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Media

06 September, 2012

Note on house builders and land banking

John Stewart, Director of Economic Affairs at the Home Builders Federation said;

“House builders have to have a stock of land to enable them to plan their businesses. It takes time to build and sell the homes on a housing development, so house builders inevitably hold stocks of land under development. In addition, long delays and enormous uncertainties in the planning system force them to hold even larger land stocks than they would like.”

Land is the raw material of house building. Just as a baker needs flour, house builders need land. It is often claimed that house builders’ total land bank is around 300,000 plots. If we were to build the 240,000 homes a year we should be building, that is a landbank of just over a year. Even at current output levels it is well under three year’s supply which, with our slow and uncertain planning system, it is still barely enough. House builders need to be able to manage their businesses properly. Housing is a long and complex process and builders need to have an adequate supply of land in the pipeline to responsibly manage materials and people. Until we have a more certain and efficient planning system, house builders will need to hold land stocks of three years or more.

Kate Barker, in her 2004 review of housing dismissed the claim that house builders ‘land banked’ unnecessarily, as did the OFT’s exhaustive inquiry in 2008.

The OFT, in its exhaustive 2008 study, concluded:

The homebuilding industry, which owns a significant landbank, does not appear to systematically hoard land with implementable planning permission; most land of this type is under construction.” And...

 ‘The time lag and uncertainty involved in obtaining planning consent and building are such that a land bank will naturally span over a number of years’, says the report.

It went on to say that builders are actually ‘constrained by the availability of suitable land,’ and recognised that the biggest ‘landbank’ is held by the public sector which could be released to ease the constraint that is halting the delivery of the homes this country needs. (please see below for full OFT conclusions).

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For media enquiries, or to arrange an interview, please contact Steve Turner on 020 7960 1606 / steve.turner@hbf.co.uk

Notes to editors

  1. The Home Builders Federation (HBF) is the representative body of the home building industry in England and Wales. The HBF’s member firms account for some 80% of all new homes built in England and Wales in any one year, and include companies of all sizes, ranging from multi-national, household names through regionally based businesses to small local companies: www.hbf.co.uk

Homebuilding in the UK

A market study

September 2008

OFT

Landbanking conclusions

Extracts from Pages 133-134

Conclusions on landbanking

5.88 Having a stock of land helps a homebuilder cope with fluctuations in the housing market and also helps to reduce risk. Shareholders in those homebuilders that are quoted companies consider having an adequate landbank as an important asset. 

5.89 We have not found any evidence to support the view that, at the national level, homebuilders are hoarding a large amount of land with implementable planning permission on which they have not started construction. This suggests competition has not been impaired by homebuilders mothballing permissioned land to create a barrier to entry and artificially raise prices even during the long upturn in the market until 2007. Equally, there is little evidence to suggest that homebuilders have been able to systematically obtain market power at a local level by acquiring planning permissions.

Conclusion

5.90 When looked at as a whole the private market for the supply of land with residential planning permission appears to work as expected. The level of planning activity increases as land values increase. While activity may have been suppressed by the planning regime, measures are already being put in place which may make the planning regime less restrictive on overall land supply.219 219 CLG have reformed PPS 3 so that LPAs will not be able to cite having met their residential housing targets as a reason for refusing planning permission. The Welsh Assembly Government has also announced that where an LPA does not have a five year plan housing developments should be awarded planning permission where all other considerations are met.

5.91 The homebuilding industry, which owns a significant landbank, does not appear to systematically hoard land with implementable planning permission; most land of this type is under construction. This finding is supported by the analysis of KPMG (see Chapter 4 of the Finance study at Annexe E).

5.92 It is possible that other industries, land traders or strategic land funds for example, may landbank permissioned land more extensively than homebuilders. The fragmented nature of land records has made it impossible for this study to consider these industries' practices within the scope of the current study. Notwithstanding this, the evidence suggests that, whatever the practices of non-homebuilder private landowners with their landbanks the landbank owned by the public sector is at least as large if not larger.