Above all, however, the government assumes too easily that freeing up planning will get more houses built and that building more houses will necessarily bring down prices.

Seems reasonable.

Housebuilders often sit on land, while its value goes up, instead of developing it: at present they are holding enough land, with planning permission, for 400,000 homes, enough – even if built in a traditional terrace – to reach from London to Rome.

Housing completions are around 130k a year. It takes three years or so to get planning permission. So, they’re holding enough land as stock to cover the time it takes to get more land as stock.

Seems reasonable, no?

24 thoughts on “Yes, quite”

  1. Bloke in Costa Rica

    Why does it take three years to get planning permission? I know it’s an unfair comparison, but it took less time than that to plan Operation Overlord. What are the various stages that the obtaining of planning has to go through, and what are the bottlenecks? I really don’t know, never having had any dealing with the system and I’m curious to find out.

  2. Only if we assume that no more permissions will be granted in the next two years.

    How long does it take to grow an apple? Do Tesco have enough apples in stock to cover them for that long?

    It is the number of permissions granted in a year that matters and will determine how much the builders need to keep as stock.

  3. So lefties believe that housebuilders are so rich and so lazy that they can afford to sit on land without developing it and making money? Do they think housebuilders are willing to wait years for a bit of profit tomorrow rather than churn out houses and make money today. #LeftiesAreStupid

  4. Bloke in Costa Rica

    TTG, queuing theory to the rescue. We can refer to Little’s Law here. Number of objects in a system in steady state = rate at which objects enter (leave) system × time spent in system. So the housing pipeline has 400,000 houses in it at any one time. Pipeline needs to be this big. Smaller = stalls, bigger = bubbles. TW is right.

  5. 400,000 is the number of houses needed per year, we’re told.
    If we got planning delays down to one year, we’d still need land bank of 400,000.

  6. “Do they think housebuilders are willing to wait years for a bit of profit tomorrow rather than churn out houses and make money today.”

    Yes.. if returns to management/shareholders are determined by ‘steady and sustainable growth over the medium term’ as oppose to a couple of killer years followed by uncertainty.

    @BICR
    I need to do some reading, I guess. But does that mean that if a govt pledged to increase the rate of granting permissions to 300k per annum, but it would still take three years, then the builders would (optimally speaking) have to cut building in order to get up to the right stock level?

  7. BiCR,

    It’s not 3 years getting planning permission for the land, it’s how long it takes afterwards to get from there to a completed home.

    A lot of that is about things like building roads and junctions, changing traffic lights, water, gas, telecoms. Before you can start building the houses on a new estate, you’ve got to have roads built, for example. Not sure that should take as long as it does, but it’s going to take some time.

  8. SadButMadLad said:

    So lefties believe that housebuilders are so rich and so lazy that they can afford to sit on land without developing it and making money?

    Buying the land can sometimes be one of the last steps in the chain. I know of a building company who simply paid all the planning and legal fees while trying to get a site into the Local Plan and get planning permission, rather than buy the land and then try and get permission. It was only once planning permission was granted that they bought the site and it wasn’t long after that the building work began.

  9. @ Gareth
    My son works for a company that does just that, having entered into a provisional contract to purchase the land subject to planning permission. BUT that is only about 10-20% of its land bank – 80-90% is buy first,seek planning permission afterwards ‘cos farmers don’t like to be left with a will-you-won’t-you planning-dependent conditional sale when they retire.
    Getting planning permission can take three years with planning officers sending plans back on spurious grounds, but that is not all the time required by any manner of means. Building out a new estate involves putting in sewers, gas mains, water mains before the roads then the roads, two or three “show houses” then you start building at the rate that you can sell them (occasionally at the rate that you can build them if there are fewer building workers than purchasers in that town) so the last house can be several years after the first. When I was a young building analyst, Wimpey sometimes took six to ten years to finish selling the houses on an estate. Three years stock is below the optimal level from an operational point of view because land cost is now so high relative to building costs that builders are squeezing their investment in land (sometimes by making the provisional purchase contracts to which you allude).

  10. The problem is obvious (too little supply), and the solution is obvious as well (boost house building).

    Further, tackling the problem is, a) urgent, and, b) would bring many benefits, and a good number of votes.

    The easy assumption to make is that MP’s are just morons, and are too busy trying to tie their shoelaces.

    However, they are not stupid. So, as in all cases like this, there must be a logical reason for governmental inactivity on this over the last 15 years.

    Step forward MP’s housing expenses. Rising house prices mean free money for MP’s, simple as that.

    Solve the incentive problem, and we might make progress.

  11. Lefties want houses built and developers have business models that don’t entail building on all the plots with planning permission that they acquire.

  12. @Jack C
    More to it than that.

    Rising house prices are generally good news for older people, and they are the people most likely to vote – upset them at your peril.

    Flood the market with new houses and they won’t thank you (and will vote accordingly!)

    Ergo, what government really wants to encourage more house building…

  13. Bloke in Costa Rica

    @TTG: if permissions were raised to 300000 p.a. but houses built were still only 130000 then the system wouldn’t be in steady state. ‘Unredeemed’ permits would accumulate. This would only work if permissions were not tied to a particular project but were a pool of potential slots for building (which of course is not the case). If the rate of houses being built rose to 300000 p.a., the builders would need a land bank sufficient for 900000 houses. The only way to reduce the size of the land bank for a given level of building is to make time spent chasing permission shorter. In that I include the regulatory burden that is no doubt imposed on providing the necessary infrastructure.

  14. @Jack C
    @theProle

    Agree, but also, even if many people (albeit privately) admit that not enough homes are being built, they equally think they shoud be built next door to someone else.

    This, in much the same vein as me saying house prices are ridiculouly high … except in my own street, of course, where they’re woefully undervalued.

  15. Older people have younger relatives struggling to get on the ladder.

    Besides, owners already have the benefit of, a) “normal” inflation, b) static mortgage payments, other things being equal, and, c) living rent-free once the mortgage is paid off.

    True, there would be some angst now, but only because the issue has been confronted.

    Actually, of those that would lose if prices were normalised, I suspect most would either welcome it (because they have younger relatives), or be unaffected because they were not planning to move.

    The target audience is probably a lot less selfish, and a lot more public-spirited than you think.

    Thatcher, if you recall, subsidised the less well-off through Right-to-Buy, and was applauded for it by “traditional” conservatives.

  16. Vir Cantium,
    There’s a simple solution to the NIMBY viewpoint: build where no one would mind.

    Are there any towns that wouldn’t benefit from their scuzzier areas being developed? Better still, the likely buyers want to be in towns (generally).

    Decent blocks of flats are perfect.

  17. @ VirCantium, Jack C
    Some of us are more sensible. Local house prices and rents are far too high (because there is a shortage), so when a local factory closed and there were a range of proposals to “redevelop” i.e. build on the site, my wife actively lobbied (I inactively supported ‘cos I was working umpteen hours per week) for it to be used for Social Housing. As a family we are marginally “long” on housing so we should be, in crude financial terms, benefit from a rise in house prices but we want them to fall because *everyone*, not just our sons, need somewhere to live.

  18. @ TheProle
    Who triggered the greatest rise in housebuilding in my lifetime? A: Harold MacMillan, who was pushing 60 at the time. A 50% rise over the Attlee government’s target (and around one-third of the houses Attlee built were prefabs only intended to be temporary accommodation until permanent houses were built).
    So, the answer to your question is “a conservative government led by the grandson of a duke or the son of a baronet or the son-in-law of a duke.”
    People who cared about the country and didn’t panic about the impact on their personal finances of government policy.

  19. The answer is more simple, and it’s the same answer.

    Housebuilders often sit on land, while its value goe up

    They sit on land because it goes up in value, and it goes up in value because it is artificially restricted.

  20. @JackC

    “There’s a simple solution to the NIMBY viewpoint: build where no one would mind.

    Are there any towns that wouldn’t benefit from their scuzzier areas being developed? Better still, the likely buyers want to be in towns (generally).”

    Yes they do. But not the towns with undeveloped scuzzy areas. Trebling the size of Middlesbrough would not solve the housing problem.

    “Decent blocks of flats are perfect.”

    You make it sound so easy! But high density building and living is not something that Britain seems to do very well, especially outside of the big metropolitan areas. People without kids who will sacrifice space for location are happy with flats. Pretty much everybody else wants a house. So there’s a cultural challenge there.

    But even then, for ‘decent flats’ to work as a solution to housing shortages they need to be built in places that the aspiring owner-occupiers want to live.. and want to live keenly enough that they’ll accept the compromises that mid/high-density living comes with. That means London, Manchester, Brighton… that means the places where there are limited locations in the first place, and where people mind very much about new flats being built.

  21. The Thought Gang,
    Every town, including London, has scuzzier areas. By definition, as it’s relative.

    And I’m not saying flats only, but there are an awful lot of young people for whom they’re perfect. And relatively cheap and hassle free.

    I realise that we haven’t always been the best at high density building, but so what? Are you saying that has to be permanent?

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