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Land Shortages Or Land Banking?

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Land Shortages Or Land Banking? Residential Research – June 2021 Land shortages or land banking? 300,000 homes since Q1 2017, helping to build a strong Government attention appears to be turning yet again to the pipeline of development land. supposed problem of land banking. The Local Government Association recently called for powers to charge developers Homes in the Right Places council tax on unbuilt homes, and the Housing Minister But this pipeline is not distributed across the country in line confirmed that he is planning to take action to ensure with the areas where new homes are most needed and demand developers build out at pace. However, our analysis shows is strongest. The standard method for calculating housing that, far from sitting large amounts of undeveloped land, need was introduced in 2017 to help streamline the planning developers are facing shortages of consented land, particularly system by providing a single assessment covering all local in less affordable areas where there is the greatest demand for authorities in England. In its simplest form, the standard new homes and the highest potential to deliver at pace. method uses house price to earnings ratios to generate a multiplier which is then applied to household projections for a The impact of the pandemic on land supply given area, effectively using affordability as a proxy for housing In the year to September 2020, full planning permission was demand. granted for 370,800 new homes in England, an 8% fall from the To some extent, the standard method is beginning to achieve 2019 peak of 406,000 consents. However the number of homes what it set out to do. In the year to Q1 2018, the least approved in Q3 2020 grew by 21% against the previous quarter, affordable fifth of all local authorities (the areas where there is suggesting that disruption to the planning system due to the greatest need for more housing) contributed 24% of all full lockdown has been relatively short term. planning consents granted on sites of over 20 units. By Q3 Certainly, looking at the national figures, the planning 2020, this figure had risen to 31%. However, over the same system does not appear to be a barrier to increasing period, the second least affordable quintile of local authorities n of saw their contribution to planning consents fall to just 14% of delivering 300,000 homes per year by the middle of the the national total. The most affordable quintile, where there is decade. Rolling annual planning permissions have exceeded a lower need for housing has consistently delivered 20-25% of all consents. Figure 1 Consents granted by housing affordability of local authorities 100% 90% 80% 70% 60% Most affordable 50% 40% (annualised) 30% 20% 10% Least affordable Proportion of full consents full Proportionof 0% Source Savills Research using ONS, Glenigan In the areas with less affordable homes, and therefore higher Maintaining delivery levels demand for housing, housebuilders are able to build and sell A comparison of new planning consents against new home new homes more quickly (See Planning and Housing Delivery, completions from 2015 to 2020 shows that there are locations 2019). To maintain or increase housebuilding, these areas need where this has not happened, and these areas are likely to be a higher rate of new planning consents to replenish the facing a shortage of consented land. 46% of local authorities development pipeline. have been building out sites at a faster rate than they have been consenting new homes during this period. A further 18% of local authorities have a replacement rate buffer of less than 100 homes per year, risking falling housing delivery if any of the consented land does not come forward. 1 June 2021 Land Shortages or Land Banking? Full planning consents in Cheltenham between 2015-2020 particularly in the South East, and in some cases this is also are equivalent to only 27% of the new homes completed in the translating to some upward pressure on values. The shortage is same period, and in Mole Valley it is just 30%. Housing largely of immediate consented land with capacity for 50-150 delivery in these areas has been reliant on a pipeline of homes. development sites built up over a longer period, and unless Shortages in supply have also been reported in areas of the there are many more planning permissions, new homes North, Midlands, and East of England, but yet producing completion numbers will fall. The map shows this is primarily the same impact on values. Instead, housebuilders are looking a challenge in Southern and Eastern England, with locations in at smaller immediate sites that they would not have previously the Green Belt surrounding London almost uniformly facing considered or seeking to replenish their own strategic land shortfalls. pipeline. Vendors have also been able to secure more favourable payment terms. Figure 2 Consents and delivery Is land banking really a problem? Despite these market signals, Robert Jenrick confirmed in early May that Government is now considering a levy on developers that fail to build out land with planning permission within a certain time limit. This is supposed to tackle housebuilders land banking, even though multiple 2014 and Sir Oliver Letwin in 2018, have concluded that land banking of permissioned sites is minimal. The LGA recently claimed that over 1 million homes that have gained consent since 2010/11 have not been built. However, Savills analysis of data from Glenigan since 2015 shows a far more complex picture. The majority of consented units are on sites that are under construction but not yet fully built out. These sites can take several years to build out, and their delivery rates are limited by what the local market can absorb; an important factor when, as shown previously, almost a third of consents are granted in the areas with the lowest demand. Of the consented units that have not yet started construction, 57,500 have been confirmed as being on hold, cancelled or for sale. 51% of these units are on sites that gained consent before 2018, and as the consents are over 3 years old, they may now have lapsed. This leaves 175,000 units progressing towards construction. Of these units, 92,000 are on sites where a construction contract is in place. Our analysis suggests that, of the units consented in the last 5 years in Source Savills Research using MHCLG, Glenigan England, 120,000 150,000 consents can be considered to not be progressing. This is equivalent to around Consequences for the land market supply at current delivery rates. The supply shortage of consented land is now being felt in the Therefore, if the Government is serious about increasing development land market. In the Q1 2021 Home Builders housebuilding, a levy to reduce land banking is not the answer. Federation survey, 48% of respondents considered land Instead, it should restore full focus on ensuring there is a availability to be a major constraint to development, an sufficient pipeline of development land, especially in areas increase from 42% in the previous quarter. Our survey of where demand is the highest, and that local authorities have Savills land agents in Q1 2021 has shown that a shortage of the resources to deal with complex planning applications. supply is leading to an increased number of offers on sites, Savills team Emily Williams Please contact us Associate Director for further [email protected] information 07971 880389 This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. 2 .
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