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A greater supply of land (especially small sites), alongside support for home ownership and affordable homes, is needed to boost housing delivery.
Since the election of a new Government last summer, ambitions to increase housing supply have moved to the centre of the political stage. The drive to build 1.5 million homes by the end of the Parliament has led to considerable reforms of housing policy in England. Yet the number of homes in planning or development remains, for now, on a downwards trajectory. Further change to speed up and simplify planning and deliver a broader range of sites is needed.
Policies aimed at increasing overall land supply, while welcome, are only one side of the equation, and won’t solve the problem of low housing completions alone. Realisable demand for housing is the key factor in determining the rate at which housebuilders can open outlets and deliver more homes.
The new build market is still battling headwinds including high mortgage rates, weak buyer sentiment and the absence of government-backed support for home purchases. The number of outlets operated by the major housebuilders remains down 12% compared to their recent peak in 2018, while sales rates have hovered around 0.6 sales per outlet per week. Though at the top end of what we expected in our previous report, declining margins and the widespread use of financial incentives to boost sales hint at ongoing challenges.
Affordable housing also has difficulties, with financial strain in the sector limiting the desire to develop or acquire new homes.
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Recommendations?
The housebuilding sector needs to tap into a broader range of buyers and markets. This will require more outlets, and thus more sites to gain planning permission, particularly those which are suitable for small and medium-sized developers.
First, a shift in the quantity and variety of land coming through planning is required. Changes to the National Planning Policy Framework (NPPF) and proposals to support ‘medium’-sized sites will help but need to go further. Local authorities remain effectively incentivised to focus housing delivery on large greenfield sites, rather than a broad range of locations and sizes that could suit a greater number of developers. Future reforms should also make the process of gaining consent simpler and cheaper. These changes will take time to take effect. In the interim, we have considered ways for the Government to help finance the activities of land promoters and maximise the number of sites coming through planning. At the same time, policymakers should avoid any new rules that might discourage landowners from engaging with the system.
Second, if delivery is to increase rapidly in line with Government aims, many more small sites of fewer than 250 homes need to be granted consent, as these sites progress through planning and reach the point of completing homes more quickly. We estimate that, based on real-world precedents, a policy environment that actively encouraged sites of up to 100 homes and removed barriers to their development could potentially add an additional 95,000 homes a year to housing supply. More small sites would also provide a boost to SME housebuilders. Previous Savills analysis for LPDF found that SME developers have declined substantially in number and market share compared to the mid-1990s. Reversing this trend (without reducing delivery by the major PLCs) could increase housing delivery by an additional 70,000 homes per year.
Third, weak demand must be addressed, potentially through a new demand support scheme. This should be adopted alongside an increased supply of easy to develop land, ensuring developers can deploy revenue from additional sales to fund further expansions in delivery. Supporting the growth of SMEs in particular would have the additional benefit of greater choice and variety of housing being delivered. This would enable the sector as a whole to address a broader pool of buyer demand, further increasing delivery.
Finally, financial pressure on Housing Associations must be resolved. The Spending Review announcements on social housing rents and the new 10- year £39bn affordable homes programme are welcome positive steps. But it will take time for this commitment to translate into increased delivery.
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