Letwin's report could change everything

A few years ago I asked a volume housebuilder client of ours why it took them so long to build out their large sites. This was prompted by a news report at the time suggesting that, at current build rates, Ebbsfleet Garden Village would take more than 70 years to deliver (it has since speeded up). I put to him the widely made accusation that the big housebuilders were restricting supply in order to keep prices high. His response was that on a big site they could be out of pocket by tens of millions before selling the first house. In no way was it in their interest to slow down sales given their borrowing costs. If anyone could tell them how to sell more than the one or two units a week from each sales office then they would love to hear from them.

Well Oliver Letwin has just delivered a report to the chancellor doing just that. Commissioned at the time of the 2017 budget, he was asked to explore the gap between the number of new homes consented and the numbers delivered and how we might increase the latter. The report largely endorses the view of my housebuilder client and while it doesn’t make particularly comfortable reading for the industry, the first two-thirds will not worry them unduly. However it ends with a radical twist that is very much in line with our thinking in our 2014 Wolfson Economics Prize essay, and which could change everything.

The amount of new housing is affected by two broad factors – “delivery rates” and “absorption rates”. The former is the speed at which we can build new homes and the latter is the speed at which they can be sold. Letwin identifies a number of delivery issues such as lack of transport infrastructure and site remediation but dismissed their impact on delivery. The only delivery issue that really worries him is a lack of skilled labour, although he manages to duck the Brexit issue, arguing instead for “a five-year flash programme of on-the-job training”.

The real problem according to the report is the absorption rate and, while he doesn’t say this out loud, the message is that you will never sell more homes if you keep building the same old stuff. There are only so many people in each housing market who want to buy a mass housebuilder three-bed semi. The answer is to increase the diversity of housing on large sites in areas of high demand and much of the report is devoted to the policy levers that could make this happen.

Large sites are defined as those for more than 1,500 units and there is no breaking up your large site into chunks that are smaller than the threshold – planning authorities will be able to designate these large sites in their plans. Areas of high demand are not defined and, as someone who works across the country, I’m not sure why these proposals shouldn’t be applied across the board.

For private sites the proposal is to make the housing mix on site a reserved matter so that reserved matters applications will need to show how they are going to provide a mix of unit sizes, tenures and types, including custom-build and self-build. The idea of diversity is widened to include more distinctive settings, landscapes and streetscapes and emphasises the importance of masterplanning which is of course very welcome. This can all be provided by the same developer, since Letwin has retreated from his initial idea that sites should be broken up, but he does encourage the housebuilders to work with smaller specialist developers. Up to this point the report leaves you with the feeling that none of this will do any harm but that there is plenty of scope for the army of planning consultants and lawyers who buzz around housing sites to water it down, to argue viability and to carry on broadly as they are with some token changes.

However at this point the report gets all radical and sets out a range of proposals that are very much in line with what myself and my colleague Nicholas Falk have been promoting. It suggests that local authorities should be able to designate large sites in future plans along with strong masterplanning, design codes, infrastructure and housing mix requirements that could reduce the value of the land to as little as 5% of what it would be worth with an unencumbered planning consent. In theory this would reset the UK housing land market to values of around £100,000 per acre, which would be comparable to Holland and Germany and would allow much more to be spent on the quality of what is built. However we would agree with Letwin’s analysis that there is a huge gap between theory and practice in British planning and this can’t be relied on.

So he goes on to propose a change in primary legislation to allow local authorities to acquire large sites that they are designating in their local plan at the “value which such land would have in the absence of the development scheme” which I think means existing use value. They would then be able to set up some form of development corporation (various models are suggested) to act as “master developer” for the site. This master developer would be responsible for the masterplan and design coding, the strategic infrastructure and for parcelling up development sites for onward disposal (probably via long leases) to developers. Exactly! That is what we have been saying all along. That is how it is done across most of Europe and, until we grasp the nettle, we will continue to produce the same old stuff.