How can we build more houses?

At the beginning of the summer, the government published Sir Oliver Letwin's draft analysis of the issues that affect the rate of house building in the UK. 

In advance of the Autumn Budget, Letwin has been charged with explaining "the significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand". More practically, he was also asked to make recommendations to close that gap.

Build-out rates and absorption rates

Letwin's draft analysis focusses on "build-out rates" - how quickly house-builders convert the land that they own into houses for sale - and "absorption rates" - how quickly new houses can be sold in the local market without negatively impacting on existing house prices. Absorption rates are, according to Letwin, "the fundamental drivers" of build-out rates.

Constraints

So what are some of the main constraints on build-out rates and absorption rates? The potential factors identified and discussed in the draft analysis are not new:

• a lack of sufficient local and national transport infrastructure;
• concerns among house builders about a limited supply of building materials;
• concerns among house builders about a limited availability of skilled labour; and
• intentional "land-banking", where land is acquired but is then not developed for longer than may seem necessary.

The draft analysis also cites specific examples where the development of land has been impeded - and again, these will be familiar to many house-builders:

• land remediation issues;
• delayed installations by utility companies; and
• constrained sites and logistical difficulties (albeit, largely limited to inner-city settings).

Letwin largely dismisses the idea that a limited availability of capital is restricting build-out rates. Instead, he reports that strong balance sheets, capital structures with low gearing and the ready availability of credit and project-financing for large house-builders suggests that there is no such constraint.

Proposed solution

Letwin's idea about how to get more houses built is interesting - if major house-builders were to offer "much more housing of varying types, designs and tenures (and, indeed, more distinct settings, landscapes and street-scapes) on the large sites", then he thinks build-out rates and absorption rates could be increased significantly.

Many successful house-builders, of course, already plan their developments with these aspirations in mind. Others, however, obviously need to be persuaded.

How Letwin's conclusion translates into practical policy in the Autumn Budget (and beyond) remains to be seen. And whether or not it ultimately proves to be a practical, viable and/or sustainable solution will need to be tested over time.

In the meantime, however, it is clear that Letwin's draft analysis is advocating a shift in the attitude of many major house-builders, which will need to be supported by the government and facilitated by changes to national and local planning policy.