To diversify housing, let boroughs build (June 2018)

[Originally published on Centre for London blog, 25 June 2018]

Build out rates – the speed with which building takes place after planning permission has been granted ­­– are one of the great mysteries of housing policy.

We talk of how many houses different boroughs can deliver, and compare it to London Plan targets, but once a borough has granted planning permission, its power is actually very limited. Planners can plan, but it’s hard to make builders build.

Under successive mayors (and in spite of falling budgets) London planners have pushed more and more permissions through the system, making it hard to lay blame at their door, but delivery has remained stubbornly slow.

Is this the result of developers sitting on sites as their values rise, of unimplementable permissions, of infrastructure or contamination problems, or of shortages of capital, bricks or bricklayers?

The Letwin Review into build out rates, commissioned by the government last autumn, has been seeking to answer some of these questions. Its analysis, published today, looked at sites with permission for more than 1,000 homes, finding that the median rate of build out is 6.5 per cent per year, with a median completion period of 15 years. Worryingly, the Review’s existing analysis for London suggests an even slower rate of 3.2 per cent per year (though this may partly result from London sites simply being larger).

As in his interim report, Sir Oliver Letwin argues that developers do not simply sit on land, hoping for values to rise before they sell it on, but they limit the rate at which they build to avoid ‘flooding the market’ and pushing prices downwards. Shortages of skills, materials and finance all play a part too, but it is this ‘absorption rate’ issue that is at the heart of slow housebuilding.

The Review will publish its policy recommendations around the time of the Budget, but Sir Oliver writes that diversifying tenure, housing type and architectural style will be central to these; build-to-rent does not compete with housing for sale, and apartments do not compete with townhouses, so these housing types can be delivered alongside each other without pushing prices down.

One big outstanding question is whether this can be achieved through the large housebuilders alone.
Diversifying the types of housing delivered should go hand in hand with diversifying the development industry: commercial developers, housing associations and community organisations all play a part, but London’s boroughs are also getting back in the game.

Local authorities could make a real difference, stepping up delivery of social and affordable housing, mixed with market housing. The schemes built to date, and many more in the pipeline, focus on sites that the market has passed over – often smaller sites owned by local authorities. Most local authorities in London either have a delivery programme in place, or are planning one, but government restrictions on borrowing continue to tie their hands.

Direct delivery by councils and council-owned companies is not a magic bullet solution to London’s complex and persistent housing and affordability challenges, but it should form part of the arsenal. If we are going to accelerate delivery, we need to let boroughs build.