Government attention appears to be turning yet again to the supposed problem of land banking. The Local Government Association recently called for powers to charge developers council tax on unbuilt homes, and the Housing Minister confirmed that he is planning to take action to ensure developers build out at pace. However, our analysis shows that, far from sitting large amounts of undeveloped land, developers are facing shortages of consented land, particularly in less affordable areas where there is the greatest demand for new homes and the highest potential to deliver at pace.

The impact of the pandemic on land supply

In the year to September 2020, full planning permission was granted for 370,800 new homes in England, an 8% fall from the 2019 peak of 406,000 consents. However the number of homes approved in Q3 2020 grew by 21% against the previous quarter, suggesting that disruption to the planning system due to lockdown has been relatively short term.

Certainly, looking at the national figures, the planning system does not appear to be a barrier to increasing housebuilding to meet the Government’s ambition of delivering 300,000 homes per year by the middle of the decade. Rolling annual planning permissions have exceeded 300,000 homes since Q1 2017, helping to build a strong pipeline of development land. 

Homes in the Right Places

But this pipeline is not distributed across the country in line with the areas where new homes are most needed and demand is strongest. The standard method for calculating housing need was introduced in 2017 to help streamline the planning system by providing a single assessment covering all local authorities in England. In its simplest form, the standard method uses house price to earnings ratios to generate a multiplier which is then applied to household projections for a given area, effectively using affordability as a proxy for housing demand.

To some extent, the standard method is beginning to achieve what it set out to do. In the year to Q1 2018, the least affordable fifth of all local authorities ( the areas where there is the greatest need for more housing) contributed 24% of all full planning consents granted on sites of over 20 units. By Q3 2020, this figure had risen to 31%. However, over the same period, the second least affordable quintile of local authorities saw their contribution to planning consents fall to just 14% of the national total. The most affordable quintile, where there is a lower need for housing has consistently delivered 20-25% of all consents. 

In the areas with less affordable homes, and therefore higher demand for housing, housebuilders are able to build and sell new homes more quickly (See Planning and Housing Delivery, 2019). To maintain or increase housebuilding, these areas need a higher rate of new planning consents to replenish the development pipeline.  

Maintaining delivery levels

A comparison of new planning consents against new home completions from 2015 to 2020 shows that there are locations where this has not happened, and these areas are likely to be facing a shortage of consented land. 46% of local authorities have been building out sites at a faster rate than they have been consenting new homes during this period. A further 18% of local authorities have a replacement rate buffer of less than 100 homes per year, risking falling housing delivery if any of the consented land does not come forward. 

Full planning consents in Cheltenham between 2015-2020 are equivalent to only 27% of the new homes completed in the same period, and in Mole Valley it is just 30%. Housing delivery in these areas has been reliant on a pipeline of development sites built up over a longer period, and unless there are many more planning permissions, new homes completion numbers will fall. The map shows this is primarily a challenge in Southern and Eastern England, with locations in the Green Belt surrounding London almost uniformly facing shortfalls.

Figure 2 Consents and delivery

Consequences for the land market

The supply shortage of consented land is now being felt in the development land market. In the Q1 2021 Home Builders Federation survey, 48% of respondents considered land availability to be a major constraint to development, an increase from 42% in the previous quarter.  Our survey of Savills land agents in Q1 2021 has shown that a shortage of supply is leading to an increased number of offers on sites, particularly in the South East, and in some cases this is also translating to some upward pressure on values. The shortage is largely of immediate consented land with capacity for 50-150 homes. 

Shortages in supply have also been reported in areas of the North, Midlands, and East of England, but isn’t yet producing the same impact on values. Instead, housebuilders are looking at smaller immediate sites that they would not have previously considered or seeking to replenish their own strategic land pipeline. Vendors have also been able to secure more favourable payment terms.

Is land banking really a problem?

Despite these market signals, Robert Jenrick confirmed in early May that Government is now considering a levy on developers that fail to build out land with planning permission within a certain time limit. This is supposed to tackle housebuilders land banking, even though multiple  investigations including the Government’s own, from DCLG in 2014 and Sir Oliver Letwin in 2018, have concluded that land banking of permissioned sites is minimal. The LGA recently claimed that over 1 million homes that have gained consent since 2010/11 have not been built. 

However, Savills analysis of data from Glenigan since 2015 shows a far more complex picture. The majority of consented units are on sites that are under construction but not yet fully built out. These sites can take several years to build out, and their delivery rates are limited by what the local market can absorb; an important factor when, as shown previously, almost a third of consents are granted in the areas with the lowest demand. 

Of the consented units that have not yet started construction, 57,500 have been confirmed as being on hold, cancelled or for sale. 51% of these units are on sites that gained consent before 2018, and as the consents are over 3 years old, they may now have lapsed. This leaves 175,000 units progressing towards construction. Of these units, 92,000 are on sites where a construction contract is in place.  Our analysis suggests that, of the units consented in the last 5 years in England, 120,000 – 150,000 consents can be considered to not be progressing. This is equivalent to around half a year’s supply at current delivery rates.

Therefore, if the Government is serious about increasing housebuilding, a levy to reduce land banking is not the answer. Instead, it should restore full focus on ensuring there is a sufficient pipeline of development land, especially in areas where demand is the highest, and that local authorities have the resources to deal with complex planning applications.