What the Letwin Review means for small developers

16 July, 2018

A  government commissioned report to examine what can be done to speed up the slow rate of house building on major sites, makes for interesting reading says Gus Zogolovitch.

Another week, another housing minister. Dominic Raab lasted six months in the job and is the eighth housing minister in eight years. Perhaps Theresa May thought he contributed so much to solving the housing crisis that he tackle the equally difficult task of sorting out Brexit.  I’m afraid I don’t share that view.

I asked a few of my colleagues about this and some of the (paraphrased) responses I got were:

‘Housing is not a priority due to the short nature of election cycles’

‘Ministers are thrown in to housing and don’t really understand the issues’

‘Politicians don’t really care about solving anything, they are acting in their own best interests’

So, given the above together with the political merry-go-round that we housing professionals have witnessed over the last decade, it was with weary resignation that I clicked on the ‘draft analysis’ of the Letwin review to have a look.

Sir Oliver Letwin was commissioned by the government to examine what could be done to speed up the slow rate of housebuilding on major sites.

The review has been criticised for not being ‘thorough’ from a data perspective. The criticism is that Letwin came up with a conclusion and then went searching for data to prove it.

I accept that criticism, but in the interest of time, I am happy to forgive it. We live in a world where we need answers sooner rather than later – can we really afford to take the five years that the Chilcot inquiry took? In my mind, the housing crisis is now and we need to act fast to turn this ship around and start getting people back into home ownership.

The conclusion of the draft analysis was relatively simple – Letwin found no particular evidence of conscious and strategic land-banking from volume housebuilders that distort the market.

That does not mean that volume housebuilders build out every permission as soon as they have it; it means that they don’t buy land and sit on it with the sole purpose of creating value by doing nothing.

What they actually do is buy land and then take it through planning and build on it when they can sell their homes. It takes time to get planning and not everyone wants a volume house product. This is called the ‘absorption rate’ – the rate at which people buy the housebuilding product. It was clear that when you included more diversity, the rate of sales increased.

What the volume housebuilders actually build is generally not to my taste or liking (although I went to Countryside’s Accordia recently and thought that was great). But then again, I don’t on the whole eat a supermarket ready-made lasagne (although that may be because my Italian wife would kill me!). But I don’t think that we should stop production of either.

Volume housebuilding contributes over 100,000 new homes a year and that’s an important part of new supply. It’s just that if we want to build 300,000 new homes, we need to offer more choice. To continue the lasagne analogy, if the supermarket began adding other lines – say,  ready-made spaghetti bolognaise or some mushroom tagliatelle, then I might be tempted. If they started to offer pasta, fresh tomatoes and fresh basil, then even my wife might come round.

The point is, that what we need in our housing is diversity and Letwin’s review agrees with that viewpoint. The report concludes that “….to obtain more rapid building out of the largest sites we need more variety within those sites.”

As an independent developer, I’m left with small left-over gap sites – and by definition, this produces diversity due to the nature of the site itself and the solution required to deliver it.

I’m a passionate believer that the best quality housing comes from self-build and custom build because owner-occupiers are incentivised to invest in their own home to reap the longer term benefits in an appreciating asset .

The result is we all benefit from greater environmental performance and generally nicer buildings to improve the local neighbourhood and community. I’m glad that Letwin picked this up directly, but it’s not the only reason I liked his conclusion – that was because it made sense to me.

I agree with Letwin that there is little we can do about absorption rates. The best thing to do is to leave the volume housebuilders building the product they know how but incentivise diversity – through land supply, access to funding, easier planning, and more support. However, that would be jumping the gun; Letwin is due to publish his solutions later in the year.

I look forward to hearing them.

In the meantime, pass the Parmigiano.

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