Letwin explains rationing new builds to keep up prices with a new phrase “absorption rate”!

“A Government-commissioned report has blamed delays in the house-building process on builders concerns about future sale prices.

In the Autumn Budget the Chancellor set up an independent review to look at the delays between planning permission being granted, and houses being built. This review is being led by Sir Oliver Letwin.

The Treasury has now published the commission’s interim report alongside the Spring Statement:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/689430/Build_Out_Review_letter_to_Cx_and_Housing_SoS.pdf

These initial findings suggest that house-builders concerns about sale prices are a major factor in slow “build out” of homes on many of these larger developments.

Letwin says this review had initially focused on larger housing developments and major housebuilders. Further analysis may look at smaller scale models.

In a letter to the Chancellor and Sajid Javid – the secretary of state for housing communities and local government – Letwin says housebuilders have cited a number of “limitations”, including a shortage of available skilled labour, the availability of capital, provision of local transport infrastructure and the slow speed of installations by utility companies.

But in the interim report Letwin says: “I am not persuaded that these limitations are in fact the primary determinants of the speed of build out on large permitted sites at present.”

He goes on to say the fundamental driver of build out rates, once detailed planning permission is granted, appears to be the “absorption rate” – that is the rate at which newly constructed homes can be sold into the local market without materially disturbing the market price.

This rate, he says appears to be largely determined at present by the type of home being constructed and the pricing of the new homes built.

The interim report goes onto say this problem can be exacerbated by many larger development having a style of size of home that is fairly homogeneous.

The next stage of this review will look at whether build-out rates could be improved, either by reducing the reliance on large builders, or by encouraging them to offer more variety in terms of the type and price of property offered.

The report adds: “We have seen ample evidence from our site visits that the rate and completion of the ‘affordable ‘ and social rented’ homes is constrained by the requirement for cross-subsidy from the open market housing on the site.” This can delay the build out of these homes, the report adds.

Letwin says he plans to publish more detailed draft analysis by the end of June, which will contain a more detailed description of the problem and its causes.

The independent review will then seek comments from interested parties before a final analysis which will include a list of recommendations to improve the situation.”

https://www.mortgagestrategy.co.uk/interim-report-planning-delays-published-alongside-spring-statement/