George Osborne will announce the biggest housebuilding programme since the 1970s as he uses his Spending Review to end the “crisis of home ownership in our country”.
The Chancellor will double the Government’s housing budget and pour money into a series of programmes to build 400,000 new homes across England.
1) This will not work. There’s not enough bricks, not enough brickies and the problem isn’t the price of houses anyway, it’s the price of the permit to allow building upon a piece of land.
2) All those who have been shrieking that there must be a house building program will now shriek about this. For some reason, this is the wrong housebuilding. Watch out for who comes up with the most amusing reason why this is the wrong housebuilding.
I’m betting certain bloggers will declare it is bad because it not “people’s housing” (which would be financed from an earmarked capital tax), and the important thing in any case is to take houses away from the rich.
Your point on permits is of course sound. But it need explaining to punters and pols that In towns and cities (where sensible people actually want to live) the problem is mostly not building in the first place, it is the price of the permit to use a building for a different purpose or to change the building you’ve got. That’s why ever more space in London goes to super-premium developments: Planning and regulatory costs are more of a barrier to cheap conversions.
Pretty fundamental planning reform is working through the system.
I’d say that Osbo will fix this over the 10 years that he has probably got, and noticeably by 2020, for the political reason that Labour thinks it owns this issue.
The questions would be whether Osbo will sufficiently shaft Nimbys, and if Building Standards will be high enough (ie specific space heating requirement should be zero) in new builds once Planning is freed up.
And a plan, rather than financial tricks, is needed for existing housing stock, which is a uniquely UK problem.
“This is the day we say farewell to everything that was good about Britain” a Ritchie blog post screams today. Miserable twat.
Noel,
I heard that quoted on the Today programme this morning but missed the attribution. Did Ritchie actually say that himself?
The nimby factor appears to have crumbled in this neck of the woods and they’re building like there’s no tomorrow, on brownfield and greenfield sites. I accept there is not much in the way of so-called social housing but there you go, it’s why buy-to-let was invented.
Any particular reason why we need to build with bricks? With other industries if there is a shortage of one construction material you look at alternatives. You don’t just say ‘Ah shucks no bricks! I guess we will just have to give up the building trade and open a cafe instead!’
Let us make more bricks. We have the technology.
Is there any particular reason why balloon-frame construction, which is standard in the States, for instance, isn’t more common in the UK.
@Phillip Scott Thomas
The most likely reason is that you would not be able to get planning permission for it as the local planning gnomes and nimby dwarves would look at and say ‘Balloon frame construction? What’s that? A foreign construction method? Heavens to bettsie we cannot have that! It might affect the look and feel of the local community andhave an impact on house prices!’
Look, Tory MPs are statists by nature. Thatcher was an aberration.
Until you can persuade homeowners (and the Daily Wail) that ever increasing property prices are not sustainable, new developments will always be contested by NIMBYs who don’t want their asset to rise in value at a slightly slower rate than it otherwise might.
“Is there any particular reason why balloon-frame construction, which is standard in the States, for instance, isn’t more common in the UK.”
Go look down your local timber yard & see if you can spot any 6m lengths of 5×2 pine. You won’t find many in US lumberyards either. Roughly speaking, you’d be needing to fell trees around twice that height to get logs economically worth sawing to the required dimensions. That’s what? A 40 year old tree? Most construction timber’s cropped much earlier.
There’s no way I’m going to live in a balloon, however few bricks there are. I will build a house from straw, or sticks.
And as Tel said, this is standard Tory. The strange idea that they’re classical liberals or libertarians was indeed an aberration of the Thatcher years, and that was more rhetoric than practice most of the time.
Ian B – “There’s no way I’m going to live in a balloon, however few bricks there are. I will build a house from straw, or sticks.”
I have often thought that wattle and daub should make a come back. In prefabricated segments. Whole walls could be made in a factory somewhere and assembled on site.
Except perhaps instead of daub, you could cover the sticks part with straw and then spray with concrete. Ought to be warm and fairly sound proof.
bis
Where are you getting this ‘6m lengths of 5×2 pine’ business from? A standard framing stud in the States 2″x4″x8′. Lord knows I’ve had to nail enough of them up.
Government involvement in the marketplace led to the U.S. Housing Crash in 2007.
Osborne appears to be from the Newt Gingrich school of conservatism: “We can interfere with the marketplace smarter than the Liberals.”
They are all fascists (strong, autocratic central control of a private economy).
At least he is attempting to tackle (one of) the underlying reason for most of the “problems”.
As TW has (IIRC) pointed out in the past, high house prices are simply a result of high demand + low supply. Increase supply and prices should come down (or rise less quickly).
It doesn’t address the problems of land prices and planning “issues” – or NIMBYs.
As to building, there are alternatives to brick – not that brick is a problem. There are brick plants ready to go at “modest” timescales once demand starts picking up – several got mothballed as demand dried up during the last crash.
SIP is not uncommon, and well understood in the UK. Factory manufactured wood panels, build a dwarf wall, fit a heel plate, stand the panels up, nail ’em together – and there’s the basic carcass of the house. Just add insulation and an outer skin (brick, block, whatever you fancy) and finish the inside.
I do pity people buying shoeboxes … err did I really write what I was thinking … err I mean “compact houses” these days. Having been brought up in reasonably spacious houses, with gardens actually big enough for a child to get up to speed in, I look at modern developments and wonder how on earth anyone could live in them.
But that comes back to supply and demand again. There’s such a demand for building land, and such a shortage due to planning no-permission for decades, that the cost of land is now a major, if not dominant, part of the cost of a house. Thus the modern trend to tiny houses, with a green postcard not big enough to play swingball in !
@Philip Scott Thomas
“Balloon framing”, the wall studs go right the way up from the sole plate to the roof plate, in one piece. So for a two story house that’s around 3m per lift, to allow for floor/ceiling joists. I suppose it’s called “balloon framing”, because before you put the floor joists on their plates it looks like a big empty balloon.
If you’re using 4 x 2 x 2.4’s, that sounds like platform framing. You can get away with 4 x 2’s because you can reduce the spacing centers in the first lift to increase the load bearing capacity. Increase at 2nd lift to economise on timber. Balloon, the timber’s the same size all the way through.
Economics. Why even the US hasn’t done much balloon framing since the early part of the C20th.
I thought the house builders regulate the number of houses they release to the market each year in order to keep prices high. Don’t they have a stock of land and permits that remains constant from year to year? So unless an outsider comes in and disrupts this cosy cartel the housing market will not change, prices will remain high and house sizes will reduce still further.
Ref wattle and daub, and prefabs.
Look up Strammet board: compressed straw between two bits of plaster. This was in common use by your Wimpeys in the late 60’s and early 70’s. It’s non structural, but you can move the partitions around as they are a single ply unit. Bugger to cut into (for a switch box etc) as the straw expands once you start digging it out, but a clever material nonetheless.
Osburke is a clown.
Plus a news flash on the “Lovely Example” thread link tells that Ozzy has just turned his arse on the tax credit cuts as well. I was against them cos people need to be weaned of welfare gradually and carefully to avoid leftist scum being given ammo–but it shows just what a useless, vacillating turd the idiot is.
bis
OK. Having checked Wikipedia, it seems that what I was taught as “balloon framing” is more accurately called “platform framing”. It seems my grandfather’s terminology was, not surprisingly, out of date.
That said, the original question remains: why is platform framing not used more often in Britain?
@diogenes
How would that work?
I’m a house builder & my competition, down the road, is delaying his starts & banking his land to avoid a glut of new houses on the market depressing prices.
“Thanks mate!. You do that. And I’ll quickly run up some 3 bed semis on my plot. Cash in.”
“why is platform framing not used more often in Britain?”
It is. Lots of it. They put a brick skin around it, make it look traditional. Why you see brick at g/f, changing to various claddings above..
I said something similar to this, a while back, but what the heck:
Visited some friends, ordinary Spanish working class. They’ve a three-bed, two bathroom apartment. Proper bedrooms – not Brit style wardrobes missing the hanging rails. You could put a king-size bed in any of them. They’ve a substantial lounge, kitchen, lavaderia – something you don’t have here. Semi-external area for washing machine, washing sink like the old Butler. About 20 m3 of tiled terrace.
There’s about 8 lifts for the block from marbled entrance halls. They’ve a car parking space in the sub, basement & the street level’s retail.
This lot stands on about the area of a UK city block. The perimeter’s apartments up to 10th floor level. The core’s an open area with swimming pool, kiddies playground, sports court & gardens.
Over 500 apartments, the equivalent of which only the wealthiest of Londoners could afford. This is normal.
Meanwhile, you’re building shoeboxes.
There is always this talk of scarce available land, but when a apartment block is built somewhere, a large part of the land is used as a car park, instead of digging a bit more and putting it underneath and freeing more space for buildings.
This has always struck me as the stupidest thing ever.
BiS has been in Spain too long and has forgotten that even Brits don’t want to be in a development with another 499 apartments full of other Brits.
@ diogenes
It takes years for a housebuilder to get planning permission, then more years to build an estate of houses, starting with roads and sewers (these days it’ll build a show house on a plot near the approach road while its building the roads and laying sewers deeper inside the area being developed). The so-called land bank is all work-in-progress with the chunk going through planning the largest part of it.
bis has pointed out why your concept is fallacious.
“cosy cartel” – then why are builders one of the categories most frequently going bankrupt? Construction companies comprise around 20% (variable quarter-by-quarter) of all compulsory liquidations in the UK according to Insolvency Service statistics.
@ monoi
That is because the Attlee government set a limit on dwellings per acre which failed to envisage the building of multi-storey blocks of flats (except for the rich who had an apartment in a mansion block in London and a home elsewhere).
Why didn’t Thatcher repeal the 1948 Planning Act? Because we didn’t have a housing shortage, or not one that was bad enough to worry anyone in government, whjile she was PM.
I don’t see the problem. I was in some Eastern European country a couple of years ago, and one of the locals was telling us that, when they want a house, they just build one. When it gets too small, they add another floor. They don’t hire brickies, they just get together with their neighbours, feed them, give them booze, and build it.
Kind of like our ancestors did for thousands of years before ‘progress’ came along. When they built all those lovely country cottages that sell for such high prices today.
Free people don’t wait for the government to give them permission, or let the government tell them what kind of house to build. They just do it.
@ Edward M. Grant
The problem is that UK citizens are conditioned to be law-abiding.
Diogenes is right! And on a really important subject! This is truly terrible.
There is always this talk of scarce available land, but when a apartment block is built somewhere, a large part of the land is used as a car park, instead of digging a bit more and putting it underneath and freeing more space for buildings.
That’s another thing the French get right: every new apartment block has a large underground carpark and a row of “caves”, or cellars, for the residents. Both are extremely useful, yet the new developments I’ve seen in the UK (albeit 10 years ago now) had surface car parks and no cellars.
BiS has been in Spain too long and has forgotten that even Brits don’t want to be in a development with another 499 apartments full of other Brits.
I am beginning to wonder whether the reason Brits don’t like living in apartment blocks is because Brits make appalling neighbours. Or have British apartments only ever been occupied by the underclasses?
@ Tim Newman
Edwardian Mansion blocks
If you look at the official statistics – frankly the site is a bit of a mess,
This suggests to me that the rate at which new homes enter the market is being managed in a way that is unexpected in a freely opportunistic market. How do you explain it?
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/311515/House_Building_Release_-_Mar_Qtr_2014v3.pdf
George Osborne: we should start calling him (as Paul Keating did of Bob Hawke) “ol’ jellyback”.
@ DBC Reed
After I and others have explained why diogenes doesn’t know what he’s talking about, you proclaim that he is right. You presumably can read, so why don’t you?
Tim Newman,
> yet the new developments I’ve seen in the UK (albeit 10 years ago now) had surface car parks and no cellars
Some guidelines were written called “Secured by Design”, which specified that outside car parks were much safer than underground ones, because you could spot any crims trying to break into your car. If you did want to build underground (or merely even ground floor) they impose a ton of rules on how to do it.
The guidelines aren’t (strictly speaking) mandatory, but you’ll have a hard time getting planning permission if you haven’t stuck to them.
One place I lived in the UK had a cellar. It would flood about once a year when we had heavy rain. Pretty much every house in Canada has a basement, and many also need pumps to keep the water out.
Some of the apartment blocks here have underground parking. It’s useful when there’s a snowstorm at -40C, because the car is warm and you don’t need to scrape the snow off before you can drive. But you do have to get up that ice-covered ramp to the street.
Or because they don’t want to hear everything their neighbours are doing through paper-thin walls.
And consider these facts from the Taylor Wimpey annual report:
Year Landbank plots Completions
2014 75136 12454
2013 70628 11696
2012 65409 10886
2011 65264 10180
2010 63566 9962
a steady growth of 6-7% in completions year-on-year. You would almost think they planned it.
So they are growing the landbank, while not materially changing the number of homes they build, in order to maintain an orderly supply of homes into a market with rising prices, as they explain in their strategy:
It doesn’t mean they are going to build more houses though.
@ diogenes
Cash Flow (in this instance exacerbated by the inability of banks to lend as much to housebuilders to finance work-in-progress after Alastair Darling told them to increase their capital:Risk-weighted-assets ratio).
it really is very simple – you cannot build a house unless you have some cash to pay for bricks and pay the brickies. House prices slumped from 2007 Q3 (12% in a year for UK 16% for Greater London) so the builders had less money to finance building the next house.
@ diogenes
Please stop thinking that we cannot do simple arithmetic. 10180/9962 is a growth of 2.2% not 6 to 7%.
“So they are growing the landbank, while not materially changing the number of homes they build,” Let me see – apart from the landbank being related to the number of *starts* not completions, completions being linked to starts a year or two earlier unless it’s an Amish barn – 63566/9962=6.38 and 75136/12454=6.03. So the numbers that you cite give precisely the opposite answer to your conclusion. Tayor Wimpey appear to be increasing their rate of building *faster* than they are expanding their land bank.
Maybe it is just that you cannot do simple arithmetic – in which case you deserve some sympathy but only if you accept your weakness and go out and buy yourself an electronic calculator to do it for you ,
Noel
Did you see his pathetic echo of the Martin Niemoller piece ‘ Nothing left but to start again’ in his latest post?
Given his resemblance to a prominent defendant at the Nuremberg trials and the similarity of his policies to that regime I am guessing a sense of irony is one of many things that he completely lacks?
DBC Reed: I am enjoying the debate between John77 and Diogenes and am deciding which of these excellent contributors to this blog is correct – suffice it to say, however, if he is correct and you agree with him this is the equivalent of a blind squirrel stumbling over an acorn as almost every post you have ever written has been wrong.
Whereas, over here, I could just drive down the road to the house shop, buy one, and get it delivered on the back of a truck. In the early 20th century, you could order one from a catalogue and have it delivered by train.
Housing is not hard, unless the government get in the way.
John77
It is not necessary to quibble. The rates of growth were 6%, 7%,7%, 2%. The average is 6%.
More seriously, are you suggesting that the Directors of Taylor Wimpey are lying to their shareholders when they expound their strategy – to build about 6k homes per year in order to achieve a return of 20%? If so, you should contact the relevant authorities.
Since the official stats seem to suggest a fairly constant rate of completions, it suggests that other housebuilding companies have similar strategies – restrict supply and keep prices ramping up.
You and BiS might think their strategy is impossible but they have explained it and are delivering to it. Inconvenient facts, eh?
@VP The dribble-out of completed houses from land banks to maintain the house price level (and avoid a house price crash by swamping the market) is basically the argument I make on the subject of housing . So you can imagine how disconcerted I am to see it so masterfully deployed by Diogenes. If anything, the fact that two such different proponents alight on the same explanation probably means its true- (in a rational world, which this blog isn’t).
For your information Jim Claydon of the Royal Town Planning Institute said in 2007 “All landowners including housebuilders maintain land values by managing supply. It is not in their interests to release large quantities of land because this deflates its value.” He compiled a massive inventory of plots in land banks and calculated that there was enough land with planning permissions in London to build 30,500 houses each year for four years.
Edward: Ignoring the permissions aspect, but most people in the UK can’t just add on another bit to their house, as their neighbour’s house is in the way.
How about this from Persimmon Group?
Restricting the supply nof new homes to shore up the reurn on capital. How explicit can you get?
“For your information Jim Claydon of the Royal Town Planning Institute said in 2007 “All landowners including housebuilders maintain land values by managing supply. It is not in their interests to release large quantities of land because this deflates its value.”
Doesn’t mean he can’t be demented, though, does it?
Let’s try this with another commodity. BMW are going to restrict production of their new model to maintain car prices.
And Ford will do what?
John77 do you have any figures or references to justify your view of the picture – I have used quottions from 2 company’s annual reports and official government statistics? Surely you could begin by accepting that there are ebbs and flows in activity such that a property company cannot maintain constant ratios of landbank to starts and completions, notwithstanding the remarkable stability in the total numbers of completions from year to year? Maybe you cannot. All you have supplied is a level of patronising abuse that is unbecoming.
BIS the price is only one trigger for a buyer.
“The pricing strategy that the BMW Group adopts is based on several key trends. One most important trend of BMW is labeled as “premium-tization”.
Premium-tization trend of BMW causes polarization of markets. This trend triggers the consumers to demand and pay much higher prices for the perceived quality.”
Any control of supply that the companies may have is due to government creating a market that prevents competition, since it is so difficult to get permits only those large companies with the resources to cope with the permit process stay in the market and potential new entrants cannot rapidly respond to market conditions. This is pretty classic State cartelisation.
Simply put, in a free market, a new entrant says, “if you won’t build, I will!” and just builds some houses. In a cartel market, the new entrant would have had to guess an opportunity would arise five years ago, start the tortuous permit acquisition process, etc.
In other words, the State forces a requirement for builders to have permits “in hand”, thus creating “land banking” as a prerequisite of market participation. Which suits governments because they much prefer to deal with a handful of big players than the “chaos” of a free market full of competitors of all sizes.
From another
source:
.
Yes, and credit availability is a function of house prices, and round and round it goes.
@ diogenes
https://www.gov.uk/government/statistics/insolvency-statistics-october-to-december-2014
Table 1a
@ diogenes
You have produced figures from two companies – the first of which showed exactly the opposite of what you claimed. If you looked at the country’s largest housebuilder, by number of houses built, Barratt,you would see, a plot: completion ratio declining from 4.5 to 4.3. If you look at the current stockmarket darling tou can see that it slumped from a profit of £84m in 2006/7 to a loss of £140m in 2007/8. Not what you get from a cosy cartel.
Yes, I have lots of figures to back up my view of the housebuilding industry. Try reading the insolvency statistics.
While Diogenes has suddenly transmogrified into an interesting and well-informed commentator on the market in building land , Ian B ,who used to get it, has lapsed into numbskullery. So its the government who creates developer cartels is it? If you had to sell 20 acres of land, who would you go for : the big firm who wanted to by the whole lot for £16m or some new entrant who could only afford to build sixteen houses i.e. on I acre? Supply and demand ,old chum!
North Yorkshire’s land area is dominated by two National Parks. The free market of opinion that is trip advisor tells me that 4 of the top 30 ‘things to do’ in North Yorkshire are in these oh so precious landscapes. And 5 of them are in Harrogate ( to within 8km ).
So why don’t we put a 10km development exclusion zone round Harrogate because the public like the area and are prepared to show it with their hard-earned cash and remove the protection from the National Parks as they are clearly of below average preciousness, in North Yorkshire at least.
Because the CPRE hate people and want to keep their mates in subsidies for areas where nobody comes.
DBC Reed: Your example is staggeringly nonsensical.
I mean just think through what you’re saying – second order effects and all that…
Coming back two hours later I find that my correction, pointing out that had (or thought I had) typed “…stockmarket darling, Redrow, you can see…” has failed to register
diogenes / John77
One or two observations, for what they are worth.
Sure, companies want x years forward in terms of land bank that can start to be developed. But this is important in the sense that, without it, there is simply no future revenue, or any consistent profits to report to shareholders.
The issue is not so much holding back on start-ups, but trying to gain more land. Ie, land (because of planning chitties) is the source of sales, x years forwards; almost if you like the equivalent of “orders”. If a company could double its land bank over night, and had the finance to do it, of course it would, provided they weren’t overpaying (ie they were going to make a good return). And (again) finance permitting, they would naturally start developing more as planning etc fed through (rather than holding back due to market prices).
The issue about market prices is more one of return, pure and simple. Generally, the sooner you build and sell, the higher your IRR (there is always a cash outflow tied up in that land bank), unless you are very confident that house inflation will change that equation, but that can be difficult to predict (re timing) over the longer cycle (and house building is long term).
Ie, there is a difference here, between a) “restricting start-ups in case it might damage market prices” and b) “do we have a continued and sustainable business model”. Those companies specifically referenced above are quoted companies, and their share price is influenced by having a sustainable future stream of revenue and profit. Constantly improving sales (for typical house builders) is also much easier to plan for in terms of managing a sustainable cost base, rather than wildly fluctuating levels of activity, which again increases returns.
Off topic, but cycles are interesting in terms of trying to ride and predict, given the long term nature. Which you see big time with commercial developers – things like the continued spikes and troughs of available office space (due to lead in times) as rental / sale prices rise and fall. Ie, due to the time lags, it often tends to be out of sync – developers stop as demand falls, and by the time there is demand, few (that are not counter cyclically minded) are developing.
If you have overpaid for your land, the only advantage of “holding” rather than building (waiting for a potential book profit, rather than best IRR on whatever the “real” current land value is) is if you can be sure price inflation will offset the interest cost of continuing to hold the land? And yes, obviously that does have an impact during cycles.
Hence, my two pennies worth – “sustainable development” more than specifically trying to manipulate prices (which obviously any one player in the market can usually never do), and yet trying to respond to cycles can easily impact on that.
Thanks John for pointing me to Barratt.
What do they do?
“Purchase land in targeted
locations which at least
meets our hurdle rates
of 20% gross margin and
25% ROC”
Nothing to do with land banking there, is there…
as the Chairman says:”At the same time as delivering an excellent
financial performance, we have continued
to invest for the future. The land market
has remained attractive in all regions and
during the year we approved
£
957m of
operational land commitments for 16,956
plots. All of our land approvals continue
to meet or exceed our investment hurdle
rates of a 20% gross margin and a 25%
site ROCE.
During the year we have also made good
progress in securing a stronger pipeline
of longer term strategic land. ”
It is hard, however to get beyond the cognitive difunction going on in these 2 statements:
I loved this statement: “The underlying demand for new housing
is expected to remain strong as supply is
unlikely to meet demand in the medium
term.”
well, darling, you could just build more houses on the land where you have planning approval.
“public land is an important alternative
source of land supply. Barratt is very well
positioned to maximise this opportunity
with our unique public sector land team
and membership of all HCA Delivery
Partner Panels. We have the expertise
and the capability to secure and deliver
what are often large and highly complex
developments. Our track record
demonstrates this with 70% of bids
won over the past year. Our public land
developments achieve at least 20% hurdle
rate gross margin with ROCE generally
significantly higher than our 25% hurdle
rate, reflecting the attractive deferred
payment terms often available.”
does the word leeches spring to mind?
And it’s all about land banking…
“Through the acquisition of options
over strategic land we are focused on
securing our land pipeline out to 2020 and
beyond, whilst minimising risk and capital
employed. We made further good progress
in the year, with a strategic portfolio of
71,600 plots (2014: 69,200 plots) equating
to 284 sites (2014: 260 sites). We have
seen a significant step up in the delivery
of strategic land, with 17% (2014: 10%) of
total completions being delivered from
strategically sourced land in the year,
progressing towards our target of 20%
in F Y17”
Thanks, Barratt, for securing my points.
PF…very good points…and those are the ones that Taylor Wimpey, Persimmons and Barratts are tyring to work through. iIhave no idea why John77 was pointing me to insolvency stats because he did not state the point he wa trying to make. Buikders can go broke for many reasons. But if major builders are all building land banks…what is the conclusion? They are not building houses. They are building land banks. Especially since that is what the chairmen or chief execs tell us that that is what they are doing. Unless you are an industry shill.
maybe I can say that empirical evidence fails John77.
@ diogenes
Could you actually read and think about what you read? No, that’s too difficult isn’t it? 4.3x completions gives no margin for greater-than expected delays due to bad weather etc. The Local Government Association quotes 27 months as the average time froim getting planning permission to completing a development. The DoE claims that planning decisions have been speeded up from 28 weeks to 26 weeks on average – that is just the time that the bureaucrats sit on it before making a decision, ignoring the time required to prepare it including consultations with local residents. Usually there have to be two applications for every development, sometimes plus an appeal. Before preparing an application the developer has to make a detailed survey of the site, including loadbearing strengths of the soil and locating underground streams. before it starts to make a plan. Four times the annual completion rate is NOT enough stock to reliably maintain a constant production rate.
@J77
Developers land banks are so big because that is what the market dictates and the market cannot be improved upon by mere mortals: that is all your argument amounts to.
Down here in the real world you have Snob the builder Osborne desperately trying to get the developers to build enough houses, the market having not produced enough for decades (since that Pinko MacMillan).
An interesting revival of post-war consensus attitudes is contained in the headline from December 2014 (when the Tories had coalition partners to stop them going to extremes then having to climb down) “Builders must build or we will says Danny Alexander” . A clear statement of the problem without the who the fuck do you think you are insults that you dish out when being thoroughly worsted by Diogenes.
Interesting exchange on the house building industry. Regrettably there doesn’t seem to be much understanding of how it works.
Ask yourselves this: how do house builders compete? It’s not on the bricks & mortar product, is it? Not with the ever imagination-null Brits. Who wouldn’t appreciate a decent bit of architecture if it fell on them. If it ain’t a shoebox standing in a windowbox worth of garden, it ain’t a house. So innovation’s out. For attracting the punters they only have the “Location! Location! Location!” of the TV property. progs.
And there’s the other area of competition. Pointed out before, here, Blokes who build houses aren’t like lawyers & accountants. You can’t produce them out of three years of uni. Builders have only worked out how to find the toilet cabin on the site at 3 years. It’s that rare thing in today’s world. A SKILLED profession. (Because you want those f****g shoeboxes don’t you? You won’t buy factory built kit houses, come on a flatbed)
Any house builder needs continuity of work flow to keep the teams together (Applies just as much with sub-contractors as direct labour) Or he loses them to the house builder down the road. The guys are the house-builder’s only asset. That’s where the money’s made. If a house builder wants to be a house builder in 5 years time he needs to be buying plots now. And have a workforce in 5 years to utilise it. A surplus of land now equals a bigger house builder in year 5.
@ bis
Actually Persimmon does compete on its product. It sells far fewer houses than Barratt but builds (mostly) decent ones on decent plots instead of shoeboxes and charges around three times as much.
@ DBC Reed
Try putting an ‘a’ in your name and actually reading what I wrote. I never said the market was perfect – someone else pointed out that at the current cost of land with outline planning permission you need to be a £100m+ company to buy the land to build a large estate of houses but a bis pointed out the price theycan sell them at is limited by the small builder who can buy a couple of plots and sell the houses at what he (it’s always a guy) regards as a reasonable profit. What I actually said was that it takes over four years to design, get planning permission, and build out the estate – so the builder has to buy the land four years before he sells the house. Land banks *appear* to be big because planning takes ridiculously long.
Secondly the comment by Danny Alexander shows his ignorance – the number of private sector houses increased while those built by housing associations and “affordable houses” built as a condition of obtaining planning permission (“domus nostra” as a variation on “cosa nostra”) had slumped. Private sector housebuilders had expanded to benefit from rising prices – it was “social housing” that hadn’t built so his comment was the inverse of reality.
@ diogenes
Belatedly – I had some work to do – I’ve looked at the write-down in Redrow’s valuation of land for development in 2007/8: it came to 36.7% of the cost. This knocked more than one-third off the group’s net asset value. Do you think that shows a cosy cartel of housebuilders conspiring to limit sales to maximise land prices?
BIS gets it belatedly…it’s all about restricting supply…as all the CEOs of the 3 land banking companies I have read acknowledge. What other industries rely on having 5 years of stock? The answer to Bis’s earlier questions involve restrictions on supply – if every car company was only allowed to produce 100 cars per year, with another quota in 5 years’ time…you could do like BMW….20 cars per year…, and keep producing for 5 years, or do like Ford and blow the quota in year 1.
Planning permission keeps property prirces high and house supply low. Classic micro economics..
And for john’s benefit, if the company gets the balance wrong, they go bust.
And now another diversionary tactic from John. Cartel behaviour /oligopoly does not always mean that everyone gets in a room and decides what to do. They just act in a way that does not disturb the status quo. Reference oil companies. Telcos. This is fish in a barrel stuff.
This is all revolting stuff. The more I read these land banker’s reports the greater sense I have of the rustle of crisp £20 notes being counted in council offices. Land value tax must be the way forward.
@john77
And Lotus don’t compete with Skoda.
What a revelation!
House builders specialise & compete within their specialities.
Novel idea?
” builds (mostly) decent ones on decent plots”
What do you expect them to put on a premium site? Mobile homes?
But all this paranoia about house builders sitting on landbanks to force up prices is fantasy land. All you’re looking at is competitors producing very similar reactions to similar operational restraints.
“What other industries rely on having 5 years of stock?”
Any industry where it takes 5 years to develop new stock.
Big Oil, for example, takes 10-15 years to develop a new field. Thus they tend to have 10-15 years of reserves already developed.
Wheat (exempting trade) takes 12 months to produce more stock. Thus the farming/baking industry tends to like to have 12 months (actually, 6 on average, because we know the dates of the next stock arrival) stock on hand.
How many years’ stock a business wants to have will be determined by how long it takes to develop that stock anew.
Worstall at his Worst. He makes half-hearted comments about the need for Land Value Tax from time to time (as he should do but not half-heartedly since his idol Adam Smith first made the case for LVT in English) then when Diogenes recommends LVT, he doesn’t do the honest thing and support him.
@ diogenes
Actually getting the balance sheet wrong is a consequence of going bust.
Cartel behaviour by definition is through agreement between the parties and is a criminal offence. Oligopoly is where a small number of companies dominate the market and competition is – sometimes, not always – less fierce because the expected gain from cutting prices below those of rivals disappear when the increase in sales volume is a smaller %age than the decrease in gross profit margin.
If you don’t know the difference, may I suggest you learn it before rabbiting on about cartels where they don’t exist? In any case there are thousands of housebuilders, so it is not an oligopoly.
Land equivalent to four-five years’ completions is work-in-progress – anything above that is probably a “land bank” in the sense of something held back for later.
There is one exception to cartel behaviour being a criminal offence – when the agreement is between governments, e.g.OPEC: the US DoJ were over-ruled on that one.
nice