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By Gareth James, University of Salford. This article originally appeared in Evidence, HQN's quarterly housing update produced in collaboration with UK Collaborative Centre for Housing Evidence and HSA.
The lag between planning approvals and housing completions is often cited as one explanation for the slow speed of new private housing delivery.
Yet build-out rates form only one part of a much more complex set of processes that determine the speed and mode of housing delivery. How housebuilders interact with land markets, make product selection choices and manage construction programmes are also likely to influence supply outcomes.
Without a clear understanding of how UK speculative housebuilders acquire, process and build out housing land, policymakers cannot hope to fully address the UK’s housing supply problems. For this reason, a team of CaCHE researchers set out to evaluate some of the key strategies of the UK speculative housebuilding sector in relation to land, planning and development.
The study drew on evidence from literature published between 1997 and 2018. This evidence review is structured around four lines of enquiry.
Land acquisition methods and processes
There is relatively little evidence on this subject. Existing evidence suggests, inter alia, UK housebuilders most commonly use options and conditional contracts to access land for residential development and they utilise the land use planning process to target options and contracts on land likely to be released.
They also appear to rely more on external networks and contacts than markets to acquire land. Conventional practices and skills used for acquiring greenfield sites differ from those required for brownfield sites.
And, the size and type of a firm can also influence how it responds to policy initiatives intended to influence its business practices, as well as the opportunities it enjoys. Smaller housebuilders, for example, tend to be disadvantaged when it comes to accessing finance for land acquisition.
Land portfolios and land ‘banking’
The land portfolios of housebuilders and land banking practices of the housebuilding industry have been a longstanding topic of interest in both academic and policy circles, as well as in the media. Again, the review reveals limited evidence.
Existing evidence suggests the role of land banks in speculative housebuilding practice varies according to their geographical distribution, location and time span. Crucially, UK housebuilders’ business models do not appear to depend upon profiting from land banking.
Instead, increased reliance on land banking has been linked to planning uncertainties, but land portfolios are also important for security against debt, are critical for balance sheets, and influence investors’ confidence in particular housebuilders.
Product selection and delivery mode
Existing evidence on the mode of delivery of new private housing is characterised by two dominant lines of enquiry: standardisation and customisation. There is an embedded culture of standardisation in the UK speculative housebuilding industry, which is resistant to public policy switches; and greater levels of customisation are difficult given issues around funding and regulatory frameworks.
There is a reluctance to depart from standard house types, but a form of customisation could be achieved through the use of house type substitution. Existing evidence also suggests most housebuilders still need to be convinced of the strength of the demand for greater customisation and energy efficient homes.
Speed of delivery
There is substantive recent evidence about the speed of delivery of new private housing, commonly termed ‘build-out rates’. This evidence suggests the pace of delivery depends more on how fast newly-built homes can be sold, rather than on how fast they can be produced. Larger sites appear to have lower buildout rates. There is conflicting evidence on whether greenfield or brownfield sites are built out more quickly.
However, sites with more affordable housing do tend to be developed faster. The most common explanation for the pace at which new private housing is developed revolves around the concept of market ‘capacity’ or ‘absorption’. Alternative explanations include the reluctance of most UK housebuilders to innovate, adopt supply chain strategies and demonstrate supply chain awareness or move over at any scale to modern and offsite methods of construction.
In addition to the top line findings outlined above, the review highlights three further fundamental points worthy of reflection. The first is the dated nature of the evidence. This is particularly evident in relation to housebuilders’ product selection and the mode of delivery, where the deep-seated tendencies of housebuilders toward standardisation of product and process and the minimal inclusion of customer choice and preference have not been substantially revisited since the early 2000s. In contrast there is substantive evidence on the speed of delivery of new private housing.
The second is the tendency to homogenise the industry and focus investigations on mainstream housebuilders.
Whilst industry concentration is an endemic feature of UK speculative housebuilding, housing providers such as retirement, regeneration and sustainability specialists are often overlooked.
The third is the tendency for research to be geographically benign and underplay the distinctions in policy and spatiality. A significant amount of evidence purports to be UK or British based but there was very little, if any, discussion of Welsh or Northern Irish housebuilding. In contrast, Scottish housebuilding is reasonably well represented in the research.