Land and housing supply: it’s about more than just build out rates
Perhaps one of the biggest political and societal challenges of our time is housing supply. Even the UK Government thinks the housing market is broken and our biggest housebuilders say they alone won’t be able to deliver the number of homes necessary to meet policy ambitions. In England, the growing lag between planning approvals and housing completions is given as one explanation for the sluggish speed of housing delivery and is of increasing political and popular interest. Yet, build out rates form only one part of a much more complex set of processes that determine the speed and mode of speculative housing delivery. How housebuilders interact with land markets, make product selection choices and manage construction programmes are also likely to influence supply outcomes.
Our market-led housing system relies heavily on the private sector to deliver new homes. These private housebuilders, motivated primarily by profit and return on capital, are key delivery agents of new homes, producing anywhere between 70 and 80% of the total housing output in any given year. To deliver new homes at an acceptable profit, housebuilders must draw assumptions on the quantity, price and sales rate of new homes many years before they are built in order to generate competitive land bids and secure their raw material. Once planning permission is granted and the land purchased, housebuilders must wait until the houses are constructed and sold, hopefully at the rate and price predicted many years before, to achieve their desired profits. Any rise in underlying land prices between site purchase and eventual house sales can boost profits significantly.
This process of speculative housing provision requires risk taking and profit making by market actors yet is subject also to intervention and regulation by the State. The ability of government policy to shape market behaviour, together with the influencing effect of broader structural changes in the economic, demographic and political contexts of housing provision, mean that a diverse range of factors can shape supply outcomes. This may go some way to explaining why the housing supply question remains so difficult to address. Yet, these dynamic state-market relations, with their theoretical and empirical pluralism, are the very reason why we are interested in the behaviours and attitudes of speculative housebuilders. Indeed, without an understanding of how speculative housebuilders acquire, process and build out housing land, policy-makers cannot fully address the UK’s housing supply problems.
It is for these reasons that we have chosen to focus our exemplar project on a systematic review of existing evidence around how the speculative housing supply system currently works and consider the limitations to its current operation. In doing so, we will be able to evaluate whether, and to what extent, the speculative housebuilding industry is able to address new demands in the supply side of the housing market and reflect on how policy solutions brought forward to address housing supply problems have been effective or otherwise. To achieve this task, we intend to establish a comprehensive knowledge and evidence base on the speed and mode of speculative housing delivery. We are particularly interested in understanding how speculative housebuilders engage with land markets, their product selection choices and the time they take constructing new homes. This will allow us to consider what new policy interventions may be necessary to ‘speed up’ housebuilding and overcome the precarity of provision we currently face.
We aim therefore to examine existing evidence on how speculative housebuilders acquire, process and build out housing land to ascertain how these factors contribute to the speed and mode of housing delivery. If you’d like to learn more about our aims and objectives, to be kept informed, or to engage with the project team, please get in touch.
Professor David Adams and Dr Sarah Payne are Co-Investigators, Dr Bilge Serin is Research Associate, and Dr Gareth James is Knowledge Exchange Associate, for the UK Collaborative Centre for Housing Evidence.
Authors: Professor David Adams, Dr Sarah Payne, Dr Bilge Serin & Dr Gareth James
Date: February 19, 2018 10:02 am
Categorised in: Markets