
18000
5226
Barratt
62320
54209
58000
60000
12687
Berkeley
28099
26021
60000
60000
3565
Persimmon
58862
63786
n/a
90000
11325
Taylor
Wimpey
63556
65409
77060
100340
10886
Source:
Annual
report and
accounts
Conclusion 1. Landownership by HBs must be
subject to a full OFT investigation
• “We have not found any evidence to support the view that at the
national level, housebuilders are hoarding large amounts of land
with implementable planning permissions on which they have not
started construction” 5.89 Office of Fair Trading Review
investigation into the housebuilding industry 2008
• Carefully selected words...but are they misleading? Our evidence
suggests the Big Five are doing just that, for their own business
reasons. The OFT acknowledges that there is little public
information about how HBs hold land e.g. about land options. So
the OFT Report must not be end of the matter. In fact a new
investigation, including possible local collusion among HBs, is
needed . Sounds familiar? The Big Six Energy companies...
Conclusion 2. Spatial Planning has failed and
must be radically changed
• The spatial planning assumption that allocating land was a sufficient
incentive for HB sector to deliver spatial planning policy objectives was
misplaced. From the HB perspective, these objectives were always a cost
be minimised; the more so as the recession hit.
• In particular the affordable housing policies were seen as lowering land
value (“less value to distribute”)- yet the planners relied on cross-subsidy
• Far too much time of the planners was spent on spatial policy guidance
for example on sustainability and far too little on the economics of
development i.e. how delivery would take place
• There was remarkably almost no serious land or property market analysis
in SHMAs or Core Strategies (see our forthcoming paper for Regional
Studies Association conference, 2013). And this remains the case.
• Hence, the planners made over optimistic/naive assumptions about the
market. Current revisions to Core Strategies assume that high rates of
new housing provision, including affordable housing, will come from HBs
Conclusion 3. Planning for New housing has been
captured by the landowner/HB sector
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In the Growth Areas, the State was reliant on HB/landowner sector for
delivery; there was no plan B. Neither government nor the private sector
provided opportunities in the form of capital, land or capacity to enable other
sectors to enter the field. HB landownership excluded other providers.
HB model may have failed to meet public policy objectives but it successfully
delivered for its shareholders increases in land value and rising house prices,
including capturing increases in value from publicly funded infrastructure
Most SUEs were optioned to major HBs (except in MK). Where construction
began, HBs “drip feed” supply to keep up prices (see David Adams work). Local
authorities or “light touch” Local Delivery Vehicles did not have the tools to
speed up delivery
HBs and landowners captured the Local Plan Inquiry system. Large numbers of
objections from the housebuilders dominated the West Northants Core
Strategy Inquiry 2013 arguing that strategies were “unsound” since they did
not include enough housing land
They also captured crucial local plan policies such as on section 106 affordable
housing agreements because they argued local authority requirements made
their schemes “unviable”, at which many local authorities backed off
Ed Milliband said in his LP Conference speech 2013 that
developers who did not develop land should “use or lose it”
What would that mean in practice?
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If there was proven evidence that developers with planning permissions were
not implementing them, the land would be acquired by CPO. Very expensive if
the full land value was being paid; has to be at existing use value surely
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BUT this would only make a difference if other housing providers came in
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A more radical and effective proposals would be apply the principle of Use it or
Lose it to all designated housing land whether with outline permission or not;
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Back up land acquisition with a publicly funded infrastructure investment plan
paid back through rising land values
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Use public or community landownership to bring down prices of housing; and
retain as much land as possible in public ownership to enable land value
increases to be captured for community benefit
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Or do we need a land value tax? ....