'Use it or lose it' ultimatum on building plots is not the answer
Monday, 30 September 2013 - Pete Redfern
It's why we're here – because we get a buzz from seeing a raw piece of land turned into a living, breathing place.
If you listened to Ed Miliband last week, talking about "land banking" and repeatedly using the phrase "use it or lose it", you would not believe that the greatest challenge for our industry is getting sites through our slow and complex planning system, and then getting them open as quickly as possible.
You would think that the industry regularly sits on sites that have planning permission, purely to benefit from movements in land value.Major housing developers do not delay developable, viable sites with implementable planning permission.
If we could be criticised for anything, it is rushing the final stages too quickly to get a new site open – born out of frustration with a planning process which has often taken many months longer than expected.
At Taylor Wimpey, we have 318 sites with an implementable planning permission. We are actively developing on 316 of them; the other two are within weeks of starting, having been delayed by final negotiations with landowners.
In case you think "implementable" planning permission is a fudge, it's not. It means sites where planning permission has been granted and any planning conditions have been met. These conditions are imposed by the planning authority and can be as many as 100 per site, though the average is around 25. They can vary from obtaining a "newt licence" to approval for a road access layout.
When the Local Government Association says there are about 400,000 unbuilt plots with planning permission, and uses this to defend the effectiveness of the planning process and point the finger at developers, they miss this point – many of those plots are working their way through the complex process of ticking off these planning conditions.
Taylor Wimpey has roughly 10,000 plots with planning conditions still to be satisfied – that means they are sitting in this "black hole" with a permission that cannot yet be implemented. I don't believe we are unusual in this and, given we are roughly 10pc of the industry, we estimate that around 100,000 of the 400,000 plots across the UK are in the same position.
The truth is the majority of housebuilders' land banks are actually under active development. However, planning is "lumpy"; sites do not come in neat parcels with 30 homes that can be developed inside a year. On paper, we hold around six years' supply of land "with planning". However, that includes land with only outline planning (about 18 months' worth); land where we are still working through the conditions (about another year); land where we are building preliminary infrastructure (about six months); and about three years of actual, usable supply.
On our largest single site at Great Western Park in Didcot, Oxfordshire, we have 3,000 plots, out of a total master plan of 3,300 homes, but it will take 13 years to build, not three. Help To Buy is boosting volume on large sites like this, but to build – and particularly sell – faster than this would distort the local housing market and probably require price reductions that would make the site unviable.
It would also put in jeopardy the £175m we contribute every year to community development, including roads, nurseries, schools and community centres.
Don't take my word for this. Since I joined the industry, there have been three independent reviews of land banking: the Barker Review in 2004, the OFT in 2008 and the Calcutt review in 2007. All three concluded that housebuilders do not hold on to developable land to manage the market, or benefit from rising prices, and that land banks are a necessary tool.
But, yet again, the land banking question is raised because it is politically expedient and little understood by those outside the sector.
Even when we have outline planning permission, there are many other constraints before we can start development. Once started, we want to build as quickly as possible – land is expensive and we only recover our cash, make a profit and reinvest once we complete homes.
What would happen if any government were to introduce the sort of taxation and compulsory purchase process touted last week?
It would have little impact on the timing of site starts; it would effectively be just another cost, and would reduce investment, particularly in complex, large sites, such as regeneration schemes and those requiring significant upfront investment.
Many of these are already only borderline viable, so if a taxation or fine system affected sites that had already been started – in an attempt to force accelerated build on large sites – the impact would be catastrophic. We would see an immediate increase in volume production on existing sites, as developers balanced taxation with reduced prices, but even this extra volume would only be achieved in the very short term.
Where there were existing large sites, local prices would be hammered as volume flooded the market, whereas they would remain stubbornly high in areas resistant to build.
Then, within two years, all but the largest sites would burn out, and industry volumes would plummet, investment would only be focused on small quick-turn sites, and many landowners would not bring sites forward to the planning system. By the time we got to 2018, the industry would be smaller than today and the total number of homes built in that period would end up less than where we are heading today.
So what would I do to deliver much-needed homes in the UK? The cure is not quick or easy. We need to accept that we need more homes, which means a gradual opening up of the planning system, more dialogue, good quality developments and increasing trust between the development industry and the communities in which we operate.
We can build 200,000 homes a year, but it can only be done sustainably and profitably if we are patient and constructive on all sides of the debate.
Threatening developers with a "use it or lose it" ultimatum is not the answer.