Are Housebuilders Restricting Housing Supply to Boost Profits?

Housebuilders have been accused of restricting housing supply in order to boost their profits, by keeping house prices artificially high.

Recent data shows that almost half a million homes in England have had planning permission granted, but have not yet been built. The length of time it takes for property developers to complete a home has also risen from 24 months to 32.

The figures have reignited a long-running disagreement between policymakers and housebuilders over who is to blame for the current housing supply shortage.

While rates of planning permission for new homes have jumped by 60% since 2010, there has only been a 48% increase in the amount of new homes being built.

Labour MP Clive Betts, the Chair of the Local Government Select Committee, claims the failure of the big housebuilders to speed up development was designed simply to boost their profits.

He comments: “I think it is clear that the big developers are building at a rate to maximise their profits, rather than addressing the country’s housing need.”

He notes that some developments have had planning permission, but are not due to be completed for another ten years.

“These are private companies who are very simply trying to make money for their shareholders,” he adds. “They are restricting supply and the Government urgently needs to come forward with measures to address this.”¹

Ministers are becoming increasingly concerned about the failure of developers to speed up house building. There have been reports that some Conservative Party members believe that some housebuilders are deliberately restricting the supply of new homes to increase their profits.

The Housing Minister, Brandon Lewis, has his own frustrations with property developers.

He told the Local Government Committee: “When you have got housebuilders delivering, on average, 48 homes a year on some [large] sites, that’s not good enough.

“We know they can go further. Housebuilders will talk about saturating the market. But we are aware that in too many places, we are still taking 20 weeks to build a house when we can do it in three or four.”¹

Recently, Taylor Wimpey announced a record operating profit margin of more than 20%, as it sold more houses at higher prices. Pre-tax profits at Britain’s biggest housebuilder, Barratt Homes, have also surged by 40% in the past six months, to almost £300m.

It is believed that ministers are considering new measures to speed up the rate of development, amid concerns that they will not hit their target to build 1m new homes by 2020.

New policies could include forcing housebuilders that buy publicly owned land to commit to rapid construction as part of the planning process.

Glenigan, the housing industry analyst, compiled the latest data for the Local Government Association, which was released in January.

It found that 475,647 homes in England that have been granted planning permission were yet to be built in 2014/15.

In 2012/13, the total number of homes given planning permission that were yet to be built was 381,390, and 443,265 in 2013/14.

A spokesperson for the Home Builders Federation, which represents developers, reports that the most recent Government figures show there were 170,690 net additions to housing stock during 2014/15 – a 25% increase on the previous year.

They claim: “The industry has delivered unprecedented increases in supply over the past two years, driven predominantly by the large private sector housebuilders.

“This has been on the back of the pro development policies introduced in recent years and a general increase in demand.”

They blame the planning systems of local and central government for the shortage of housing supply.

“As a priority, it needs to work with local authorities to speed up the planning system and ensure local plans allocate enough sites of different types and sizes that are attractive to a range of companies.”¹

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¹ http://www.theguardian.com/business/2016/mar/01/developers-restricting-supply-of-new-home-to-boost-profits