In September a House Builders Federation survey reported that the number of planning consents issued by local authority planning departments had risen by 49% year-on-year. The first six months of 2013 reported 77,686 residential permissions granted.
On the face of it these are encouraging numbers. It is undoubtedly good news for the building industry and the wider UK economy, but it also highlights the parlous state of the industry over the last few years.Back in 2007 the government calculated that around 240,000 new homes were required every year by 2016 to keep pace with the increasing new household being created in the United Kingdom. Environmentalist Jonathan Porrit though that it was more like 270,000.
The shocking reality is that even in 07/08 (which most agree was an unsustainable housing boom) only 207,370 new homes were started. Contrast that with the highs of the late 1960s when almost half a million houses a year were being built.
We are now faced with the triple challenge of ever-increasing numbers of households requiring homes, low housebuilding volume, and a National Planning Framework which local authorities find difficult to implement responsibly because of the pressures placed on them by communities and local politicians who don’t want greenfield development near them.
Even if the current huge rise in planning permissions is sustained, the UK can still expect a shortfall of at least 50% of the minimum need once the last few years doldrums are taken into account. There is no way that the past and current shortfalls can be made up any time soon so the natural laws of supply and demand will trump efforts to price control the marketplace.
An argument often put forward is that land owners land bank their sites so that it goes up in price so that they can make more profit. This doesn’t make any sense because land is a developers stock. It is the same as the Mars Bars in the newsagent’s store room – it has to be sold to make a profit, and house builders build houses to make their profit, just as newsagents sell Mars Bars to makes theirs. Every manufacturing business needs a stock holding otherwise business grinds to a shuddering halt, but that’s not the same as pernicious land banking running rife.
The start of the solution lies in planning departments getting to grips with the supply of available housing land in their area. These days, NIMBYs rule the roost in planning committees, but short term thinking won’t put a roof over their children’s heads. All across the country planners are setting targets for new homes to satisfy local demand but those targets are being missed by enormous margins.
The market isn’t failing, the market just can’t get its hand on enough stock (land) to operate efficiently. The national targets are being missed because there isn’t enough land being allocated for new homes. Land owners and developers are being forced to take planners to task at planning appeals for the failure of local authorities to fulfil their statutory duty to meet the market needs.
Without an immediate upturn in the number of sites allocated for residential consent we will see house price inflation climbing once again to unsustainable levels, and planners will be under increased pressure to justify any negative decisions at expensive appeals. Unusual and extraordinary measures are already being suggested to solve the problems of the housing market, none of which address the root issue.
The solution to avoiding meltdown is simple and obvious, but whether with communities and their elected representatives have the stomach for a longer term view is very uncertain, so I predict a house price boom.