Monthly Archives: September 2013

Following the Second World War, house building in England increased to reach a peak of around 352,000 in 1968. As the population has grown and households shrinking since the 1970s, Britain has not built enough new homes. It is generally agreed that around 250,000 new homes are required each year. However a little over 100,000 are actually being built. Even with the taxpayer funded Help to Buy subsidy, it is unlikely that the number of extra new homes built in 2013 will be more than 30,000, with a total of just 74,000 new homes bought using the scheme. 

Britain’s private house builders have never built more than 200,000 homes in any one year so are not equipped to build 150,000 more than they currently do to fully meet demand. In the housing boom years in the late 60s, 40% of new homes were built by councils. 

House builders sitting on 400,000 plots, yet they blame difficulties in gaining planning permission, the green belt and all sorts of other restrictions for the shortage of new homes being built. Even this week, representatives from the larger house builders, Barratt, Taylor Wimpey and Persimmon met with housing minister Mark Prisk to push for even further relaxation of regulations and planning controls in return for increasing their output. This forgets the fact that 83% of major housing applications are approved. This figure would be higher if developers came forward with better schemes that paid more attention to local planning guidance and constraints

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Many of the County Councils adopt the following practice for approving the yellow signs for new housing developments and it is on the basis and understanding that the signs are temporary to direct contractors or potential buyers.

 Rules regarding house builder’s yellow direction signage:

• The development must have a minimum of 30 bedrooms on site (10 x 3 bedroom houses or 6 x 5 bedrooms).

• All development direction signs must comply with the requirements of diagram 2701 or diagram 2701.1 in the seventh schedule to The Traffic Signs Regulations and General Directions 2002. The maximum “x” height for the sign legend is 50mm and at least 2.1 metres headroom must be left below any signs that overhang a footpath.

• Only the name of the development site is permitted on the sign – not the builder or developer name.

• Sign locations should be limited to local area only, from nearest A or B road (depending on location and complexity of road network), with no more than two strategic road junctions. This can be subject to negotiations depending on the size of the development and potential impact on the road network.

• The house builder is responsible for the manufacture, installation, maintenance and removal (and all costs involved) of all such signs.

• County Councils require that the applicants hold a minimum of £10million public liability insurance in respect for works being carried out on the highway.

• Signs may be erected only when works begins on the site substructures and must be removed within three months of the sale of 80% of the development or within 6 months of completion of construction, whichever is sooner.

• No signs should impede the visibility of another sign on the highway or that of drivers.

• It is the applicant’s responsibility to gain permission from the Highways Agency for signs erected on any trunk roads.

• It is the applicant’s responsibility to gain permission from the electricity board to erect any signs on lamp columns with the correct fixings.

The authorisation of temporary development signing is done on a case by case basis and records of their approval should be held on file. The purpose of these signs is to aid the navigation of construction traffic as well as potential buyers. County Councils work with District and Boroughs to remove non-approved signing from their highway network. Development signing is also inspected as part of the ‘highway asset’ on cyclical inspections by the County Council Highway Inspectors. The authorisation of house builder’s directional signage has never been subject to any charge, however it is something that is being looked at by councils at the moment.

If you know of any house builder’s directional signage that does not comply with the above guidance rules, please inform your local County Highways Department. They would also be interested in the location of any old signs so they can check for authorisation and arrange for removal.

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Unsurprisingly the house building industry has already declared its opposition to the proposed minimum space standard for all new homes included in the Government’s consultation on streamlining housing standards by “Inviting views on minimum space and access standards that would allow councils to seek bigger homes to meet local needs, including those of older and disabled people”.

Both the Royal Institute of British Architects and the National Housing Federation have supported the idea for a minimum space standard, whilst house builders claimed that this would result in fewer homes being built and even higher prices.

Ashley Lane, group partnerships director at Persimmon, said…. “We are opposed to space standards. We believe demand should be market driven. The implication of a space standard is it would enlarge homes, so require more land. It would lead to fewer homes per area – particularly on publicly funded land.” 

There is a need to “enlarge homes” as new homes in the UK are the smallest in Western Europe often so small and dark they can actually be detrimental to occupant’s health. People are buying what is available, not necessarily what they would prefer.

John Slaughter, director of external affairs at the Home Builders Federation, said unsurprisingly that he welcomed the Government’s aim to tackle red tape, but believes….. “Minimum space standards, which run counter to these efforts, would be very damaging. Introducing minimum sizes will make homes more expensive and remove choice for consumers, especially those struggling to afford a home, and it would have an adverse effect on overall housing supply at a critical time.”

So whilst reducing regulatory red tape for house builders is good, forcing them to build larger homes is bad and will remove choice? The choice now is between small and very small. Minimum space standards would improve choice. Limiting the supply of new homes by land banking is the main contributor to higher prices. Bigger homes would be more expensive to build due to increased land and build costs but not so high as to have a noticeably adverse effect on the market. It is far more likely to adversely affect the house builder’s profit margins, as new home prices would have to compete with the general market at the time.

It is surprising that the house building industry didn’t also suggest that minimum space standards would result in more pressure on the green belt and the countryside. Especially in the light of recent CPRE statements regarding the increase of planning approval on Green Belt land. Perhaps they didn’t want to draw attention to this!

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You would think that the Conservative led Coalition Government, the ‘house builders friend’, has already done enough for the house building industry during this parliament.  

It began with schemes such as NewBuy, FirstBuy and HomeBuy being introduced to boost the new homes market. Currently the £3.5bn state subsidy for the house building industry, the ‘Help To Buy’ scheme, is enabling house builders to achieve record profits by selling overpriced new homes to buyers who cannot afford them without ‘help’ from the government, chipping in 20% of the purchase price.

In addition, ‘Funding for Lending’ is giving lenders access to cheap money, resulting in over 10,000 different mortgages for home buyers to choose from – up 33% on a year ago. With ‘Help to Buy’ (2) the state-backed £130bn mortgage indemnity for lenders due in January 2014, borrowers and house builders have never had it so good.

When will greedy house builders stop asking for more help?

There have even been calls for the relaxation of various planning rules including the requirement to include a percentage of social or ‘affordable’ homes on each development. David Cameron claimed a year ago that developers were being “held back” by the “many obligations” placed on them to build affordable housing. He said “under the government’s plans, if developers can prove these requirements make a site not commercially viable, the conditions will be removed”.

The National Planning Policy Framework has introduced a “positive approach” that reflects the “presumption in favour of sustainable development, working proactively with applicants jointly to find solutions which mean that proposals can be approved wherever possible.” Planning applications that accord with the policies of the Local and neighbourhood plans will be “approved without delay.”

It has never been easier for house builders to obtain planning permission.

But all of this is not enough for Tony Pidgley, chairman of Berkeley Group. He is blaming the planning system for his industry’s abject failure to increase the number of new homes currently being built in the UK. This despite the fact that 83% of major housing applications are approved. The figure would be even higher if developers submitted better schemes that paid more attention to local planning guidance and constraints.

Pidgley claims: “Planning remains complex and obtaining planning consents involves consulting widely with multiple stakeholders. This causes delays to planning decisions and an inconsistency of approach at a local level, despite the National Planning Policy Framework and the presumption in favour of sustainable development. This remains a hurdle to the industry being able to increase substantially the supply of new homes.”

His company Berkeley, has a landbank of around 25,700 plots, around seven-years’ supply at the current build rate. In his company’s a trading statement covering May to August, the builder confirmed it had added a 10 acre site in White City and a site in Battersea to its landbank and confirmed plans to acquire further sites in Hornsey and Southall. The majority of the homes the company builds are high value apartments in London, which are unlikely to help solve the national housing shortage. Berkeley’s average selling price is £354,000, the highest of any listed house builder and nearly twice the average of rivals Persimmon and Taylor Wimpey. 

Planning rules and restrictions prevent a developer free for all, stopping them from doing what is the most profitable and forcing house builders to adapt their applications that often result in a reduction of their profits. Most planning rules are fully justified, well intended and for the protection of local communities

Housebuilders continue to hoard their planning approved landbanks, building just enough to force prices higher with corresponding rises in profits and share prices. The Local Government Association released figures that show over 400,000 prospective homes that have planning permission have yet to be started. It says these “conclusively prove” the planning system is not holding back the construction of new homes. It also confirmed developers put in 5% fewer planning applications last year and were taking longer to complete work on site, with the longest taking nine years from permission to the homes being built.

It could be said that house builders are hoarding plots to limit availability to maintain prices. The 14 largest house builders have a combined landbank of 342,850 plots. Considering they built just 60,294 new homes between them in 2012/13 they have nearly six-years’ supply of plots with planning approval. There are calls for new rules to force builders to develop sites earlier, by either losing the permission or being forced to sell the land.

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‘Help to Buy’ more like ‘help to profit’ as house builders clean up, taking full advantage of the taxpayer-funded scheme subsidising new home buyers. According to Markit, a provider of financial information services, it expects dividends from seven of the main UK listed housebuilders to rise by 90 per cent this year with payouts totalling £285m, thanks to the Help To Buy scheme which now accounts for 20% of housebuilder’s sales.

A Markitt spokesperson told the Financial Times:

“The outlook for UK homebuilders has improved since the beginning of the year with companies reporting an increasingly buoyant trading environment, supported by the Help to Buy scheme,” “This has driven improved profitability and higher margins. The resulting positive cash-flows are flowing into improved returns to shareholders as companies outline plans to resume or increase payouts.”

Both Bovis and Persimmon have increased their interim dividends by 33%. Bellway has gone further with an interim dividend 50% higher than last year.

The housing bubble has already been created, as prices for new homes rose on average 7% in the last 12 months, twice that of older homes.  Mortgage approvals are also up with the Bank of England figures released 30 August 2013, showing mortgage approvals in July, had risen to their highest level since the financial crisis in March 2008. Recent figures released by Nationwide stated that house prieces rose 3.5% in the year to August.

Sooner or later every bubble will meet its pin! Until then, house builder and their shareholders should not be allowed to profit at the taxpayer’s expense. A windfall tax must be levied on excessive builder profit from ‘Help to Buy’ scheme.  George Osborne should include this in his Autumn budget statement.

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