How often have you heard private developers and their allies say they can’t build more homes because planning rules have created a shortage of land? Kate Andrews of the Institute for Economic Affairs (IEA) summed up this view in The Daily Telegraph, saying: “There is only one way to solve the housing crisis and bring down the extortionate cost of homes: liberalise the planning system and build more houses. A bold but pragmatic policy would be to release greenbelt land – just a small fraction of which would be enough to build the million homes needed to address supply.”
A million more homes? That’s a tantalising prospect. So is there any basis for her argument that the only way to solve this problem is to liberalise (or deregulate) planning?
A little digging into the latest financial reports of the top 10 housebuilders reveals a very different story. Between them, they have a staggering 632,785 building plots on their books, of which more than half have planning permission. At the same time, these 10 companies reported building a total of just 79,704 homes – which means they have, on average, eight-years’ worth of plots in their land banks at the current rate of construction.
Among the top 10, there is a wide variation. At the upper end, Berkeley and Taylor Wimpey are hoarding 15 and 13 years’ worth of land respectively. At the lower end, McCarthy & Stone and Bellway have land banks equivalent to four years’ current output. The difference is mainly in what are known as the ‘strategic’ land banks – reserves that have not yet gained planning permission. All ten have ample land with consent, ranging from three to five years’ worth of output.
The top 10 builders accounted for about half of the 159,510 homes completed by the private sector in 2017
It is often the case that the stories an industry feeds to the media are at odds with the trading information individual companies give shareholders via regulated stock market announcements. A classic example of this is car insurance where the industry body complained of an “epidemic of fraud” while the major providers told the market that claims volumes were falling.
In the case of housing, the market reports of the top 10 builders are brimming with confidence about future trading. You might expect Bellway, for example, to be feeling the pinch from a supposedly burdensome planning system because of its smaller-than-average land bank. But its trading update in August said that it had detailed planning permission on all its 2019 building plots and had increased land acquisition by 12 per cent to an annual level 30 per cent higher than its output. “The land market remains favourable and continues to provide attractive opportunities,” the company said.
The top 10 builders accounted for about half of the 159,510 homes completed by the private sector in 2017. So, what about the other players? Information is patchy because many are private companies, but random checks on those that are publicly listed suggest that smaller housebuilders also hold enough land to keep them going for years.
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And then there are the companies that combine building homes with developing sites to sell on to other builders. The latest trading update from Inland Homes, for example, said that in the first six months of this year it has built 357 units and sold 837 plots to other housebuilders but still has 6,808 in its land bank – nearly six times as many as it built on or sold.
The pattern is clear: across the private housebuilding sector big land banks are the norm. If the top 10 companies – equating to half the market – are hoarding 600,000-plus plots, it is safe to assume that well over a million plots are in the land banks of the sector as a whole. Far from needing greenbelt land, the builders already have enough plots to deliver a step-change.
But will they? The IEA believes ‘markets’ solve economic and social problems, but the last 30 years have shown that is certainly not the case with housebuilding. When Margaret Thatcher slashed funding for council housing in the 1980s, the idea was that the private sector would fill the gap. But it didn’t happen: while the number of homes built by councils slumped from 110,170 in 1978 to 1,740 in 1996, private sector output stayed at much the same level as it was under Labour in the 1970s. With housing association output also virtually unchanged, total housebuilding has halved from more than 300,000 annually under Jim Callaghan to an average of 154,000 since 2010.
This situation suits housebuilders nicely. Constrained supply has helped push up the average price of a new house by 38 per cent since 2010, against an average of 30 per cent for all houses. And booming prices have in turn generated record-breaking profits and dividends. Taylor Wimpey, for example, cleared a £52,947 profit on each of the 6,497 houses it sold (at an average price of £295,000) in the first six months of 2018 and was able to promise shareholders that it would pay out £600m in dividends in 2019, a 20 per cent increase on 2018.
The government has responded to growing anger about land banks by setting up a review under Tory MP Oliver Letwin to “explain” why the “build-out rate” on land with planning permission is so slow. Letwin’s interim report has already admitted that housebuilders complete homes at a pace “designed to protect their profits”. His final report is due in time for the Autumn Budget, but don’t expect anything radical: he has made clear that his recommendations won’t “impair” the housebuilders.
Labour, meanwhile, has published a wide-ranging green paper promising “the biggest council housebuilding programme for over 30 years” delivering more than 100,000 “genuinely affordable” homes annually. To achieve this, Labour would use existing public land, such as sites owned by the NHS and the Ministry of Defence, and set up a Sovereign Land Trust to work with local authorities in England to help them acquire land at lower prices. Taking inspiration from the 1945 Labour government, it would also legislate to create another generation of new towns and garden cities.
Labour’s policy would, in effect, draw a line under the Thatcher era by restoring to the public sector the proactive role it played in providing housing prior to the 1980s. In doing so, it would limit the scope for the big housebuilders to hoover up nearly all the available sites and hoard them in order to drive up prices and profits. As for planning, far from being the cause of the housing crisis, it would be a means of solving it.
Steve Howell is a journalist and author of Game Changer, the story of Labour’s 2017 election campaign.