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Update on build out rate inquiry published

13 March 2018

In a letter to the Chancellor and Housing Secretary, Sir Oliver Letwin said he had decided that the focus of the first stage of his inquiry would be exclusively on large sites and large house builders, and the reasons why once they have obtained outline planning permission, they take as long as they do to build those homes.

Final Report expected in time for Autumn Budget

He proposes to publish a Draft Analysis at the end of June which contain only a description of the problem and of its causes. He hopes to formulate robust recommendations from the Summer onwards in order to produce a Final Report containing recommendations in time for the Budget.

Based on evidence so far Sir Oliver said the rate of build out on large sites was held back by limited availability of skilled labour; limited supplies of building materials; limited availability of capital; constrained logistics on the site; the slow speed of installations by utility companies; difficulties of land remediation; and provision of local transport infrastructure.

But he added he was not persuaded that these constraints are the primary determinant of the speed of build out on large permitted sites at present.

"Absorption rate" a fundamental driver of build out rates

He argued 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. Sir Oliver has received evidence the the rate of completion of the ‘affordable’ and ‘social rented’ homes is constrained by the requirement for cross-subsidy from the open market housing on the site.

He also said that the demand for private rented accommodation at full open market rents would be largely additional to, rather than a substitute for, demand for homes purchased outright on the open market.

Direction of the inquiry

He concluded by setting out further questions:

  • 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:
  • other types of house-builder offering different products in terms of size, pricepoint and tenure? Or
  • 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?