Will Letwin’s diversity tactics deliver?

With the need to bring Tory MP waverers on side before Parliament votes on the Brexit deal and fulfil May’s pledge that austerity was coming to an end, it was no surprise that the Budget didn’t focus on boosting housing supply, as it did last year.

But recognising that increasing housing supply is still a hot political issue, Hammond announced an extra £500m for the Housing Infrastructure Fund and the extension of Help to Buy by two years to 2023, albeit limited to first time buyers. He also confirmed the lifting of the borrowing cap for council house building which is particularly welcome as previous budgets have focused on stimulating the supply of homes for sale.

The really interesting housing news, however, was reserved for Oliver Letwin’s review on how to tackle the problem of slow private housing buildout rates. Letwin was commissioned to investigate last year, in a bid to put to bed accusations that housebuilders deliberately build large sites out slowly to keep prices high. His interim report concluded that the reason why sites were being built out so slowly was down to the limited number of house types on offer. The answer is to increase the diversity of types and tenures on offer to appeal to a wider market, thereby increasing build-out rates. Letwin proposes that the issue should be tackled via the planning system by requiring housebuilders to deliver a more diverse range of homes, which could include self- and custom-building. This would apply to sites over 1,500 homes and could apply from 2021.

More radically, Letwin proposes giving local authorities powers to designate larges sites as such with masterplans, design codes and housing mix requirements. This, coupled with a proposed cap on existing land value uplift of a factor of ten, could mean better quality housing developments for the same or even lower sale prices.

This is an approach adopted widely on the continent and is to be welcomed. Letwin recognises that the diversity of supply approach needs to be applied to sites with existing planning permission, given current glacial build-out rates. This could be encouraged by making adoption of the new rules a condition of government funding.

Whether any of this will impact on house prices is debatable. The idea is to increase supply without impacting on prices, which begs the question why housebuilders aren’t doing this already as they would get a quicker return without affecting profits? In any event, most sites are smaller than 1,500 homes, which limits the scope of the policy’s impact. Another restriction is the skills shortage, which is acknowledged by Letwin. He proposes a rapid training programme but this presupposes there some people around that are willing to be trained up, a prospect hindered further by Brexit.

The most promising aspect of the proposals is reducing or capturing land value uplift when planning is granted, as market forces dictate that this would similarly reduce the values of smaller sites.

The government has said it will respond early next year. A cynic might suggest that it will embrace the proposals to increase diversity of house types and tenure, but baulk at the more radical proposals to give more local authority control over sites and land value uplift, being as the Tories are ideologically opposed to state interference. Landowners and housebuilders are a key part of the natural Tory constituency and have traditionally enjoyed a sympathetic ear when it comes to anything that could dent their profits. Which makes the odds on meaningful change very long.