Rewriting development rulesby Daniel Bentley / July 8, 2016 / Leave a comment
Everything has changed in the aftermath of the Brexit vote and in housing, where stakes are high and confidence counts for so much, the apprehension is running deep. Housebuilders’ shares have taken a battering in anticipation of the trouble ahead. Given the exorbitant cost of housing measured against incomes in 2016, a fall in prices should be welcome. But it will need to be accompanied by a strategy for maintaining—and increasing—housebuilding output which will otherwise go into decline.
This is especially critical given that completions—155,000 in 2014/15—already lag well behind the circa 250,000 new homes that are needed each year just to keep up with household formation. This shortfall cannot so easily be blamed on a shortage of developable land anymore. Planning permissions are being granted in ever greater numbers and, for 2015, reached 261,644. The latest update for the Home Builders Federation showed that in the first quarter of 2016 they continued to grow year-on-year. The trouble is the painfully slow rate of development. There is always going to be a lag between that initial permission and completion, but permissioned units have been increasing more rapidly than completions since 2011.
The problem is, for all that housebuilders protest they have nothing to gain from sitting on land that they have already bought, they also have nothing to gain from building out plots as quickly as they physically can. In many places, if they were to do that, they would in fact have much to lose—if they flood the market then prices will fall and the developer will not be able to turn a profit on the land he/she bought. It is because we allow private housebuilders to determine the pace of delivery in this way that homes are built and released into the market only at such a rate that current prices are, in ordinary economic circumstances, maintained. This, in turn, is why homes are never built in sufficient quantities for prices to come down.