At autumn Budget 2017 the Government announced an independent review, chaired by Sir Oliver Letwin, to examine the significant gap between housing completions and the amount of land allocated or permissioned, and make to recommendations for closing it. I sincerely thank Sir Oliver and his panel for their hard work over the 12 months that followed.
Sir Oliver’s draft analysis, published in June 2018, took an in-depth look at the rate of housing delivery on a number of large sites in high pressure areas around the country. He concluded that the binding constraint on house building rates once implementable planning permission had been granted was the “absorption rate”—meaning that homes are built at the rate at which house builders believe they can be sold at their target prices. Importantly, the review found no evidence that speculative land banking is part of the business model for major house builders. I note that there has been widespread acceptance of Sir Oliver’s analysis across the sector and a consensus has emerged that it is the market absorption rate that determines the rate at which developers build out large sites.
Sir Oliver’s final report, published alongside autumn Budget last year, concluded that greater differentiation in the types, tenures and design of housing delivered on large sites would increase the market absorption rates of new homes.
I welcome Sir Oliver’s support for greater emphasis on housing diversification within the planning system. The revised national planning policy framework has already embedded a requirement for a greater mix of housing; it explicitly requires a mix of size, type and tenure of housing that reflects the diverse needs of local communities. My Department is also committed to improving the design of new development. The purpose of the Building Better, Building Beautiful Commission is to tackle the challenge of poor-quality design and build of homes and places, and I look forward to its final report later this year. My Department also has a number of funding programmes specifically designed to support a more diversified housing market, such as the home building fund.
As confirmed in the spring statement, my Department will shortly publish additional planning guidance on housing diversification—to further encourage large sites to support a diverse range of housing needs, and help them build out more quickly.
I note Sir Oliver’s recommendations that authorities should further capture land value uplift by insisting on specific levels of greater housing diversification—and also note that many in the housing building industry are sceptical of this approach. I agree with the principle that the costs of increased housing diversification should be funded through reductions in residual land values. The Government are committed to improving the effectiveness of the existing mechanisms of land value capture, making them more certain and transparent for all developments. My focus is on evolving the existing system of developer contributions to make them more transparent, efficient and accountable and my Department is gathering evidence to explore the case for further reform.