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Letwin Review: report on build out rate published

25 June 2018

Today the Government has published Sir Oliver Letwin’s draft analysis on the cause of the gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand.

Absorption rates the fundamental driver of build out rates

In the analysis Sir Oliver reiterates his view that 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 the local market without materially disturbing the market price.

The absorption rate was also different depending on the types of tenure. He said the absorption rate of the ‘affordable homes’ and ‘social rented housing’ on large sites is regarded universally as additional to the number of homes that can be sold to the open market in a given year on a given large site.

Other conclusions

Reducing prices - It would not be sensible to attempt to solve the problem of market absorption rates by forcing the major house builders to reduce prices. 

Large versus small sites - Build out rates would not be increased by reducing reliance on very large sites.

Varying housing products - If either the major house builders themselves, or others, were to offer much more housing of varying types, designs and tenures on the large sites that matched appropriately the desires of communities, then the overall absorption rates could be substantially accelerated.

Richard Blyth, RTPI Head of Policy and Research, said: 

“The RTPI welcomes the publication of the draft analysis by the Letwin review of build out. In particular, we would support the conclusion that a much greater variety of tenure and of types of home is needed on large sites.  We have been saying this in our #16Ways campaign to solve the housing crisis and our work on getting councils building shows one way in which variety could be achieved. The RTPI is working with the Right to Build Task Force on increasing the variety of tenures through custom/self build.

“The RTPI agrees with the Review that simply turning from large sites to small sites would not solve the build out problem. The RTPI has indicated to the Government that the proposals in the NPPF regarding small sites are not sufficiently flexible to be effective.Large sites are important in ensuring infrastructure provision.

"At the heart of all of this, ultimately you require professional staff with the relevant skills to deliver. The RTPI is pushing hard on apprenticeships to ensure we have a pipeline of planners for generations to come.” 

RTPI research on large scale developments cited

An RTPI study of six large housing developments in the South West of England has been cited as by the Review as one of its sources. The study finds that large sites can have a positive effect on affordability and can play an important part in solving the housing crisis.

No evidence of “locking away land” before seeking planning permission

Sir Oliver said that major house builders are “land banking” in the sense that  they proceed on a large site, once that site benefits from an implementable permission, at a rate designed to protect their profits by constructing and selling homes only at a pace that matches the market’s capacity to absorb those homes.

He added that he found no evidence that major house builders were “locking away” land from the market before they seek final implementable permissions to build. He said that their business models depend on generating profits out of sales of housing, rather than out of the increasing value of land holdings. It is the profitability of the sale of housing that they are trying to protect by building only at the ‘market absorption rate’ for their products.

The interim report also considered the effects of a number of potential constraint on built out rates such as lack of transport infrastructure, land remediation, supply of materials and availability of skills.

Read the full report here.

The review will publish its recommendations by the 2018 Autumn Budget.