Stock and Flow

Pending an eagerly anticipated Housing White Paper, this research report unpacks the relationship between planning permissions and the output of new housing. Permission was granted for 261,644 new homes in 2015 in England, whilst net completions in 2015–16 amounted to 189,650 (of which 163,940 were new build), just under the 200,000 figure the Government needs to meet its target of delivering 1m homes in this Parliament.

This boost in the pipeline of planning permissions has raised questions as to why housing supply has yet to hit the Government’s annual target, let alone come close to the 300,000 dwellings per annum figure that many believe is necessary over the long term to meet need. Alongside this is the charge – fiercely contested – of ‘land banking’, whereby developers are accused of hoarding land and holding back development.

This research report looks at the business models of house builders and land promoters and relates this to the various risks inherent in bringing new homes forward through the planning system. It seeks to identify whether land banking of the sort purported is consistent with the commercial drivers of those who bring land forward for development. The conclusions are that – given the significant costs and risks involved in land promotion, construction and sales (particularly over an economic cycle) – there is unlikely to be a business case for active land banking that ‘games’ the system in order to suppress housing supply.

The report also looks at how many planning permissions are likely to be required to secure the housing supply necessary to meet long term needs. We have modelled the build profile of planning permissions – which shows that not all output is built out in the first year of construction. This means any period in which an increase in output is sought will necessitate a significant increase in permissions to deliver the required boost in supply.

Based on this, our modelling shows – ceteris paribus (and assuming the construction sector can deliver) – that the Government’s one million homes target is on track to be achieved. To do this will necessitate a stock of just under 590,000 units with permission being maintained at any one time and a flow of new permissions being maintained at around the current level.

However, to achieve a long term average of 300,000 new homes per annum, a constant stock of around 0.9–1.1m dwellings in implementable planning permissions will be required, which means increasing the rate of permissions to between 410,000–460,000 units in the short term and then sustaining at just under 400,000 long term. In this context, the LGA’s estimate of 475,000 units with permission is evidence not of land banking, but an acute shortage of permissions.

We note the current debate on possible policy levers to prevent land banking (insofar as it exists) – such as taking account of the past performance of developers and imposing conditions requiring build out rates. Both may be legitimate approaches for public sector land disposals, but in the private land market, they could be counter-productive by dis-incentivising the promotion of land. Of more practical benefit will be an effective plan-led system that drives the release of sufficient land and reduces the barriers to entry of the new and smaller players.