1. Creating the Housing Shortage: The Role of the Volume House builders; Findings from a study of new housing development in Northampton and Milton Keynes Bob Colenutt Northampton Institute for Urban Affairs, University of Northampton October 29 th 2013

2. The housing shortage

3. Why the shortage of new market housing in the UK? Usual reasons; (a) Demand factors: supply of credit and lack of affordability of new units (b) Supply factors: Prices not rising fast enough for make development viable; lack of land and planning permissions for housing; The underlying constraint on housing is the supply of land Barker. Interim Report p.10, HM Treasury 2003 BUT it is our contention is the key to understanding low levels of new market housing delivery lies not in the supply of land but in the way the landowner/housebuilder business model works. This model of delivery has achieved almost complete domination of public policy about new housing supply in the UK over the last 20 years. What does our research on new housing development in Milton Keynes/Northamptonshire 2001- 2013 tells us about the nature of this domination and its implications?

4. Large Housing sites: the case of MK/Northamptonshire The Sustainable Communities Plan Growth Areas Programme 2005 highlighted need for more land to be allocated for housing In MK/Northamptonshire 50% of the new housing growth was designated in large sites with 1000 plus homes; i.e. approx 70,000 homes to be built over 20 years The large housing sites are called Sustainable Urban Extensions (SUEs) Assumption: if land was designated in Core Strategies, then the main barrier to delivery would be removed; and, because it was part of the new spatial planning system, new development would be joined up and sustainable See Building an Affordable Utopia paper to IBG Sept 2013 The Crash exposed the naivety/delusion of this assumption; but the problem lies deeper than boom-bust cycles

5. Sustainable Urban Extensions (SUEs) 24 SUEs were designated in our study area; several of the sites had been in Local Plans for some years before Most have planning permissions to major HBs Only 5 started on site (4 in MK on former NT land) by 2013 - Is the lack of progress due to a slow planning system? -Lack of infrastructure? e.g. A14 widening -Local objections? Limited in our area -To understand whats really going on we have look closely at the landowner/HB business model and how it operates on an area basis.

6. Housebuilders Business Model Land is bought in advance (betting on future price rises in that area). They have significant upfront costs on land and infrastructure but house sale prices reflect original land costs, plus costs of infrastructure and a profit rate of 20%. But HBs are not simply housing development companies. Profits are also made from land by the way they manage their land banks; by trading in some land, or by holding on in order to get the benefit of rising prices

7. A closer look at land banking There are two types of land bank (a) Short term oven ready land banks with planning permission (b) Strategic long term land held mainly on 15-20 year options The major housebuilders hold a large portfolio of sites in each category, on a sub-regional basis as in Northamptonshire or MK, bringing them forward in a carefully managed way in relation to competition and forecast price movements. Although the main stated reason for landbanks is to maintain a pipeline to plan future development; in fact it more complicated than that. Some sites are held to keep out others and maintain prices. Overall they manage the portfolio to ensure that final house sale prices meet or exceed their target prices when they bought the land, balancing this against holding land as an investment Because land value for housing rises considerably faster than the rate of growth of the economy as a whole (see chart), Strategic Land is also held for trading and for investment. i.e. There is no business necessity for a large HB to bring all the plots he controls in an area to construction quickly BUT rather to promote the likelihood of development in the future by continual engagement with the planning system. This keeps options alive while values increase over the long term with house price inflation. This appears to be the case in our case study area.

8. Heres why strategic land is so important

9. The volume builders are especially important in this process After each crash and recovery (1973, 1989, 2008) the large housebuilders have grown larger and taken a greater share of the new homes market Over the last 20 years the large builders (over 500 homes pa) have increased their share of the total new homes market by 20% to while smaller builders have reduced their share by 20% Land banks have increased proportionately, and continue to do so. Locally hope values have been spread out further around all major towns and conurbations as they succeed in getting more land optioned to them Just the top 5 builders, who deliver 35% of total UK supply of new housing, have 12 years of UK total annual supply (at current rates) in their land banks

10. Dominance of large HBs

11. Land Banks on top 5 Housebuilders in Numbers of Plots CompanyShort term land bank 2010 Short term land bank 2012 Long Term land bank 2010 Long term land bank 2012 Annual completions 2012 Bellway176022230015200180005226 Barratt6232054209580006000012687 Berkeley280992602160000 3565 Persimmon5886263786n/a9000011325 Taylor Wimpey 63556654097706010034010886 Source: Annual report and accounts

12. Conclusion 1. Landownership by HBs must be subject to a full OFT investigation We have not found any evidence to support the view that at the national level, housebuilders are hoarding large amounts of land with implementable planning permissions on which they have not started construction 5.89 Office of Fair Trading Review investigation into the housebuilding industry 2008 Carefully selected words...but are they misleading? Our evidence suggests the Big Five are doing just that, for their own business reasons. The OFT acknowledges that there is little public information about how HBs hold land e.g. about land options. So the OFT Report must not be end of the matter. In fact a new investigation, including possible local collusion among HBs, is needed. Sounds familiar? The Big Six Energy companies...

13. Conclusion 2. Spatial Planning has failed and must be radically changed The spatial planning assumption that allocating land was a sufficient incentive for HB sector to deliver spatial planning policy objectives was misplaced. From the HB perspective, these objectives were always a cost be minimised; the more so as the recession hit. In particular the affordable housing policies were seen as lowering land value (less value to distribute)- yet the planners relied on cross-subsidy Far too much time of the planners was spent on spatial policy guidance for example on sustainability and far too little on the economics of development i.e. how delivery would take place There was remarkably almost no serious land or property market analysis in SHMAs or Core Strategies (see our forthcoming paper for Regional Studies Association conference, 2013). And this remains the case. Hence, the planners made over optimistic/naive assumptions about the market. Current revisions to Core Strategies assume that high rates of new housing provision, including affordable housing, will come from HBs

14. Conclusion 3. Planning for New housing has been captured by the landowner/HB sector In the Growth Areas, the State was reliant on HB/landowner sector for delivery; there was no plan B. Neither government nor the private sector provided opportunities in the form of capital, land or capacity to enable other sectors to enter the field. HB landownership excluded other providers. HB model may have failed to meet public policy objectives but it successfully delivered for its shareholders increases in land value and rising house prices, including capturing increases in value from publicly funded infrastructure Most SUEs were optioned to major HBs (except in MK). Where construction began, HBs drip feed supply to keep up prices (see David Adams work). Local authorities or light touch Local Delivery Vehicles did not have the tools to speed up delivery HBs and landowners captured the Local Plan Inquiry system. Large numbers of objections from the housebuilders dominated the West Northants Core Strategy Inquiry 2013 arguing that strategies were unsound since they did not include enough housing land They also captured crucial local plan policies such as on section 106 affordable housing agreements because they argued local authority requirements made their schemes unviable, at which many local authorities backed off

15. Ed Milliband said in his LP Conference speech 2013 that developers who did not develop land should use or lose it What would that mean in practice? If there was proven evidence that developers with planning permissions were not implementing them, the land would be acquired by CPO. Very expensive if the full land value was being paid; has to be at existing use value surely BUT this would only make a difference if other housing providers came in A more radical and effective proposals would be apply the principle of Use it or Lose it to all designated housing land whether with outline permission or not; Back up land acquisition with a publicly funded infrastructure investment plan paid back through rising land values Use public or community landownership to bring down prices of housing; and retain as much land as possible in public ownership to enable land value increases to be captured for community benefit Or do we need a land value tax?....