A review of the reasons why housebuilders are not building out their permissions is being carried out by The Rt Hon Sir Oliver Letwin MP.
“My terms of reference require me, by the time of the Budget in the Autumn, to “explain the significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand, and make recommendations for closing it”.
There are some interesting findings already reported on in a preliminary update.
“The fundamental driver of build out rates once detailed planning permission is granted for large sites appears to be the ‘absorption rate’ – the rate at which newly constructed homes can be sold into (or are believed by the house-builder to be able to be sold successfully into) the local market without materially disturbing the market price. The absorption rate of homes sold on the site appears, in turn, to be largely determined at present by the type of home being constructed (when ‘type’ includes size, design, context and tenure) and the pricing of the new homes built. The principal reason why house-builders are in a position to exercise control over these key drivers of sales rates appears to be that there are limited opportunities for rivals to enter large sites and compete for customers by offering different types of homes at different price-points and with different tenures……..”
“So further questions arise:
would the absorption rate, and hence the build out rate be different if large sites were ‘packaged’ in ways that led to the presence on at least part of the site of:
o other types of house-builder offering different products in terms of size, pricepoint and tenure? Or
o the major house builders offering markedly differing types of homes and/or markedly different tenures themselves?
would the absorption rate be different if the reliance on large sites to deliver local housing were reduced? And
what are the implications of changing the absorption rate for the current business model of major house-builders if the gross development value of sites starts to deviate from the original assumptions that underpin the land purchase?”