In perhaps the least surprising news of the year from anyone with the simplest understanding of the workings of the housebuilding industry, the CMA’s final report from its year-long housebuilding market study has concluded that there is no evidence that the land market is uncompetitive or that large housebuilders are holding land beyond what can reasonably be expected given the features of the planning system.
Paul Campbell, our chief executive and LPDF board member, shares his take on the findings:
Richborough and other promoters were pulled into this study and provided evidence and we submitted evidence to demonstrate why Richborough, and indeed the land promotion sector, has very competitive characteristics which include at the initial stage of securing sites to promote where we are in competition against other promoters and housebuilders; the competition to secure an allocation in a local plan where there are many more losers than winners; and then the competitive tender process that we undertake after obtaining planning permission to appoint a development partner.
It is hard to imagine that there is a more competitive industry and puzzling that the CMA ever launched its investigation when the ink had not long been dry on the very detailed and impressive Letwin review.
The report found that, despite the role of the planning system being excluded from the original brief, an overhaul of the planning system was needed to enable more homes to be built each year. They found that there was lack of predictability in the planning system, that it is complex and costly and that there was insufficient clarity, consistency and strength of LPA targets, objectives and incentives to meet housing need. These are all sensible and obvious observations and ones that Richborough, the LPDF, Lichfields, Chris Young KC and many others have been calling out for years.
The headlines on Monday 25th February seem to have been wrongly dominated by the CMA announcing that they will be looking further into the sharing of non-public information on sales prices, incentives, and rates of sales by major housebuilders. Surely it’s inconceivable to imagine that the pricing and sales rates of competing developments are not relevant to developers in deciding the speed in which to progress since it is not efficient for WIP to be tied up in built and unsold homes. Building at the rate of anticipated sales means that cash is invested efficiently and if housebuilders had too much built stock, then they would have less cash to invest in new sites and reduce the overall delivery of homes. Housebuilders are “price takers not makers” whereby prices are taken from the nearby 2nd hand stock with a new build premium on top and housebuilders sell into the market at a rate where that price is achieved. If they build more than can be absorbed at that price, then they would have to slash prices to a level where it will stimulate demand and that would erode return. It is precisely why JLR don’t build cars at a rate that exceeds the customer orders or else they will end up with cars piling up in car parks and draining their cash. Most of the major housebuilders are listed, and the sales rates and incentives are frequently reported in public and can be obtained from the housebuilders websites. The further investigation into this aspect of the market from the CMA seems a bit of a distraction.
Nothing that the CMA has said about the land market not being uncompetitive or the problems of the planning system aren’t already known by the Government. They will continue to ignore the facts though and gloss over the fact that their actions in recent years just make things worse. For as long as the Government is hostage to Villiers led NIMBY faction of the Conservative party, they will continue the blame game regardless of the facts. The CMA report is, however, extremely helpful for the Opposition as they formulate their plans to tackle the housing crisis if they form the next Government. If Labour do win the next election, the dashboard will be flashing red with record low local plan coverage; housing supply falling across many LPA’s; significantly reduction in planning permissions nationwide; under resourced planning departments with low morale; significant increase in homelessness and overcrowding of homes; a struggling SME housebuilder sector and an industry starved of sufficient land and outlets. There is certainly lots of indications that Labour absolutely understand the economic and social benefits of housebuilding and the CMA report will hopefully embolden them further.
The reality is that we have a sales outlet crisis and until that is addressed, we will not get volumes back to the 235k high in 2022-23, let alone up to the 300k (voluntary!) target or the 500k that CPS (Net Migration and Housing – A CPS Briefing – The Centre for Policy Studies) and others say is the true need. In a report that Richborough and LPDF recently commissioned entitled “A New Normal for Housebuilding” the crisis is laid bare. The Governments demand side reforms in the form of Help to Buy and the historically low cost of money, meant that the abnormally high sales rates masked a supply side crisis where housebuilders outlets have generally fallen over the last 5 years which has made the normalisation of the sales rates a much greater shock than it needed to be if there had been sufficient land and outlets. Sadly, in a land starved market, it affects SME’s disproportionally as they find it harder to secure land and for all the talk the Government have of wanting to see a thriving SME market, it is the Governments management of the planning system that creates the absolute opposite.
I am pleased that the report has dispelled the myth that the land market is uncompetitive and that it points the blame squarely on the planning system. Richborough are immensely proud that despite all the challenges that we continue to face that we play an important role in taking on the risks of obtaining planning permission and transferring to a variety of developers including SME’s, Housing Associates, new entrants and major housebuilders. We continue to invest in new sites and planning applications and we are forecasting to sell more consented sites than ever this year and have ambitious plans to increase this output in each of the next 5 years. We pride ourselves that The Richborough Way achieves efficient, market facing and deliverable permissions which are built out quickly.