16 Jul The Letwin Review – what it means for SME developers.
A Blog by Gus Zogolovitch.
Another week, another housing minister. Dominic Raab has lasted 6 months on the job as housing minister and is the 8th housing minister in 8 years. Perhaps Theresa May thought that he contributed so much to solving the housing crisis that he could add his expertise to an equally difficult task of sorting out Brexit. I’m afraid I don’t share that view. I asked a few of my colleagues about this and some of the (paraphrased) responses I got were:
‘housing is not a priority due to the short nature of election cycles’
‘ministers are thrown in to housing and don’t really understand the issues’
‘politicians don’t really care about solving anything, they are acting in their own best interests’
So, given the above coupled with the political merry-go-round that we housing professionals have witnessed over the last decade, it was with rather weary resignation that I clicked on the ‘draft analysis’ of the Letwin review to have a look.
I must admit that I was pleasantly surprised. I didn’t end up throwing my laptop at the wall in disgust, or cursing under my breath, in fact, I read it to the end.
The review has been criticised for not being ‘thorough’ from a data perspective. The criticism is that Letwin came up with a conclusion and then went searching for data to prove the conclusion.
I accept that criticism, but in the interest of time, I am happy to forgive it. We live in a world where we need answers sooner rather than later – can we really afford to take the 5 years that the Chilcot inquiry took? In my mind, the housing crisis is now and we need to act fast to turn this ship around and start getting people back into home ownership.
The conclusion of the draft analysis was relatively simple – Letwin found no particular evidence of conscious and strategic land-banking from volume housebuilders that aim intentionally to distort the market.
That does not mean that volume housebuilders build out every permission as soon as they have it, it means that they don’t buy land and sit on it doing nothing with the sole purpose of creating value by doing nothing.
What they actually do is buy land and then take it through planning and build on it when they can sell their homes. It takes time to get through planning and not everyone wants a volume house product. This is called the ‘absorption rate’ – the rate at which people buy the housebuilding product. It was clear that when you added more diversity, the rate of sales increased.
What the volume housebuilders actually build is generally not to my taste or liking (although I went to Countryside’s Accordia recently and thought that was great). But then again, I don’t on the whole eat a supermarket ready-made lasagne (although that may be because my Italian wife would kill me!). What they have in common is that I don’t think that we should stop production of either. Volume housebuilding contributes over 100,000 new homes a year and that’s an important part of new supply. It’s just that if we want to build 300,000 new homes, we need to offer more choice. If we went to our local supermarket and could only buy ready-made lasagnes – I probably wouldn’t shop there much (even if my wife was on holiday). If the supermarket then started to add other lines – maybe ready-made spaghetti bolognaise and a bit of mushroom tagliatelle then I might be tempted. If they started to offer pasta, fresh tomatoes and fresh basil, then even my wife might take the plunge.
The point is, that what we need in our housing is diversity. Letwin’s review agrees with that viewpoint. As an independent developer, I’m left with small left-over gap sites – and by definition, this produces diversity due to the nature of the site itself and the solution required to deliver it. I’m a passionate believer that the best quality housing comes from self-build and custom build (because owner-occupiers are incentivised to invest in their own home to reap the longer term benefits in an appreciating asset) and we then all benefit from greater environmental performance and generally nicer buildings to improve the local neighbourhood and community. I’m glad that Letwin picked this up directly, but it’s not the only reason I liked his conclusion – that was because it made sense to me.
I agree with Letwin that there is little we can do about absorption rates – and I think that the best thing to do is to leave the volume housebuilders building the product they know how to build and incentivise diversity – through land supply, access to funding, easier planning, and more support. However, that would be jumping the gun; Letwin is due to publish his solutions later in the year.
I look forward to hearing them.
In the meantime, pass the Parmigiano
Want to learn how to be a property developer? Sign up to be notified of future events at the Developer Collective.