Do developers deliberately delay building homes so they benefit from rising prices?

Posted On 01 May 2022 at 8:06 pm

For many years in this country property developers have been accused of land-banking – the practice of deliberately delaying building properties with planning permission so that prices are higher when they finish, making more profit.

Michael Gove, the secretary of state responsible for housing, which includes responsibility for delivering the government’s target of 300,000 new homes a year, thinks they do.

And the government has been talking about a levy on developers who leave plots sitting unbuilt, or even a “use it or lose it” law.

Developers meanwhile claim the whole thing is a myth and no such practice even exists.

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So, does it exist or doesn’t it? And if it does, in a time of almost unprecedented house price inflation, are developers making huge extra profits as a result?

In the first instance, it needs explaining that there are distinct types of developer – and two distinct types of development site.

Most readers will be familiar with the large housebuilders that dominate the market – Barratt, Persimmon, Bellway and so on.

These companies have multibillion-pound turnovers and build thousands of houses and flats every year – mostly on the edge of settlements, often on agricultural or even green belt land.

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They contrast sharply with the huge numbers of independent property developers, each building a relative handful of new homes each year, with the focus on smaller urban sites.

For us smaller developers, building on urban land in the main, I can categorically say land-banking just doesn’t exist.

In fact, one of our primary objectives is to build and sell the development as quickly as possible – for lots of reasons.

Urban land, as discussed in a previous article on viability, comes at a high price. That means we have money invested and lots of interest mounting up all the time we have an unfinished development, right from day one.

We can’t afford to sit on it – and in most cases our bank loans have targeted dates we must hit for starting the build and selling the finished units.

Investors want to see action and the longer we have a site the more likely it is that something adverse will happen – delay over Brexit, a pandemic, a war.

Things we never anticipated can and do occur – and no one knows what could trigger a recession. The longer we take, the greater the risk.

So, do the larger developers hoard land deliberately? Yes and no. Most large businesses that sell products have contracts with suppliers for years ahead.

Whether it be supermarkets buying food or car manufacturers buying raw materials, these businesses need to guarantee their supply chain.

For developers, the basic raw material is land – with planning permission. Barratt have 6,500 employees and built over 17,000 homes last year.

That requires a lot of land in the supply chain and having it there is not land-banking. It’s just forward planning.

Further to that, the vagaries of the planning system mean even experienced developers can’t always be sure if an application is going to take a year to be approved or three years.

Some complex urban sites can be stalled with contamination issues, a party wall with neighbours or ecology and archaeology issues to sort before works can begin.

All this means that large developers need to over-allow for time delays so they don’t run out of work and that is what gives the impression they are sitting on land unnecessarily.

Why does the government persist with claiming it happens then? In short, a large part of the issue is the planning system.

If developers could rely on fixed times to determine applications, then they wouldn’t need so much land sitting in their pipeline.

But anything that highlights that is not going to be something the government acknowledges.

In any case, all planning permissions already come with a rule that says the development must start in three years – so that “use it or lose it” rule already exists.

Finally, have developers benefited from the recent house price increases? In my experience, no.

All that inflation we hear of in the news? Construction materials and labour costs have risen sharply – timber up 25 per cent in the past month and some tradesmen have almost doubled their daily wage this year (yes, you read that right).

All that means that land values have actually decreased recently. If anything, some sites are just not viable when they would have been six months ago.

Some of these may well end up sitting unbuilt until build costs come down. No doubt the government will call that land-banking.

Ed Deedman is a director of Cayuga Homes.

  1. Helen Reply

    If anyone is guilty of landbanking, it’s the Council!

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