Sir Oliver Letwin MP has published his draft analysis of large housing site build out rates, identifying a lack of product diversity as the major limiting factor on delivery.  

The Letwin Review was established to investigate the causes of the large gap between planning permissions and housing completions, and to make recommendations for closing it, focusing on the build out rates of large sites.

Product diversity

Sir Oliver’s key conclusion is that build out rates on very large sites are limited by the homogeneity of product. Major house builders should offer more variety in product type, tenure and design, which could result in more variation in pricing. This would make the new build market accessible to a greater number of people, thus increasing market capacity for open market sales.

One example of the effect of product diversity is the difference in build out rate between Great Western Park (GWP) in Didcot and Beaulieu Park in Chelmsford.  These two sites are of similar size (3,300 and 3,600 homes respectively) yet private sales have averaged at least 195 per year at GWP (between Q1 2015 and Q4 2017) compared with 120 homes per year at Beaulieu (between Q3 2016 and Q3 2017). 

Higher sales rates have been achieved at GWP where there is a broader range of sizes and types of homes sold than at Beaulieu Park where there has been a focus on larger homes. GWP has also had multiple housebuilders onsite, while Beaulieu Park has been predominantly delivered by one developer.

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Multiple tenures

Sir Oliver also concludes that to increase build out rates, there needs to be more diversity of tenure to tap into demand in other parts of the housing market. He has identified that the demand for affordable housing, particularly social rent, is 'virtually unlimited'.

Similarly, he concludes the demand for private rented accommodation is a different market from open market sale and therefore delivering private rented hones alongside homes for market sale properties could accelerate absorption rates (see BPF and Savills launch debut report for Build-to-Rent sector) and therefore build out rates.

However, this still leaves the challenge of funding affordable housing development. The review acknowledges that under current models of delivery, the rate of completion of affordable housing is limited by the need for cross subsidy from open market sales on the rest of the site. We have previously estimated sub market housing need at 100,000 homes per year in England. Since 2013, delivery rates have averaged 45,000 homes per year, with the majority of the shortfall in London and the South East.

It would take at least £7 billion of funding each year to provide social rented homes to all of those in need of sub-market housing. We await the final policy recommendations of the Letwin Review with interest to see if there are any proposals to fill this funding gap.

One approach could be to ease the debt cap and enable councils to fund building through borrowing. Our recent analysis concluded that if councils were allowed to manage their own Housing Revenue Accounts within the local authority Prudential Code, this could create capacity for an extra 15,000 homes across England each year.

But there is also a case for further central government investment in affordable housing (see Investing to solve the housing crisis). Our analysis concluded that grant funding for social rent could be considered an investment as it can deliver long-term savings on the housing benefit bill.

In addition, it can help make affordable housing development viable in markets where the balance between land and build costs and sales values would otherwise preclude it, thus delivering the diversity of development that the review calls for.

Further information

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