Large house-builders prioritise land acquisition rather than house building, says CPRE
July 28th 2015
The CPRE (Campaign to Protect Rural England) has published a report that looks at the present state of house building in England and asks the question, Why is the delivery of new housing at the current low level? This is the fourth report in the CPRE’s ‘Housing Foresight’ series, which is intended to stimulate debate on future housing policy.
There is a widely-held view that the key reason for low levels of house building is constraints on the supply of land. However, the report looks at the evidence and concludes that this is not the case. It is rather a combination of factors that have led to the current low levels of housing supply, the report says: specifically, national planning policy, constraints on the role of local planning authorities, and the business strategies employed by the large house-builders.
The report says that the vast majority of house building in England is undertaken by a small number of large-volume house builders, which has an impact on the stability and effectiveness of housing delivery. The small number of private sector companies who dominate the house building sector target greenfield land for development as a way of reducing risk and generating higher levels of returns for their shareholders, the report says. Analysis shows that only 8% of all planning permissions between 2007 and 2013 were granted to schemes of fewer than 10 units, despite the widespread availability of small brownfield sites in urban areas.
The report points to an assumption that making large greenfield sites available for development will increase the likelihood of housing being delivered. However, recent research by the Local Government Association found that more than 400,000 housing units with planning permission have not yet been built. It also found that the average time taken for a private sector development to go from obtaining planning permission to completion has lengthened from 20 months in 2007/08 to 28 months in 2012/13. These statistics, says the CPRE, strongly suggest that the strategies of the large-volume house builders are impacting upon the supply levels of housing.
The CPRE refers to a report by the Institute for Public Policy Research (IPPR), which argues for a reform of the building sector to meet the UK’s housing challenge. The IPPR says that the business strategies of the large house-builders are driven by the acquisition of land rather than the output of housing. Land granted planning permission for housing automatically becomes much more valuable than land without, and its value increases in the long term with house price inflation. The CPRE says that the nine largest housing developers have a combined 314,000 housing plots in ‘strategic land banks.’
The CPRE says “the rationale behind holding strategic land banks is that securing land and planning permission is costly, risky and can take a number of years to obtain. It also prevents rival companies purchasing land in a certain area.” Developers are therefore motivated to purchase and hold land because it is an asset of increasing value. They are also motivated to delay development until planning permission is secured and house prices reach a level that makes its development profitable.
“It is clear,” says the CPRE, “that the process of strategic land banking can lock up sites in areas of high demand and not enable other house builders to access suitable building land, potentially excluding other housing constructors from gaining access to suitable building land (e.g. housing associations, small builders, or even local authorities) who might be prepared to build more quickly.”
A report by the Office of Fair Trading has also pointed to the need to obtain land as the driver of the key corporate decisions made by the large house-builders. As well as acquiring land, the CPRE says the need for developers to secure maximum profits on each housing unit has also seen business strategies become focused on land trading. A report by the Royal Town Planning Institute says the focus on land transactions has meant that the house building sector has come to be characterised as much by trading land as opposed to actually building houses.
Greenfield and Brownfield
The CPRE says the preferred focus of the large house-builders has traditionally been on using greenfield land for the majority of new residential development. “These sites are seen as carrying less risk than previously developed (‘brownfield’) land as greenfield development typically requires less ‘sunk costs’ at the start of the development process for land preparation.”
Greenfield land was the default location for residential development before the 1990s, says the report. However, in the late 1990s and 2000s, major national planning policy changes prioritised brownfield land for development, and the proportion of housing built on brownfield sites rose significantly from 59% (77,143 dwellings) in 1998 to a peak of 81% (114,202 dwellings) in 2008.
The CPRE says that developers cited this prioritisation of brownfield land as a key part of the reason for low housing supply levels and urged a change to the ‘brownfield first’ policy without providing any evidence for their argument. In contrast, the report argues that increasing the supply of land allocated for housing only results in more damaging and inappropriate sites being released for residential development, whilst the completion rate (measured from the time when planning permission is granted) remains at the same slow level as before.
National Planning Policy
The CPRE says that the current planning system pressurises local authorities to allocate large greenfield sites for housing as they can make a significant contribution to meeting the five-year housing land supply targets required by national planning policy.
“It often takes more than five years to complete developments,” the report states. “In the current planning regime, this creates problems as land still to be developed on a site is removed from the estimate of the housing land supply. This increases the pressure for local authorities to grant permission for inappropriate development to comply with national planning policy.”
Recommendations: Empowering Local Authorities
The report argues that the current situation is unsustainable and that addressing it should be possible “through mechanisms which, first, prioritise suitable brownfield development, and, second, ensure that residential developments granted planning permission on greenfield land are actually completed before local authorities are required to make more greenfield land available for more housing.”
The report makes a number of recommendations to ‘get Britain building,’ many of which are focused on the role of local planning authorities and the constraints they currently face. The recommendations include:
- Giving local authorities more power to decide on how long a planning permission should remain current. “At present, there is a default time limit of three years for a full planning permission and renewing permission is often an inexpensive process in many local authorities.”
- Changing what constitutes the implementation of planning permission. This also needs to be examined to prevent developments remaining incomplete, says the CPRE. Many developers carry out initial groundwork and then abandon a site for a long period.
- Giving local authorities the power to charge council tax on houses that have been awarded planning permission two years after planning permission is granted, even if development remains incomplete. Charging council tax on the completed property values of sites in this way will mean that house builders have an incentive to finish and market development, says the CPRE.
- Reforming compulsory purchase orders to allow the acquisition of suitable land at its current use value (agricultural or industrial land values as opposed to residential). “Local authorities could then sell serviced plots to house builders, potentially accelerating completion rates because profits would be derived from the sale of properties as opposed to movements in land value.”
- Giving local authorities the power to enforce a developer to complete a site within five years or to offer plots of land on the site to small and medium-sized builders. This would apply to large sites that have been allocated for residential development in a five-year housing land supply plan and are owned by a solitary developer.
- Local authorities could also identify and map small publicly-owned sites in their areas and offer them to small and medium sized builders, housing associations or charitable trusts for residential development.
The report also calls for a greater transparency in land ownership and the development process. “A greater level of transparency in land ownership and land trading can enable better planning for housing, from the national to the neighbourhood level,” says the report. Research into strategic land banking and developer trading is hindered as there is no need to register these transactions, whilst land prices are hard to obtain and compare because there is no clear and accessible land ownership register. To remedy this, the CPRE argues that “it should be obligatory to register all land ownership, options agreements and sales with the land registry. To enforce this, financial penalties should apply if land is not registered after a year and, after five years, remaining unregistered land could become public property.”
The report says a greater transparency in the assessment of viability is also needed: “To minimise their costs in the process of independent assessment, developers employ companies that deliberately underestimate development values and overstate development costs to create an artificially pessimistic outcome,” says the report. The CPRE says that an ‘open book’ approach to the assessment of viability is needed to accelerate the development process.
The report, titled Getting Houses Built: How to Accelerate the Delivery of New Housing was researched and written by Luke Burroughs and is available as a PDF from the CPRE website.