Housebuilding review denies the reality of land banking

Housebuilders sit on plots of land waiting for their price to increase

‘According to official statistics “The value of land has grown rapidly from 1995, increasing by 412% compared with an average increase of 211% in the assets overlying the land.”’

Whose land is it anyway? Housing, the capitalist crisis and the working class, An FRFI pamphlet

Sir Oliver Letwin MP has produced the Draft Independent Review of Build-out Rates for the government. He was asked to explain the time between land being acquired for housing construction, planning permission being granted and housing actually being built, and to make recommendations for closing this amount of time: the build-out rate. The final report should be delivered before the Autumn 2018 Budget. Letwin explains that concern has been expressed in ‘some quarters’ about possible ‘land banking’ and ‘intentional delay’ by major housebuilders. In our pamphlet we state that ‘Housebuilders buy and then sit on land with planning permission, but do not build in order to maximise their profits. Five government reviews since 2004 claim that housebuilders do not use land banks speculatively.’ Despite the evidence to the contrary, Sir Oliver Letwin reaches the same conclusion as the previous reviews.

Letwin is the MP for West Dorset, former Conservative Cabinet minister and Chancellor of the Duchy of Lancaster, and current chair of the Conservative Research Department; a man worthy of the housebuilders’ trust. Letwin it was who recommended in 1985 that the poll tax be ‘trail-blazed’ in Scotland. Following the uprising at Broadwater Farm in Tottenham in 1985, Letwin opposed proposals to make funding available to improve local housing and train young people, claiming it would ‘subsidise Rastafarian arts and crafts workshops’, stating that black ‘entrepreneurs will set up in the disco and drug trade’. In 2003, The Independent reported Letwin saying that he would ‘go out on the streets and beg’ rather than send his children to state schools in Lambeth, where he and his family lived; not likely for a former Eton pupil and graduate of Trinity College, Cambridge. In 2009, The Daily Telegraph reported that Letwin agreed to repay a bill for £2,145 for replacing a leaking pipe under the tennis court of his constituency home in Dorset, which he had claimed on his parliamentary expenses. At the time, Letwin was a non-executive director of NM Rothschild merchant bank, as well as being an MP. Letwin co-authored with John Redwood Britain's biggest enterprise: ideas for radical reform of the NHS, a 1988 Centre for Policy Studies pamphlet which advocated a closer relationship between the NHS and the private sector. This is regarded as providing a theoretical justification for NHS reforms carried out by subsequent governments, particularly the Health and Social Care Act 2012.

In his report, Letwin expresses dismay at the lack of available information on land holdings and build-out rates. He and his team studied 15 large sites, five of which are in London and nine in the south of England. The range of build-out rates for housebuilding firms, from buying land to completing house construction on the 15 sites was from 8.4 years to 43.8 years, with the median time to complete being 15.5 years. Letwin says that the fundamental determinant for the build-out rate is the ‘absorption rate’, meaning the rate at which homes can be sold without disturbing the market price. This, in turn, is affected by the type of home being built and its price. Significantly, housebuilders can control the rate of sale of homes because there is no opportunity for competition from other firms with different properties, prices, and forms of tenure. That the major housebuilders function as monopolies is not considered.

Completion of ‘affordable’ and ‘social rented’ homes is restricted by the rate at which open market sales are completed, as these sales subsidise the affordable and social rented homes. It is no surprise to find that Letwin concludes ‘that it would not be sensible to attempt to solve the problem of market absorption rates by forcing the major housebuilders to reduce prices…’ Letwin adds that ‘I have been told, on every one of my site visits that the need for social rented housing is… “virtually unlimited”.’

So why does it take the housebuilders so long to build houses? Finance is certainly not a problem because large amounts of credit are available and ‘because at present [the housebuilders’] cash flow is typically sufficient to repay such loans in a year’. There are no shortages of building materials and no shortage of skilled labour; transport infrastructure poses no problems nor does the availability of utilities. Getting planning permission causes little delay. Could the problem be land banking? No, concludes Sir Oliver Letwin; ‘locking away’ land from the market is ‘implausible’. Why is it implausible? Because, he says, housebuilders make their profits from selling houses? The more houses they sell the more profits they will make and the more land they will need to build more houses: ‘The faster the land is used, the larger the need for a back-up supply of land that can be used in the future.’

In this fantasy scenario, housebuilders are straining at the bit to get more houses to us. So why is the median time for getting houses built on the 15 sites studied 15.5 years? Letwin tells us that ‘It would ... be perfectly possible for financial speculators of a certain kind to seek to make a business out of holding land as a purely speculative activity. But I cannot find any evidence that the major housebuilders are financial investors of this kind. Their business models depend on generating profits from the sales of housing rather than out of the increasing value of land holdings.’ That house prices reflect and include land prices and that the profits subsequently made from building and selling houses consequently vary with the price of land, seems to have escaped Sir Oliver Letwin’s comprehension. There is no reason to expect any more enlightenment from the final report to be delivered to a government of land owners.

Trevor Rayne 

Fight Racism! Fight Imperialism! 265 August/September 2018


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