Developers could be penalised for slow build rates

A policy paper published by the government over the weekend has outlined how it could get tough on slow housing developers in an effort to ‘get on and build’ the 1.5m homes promised in this Parliament; including penalising those responsible for slow build rates and unfinished sites.

‘Planning Reform Working Paper: Speeding Up Build Out’ details how the government plan to tackle slow build out rates, and ‘pursue (the) right incentives… in the housing market, and (give) local planning authorities.. the tools they need, to encourage homes to be built out more quickly.’

The paper, which invites responses from across the property sector, sets out proposals which could tie builders to delivery timelines before they can get planning permission, requires them to submit regular updates to the local planning authority, and recommends a “Delayed Homes Penalty” where build rates do not meet agreed timescales. The deadline for responses is Monday 7th July.

Deputy Prime Minister and Housing Secretary, Angela Rayner said:

“This government has taken radical steps to overhaul the planning system to get Britain building again after years of inaction. In the name of delivering security for working people, we are backing the builders not the blockers. Now it’s time for developers to roll up their sleeves and play their part.

“We’re going even further to get the homes we need. No more sites with planning permission gathering dust for decades while a generation struggle to get on the housing ladder. Through our Plan for Change, we will deliver 1.5 million homes, fix the housing crisis and make the dream of home ownership a reality for working people.”

There is as much importance placed on incentivisation, as potential penalties with the government identifying issues including local demand, the types of housing and the capitalisation of smaller house builders compared with volume players as key challenges to tackle.

Proposals included in the paper to drive demand consider the work being done to increase demand through the mortgage guarantee scheme and the relaxation of lending rules outlined by the Financial Conduct Authority. On tackling slow build rates, the government suggest where a sizeable chunk of a site is affordable housing, it takes half the time to complete because the speed of sale (i.e. to a Housing Association for example) is much quicker; this constraint is also known as the ‘absorption rate.’

Multiple market studies have found that most large housing sites are built at the pace the homes can be sold at current second-hand market prices, rather than the pace at which they could be constructed if pre-sold (i.e. to an institutional landlord). The rate of building consistent with selling at local second-hand market prices is known within the industry as the ‘absorption rate’. The Letwin Review concluded that local absorption rates were a “binding constraint” on build out rates. The CMA observed, that “the private market will not, on its own initiative, produce sufficient housing to meet overall housing need, even if it is highly competitive”. 

Alongside the reform to planning regulations, the paper also outlines how secondary legislation will be brought forward ‘later this year’ to legislate for amendments to compulsory purchase orders, which will require landowners to progress alternative proposals quicker to prevent delaying tactics; and if that proposal is rejected, the CPO will become active, effectively ‘re-risking’ the use of CPO’s because ‘the existence of alternative proposals will no longer carry the same weight in the decision-making process.’

But the warning for developers is stark; build or prepare to face consequences. Alongside changes to CPO’s the paper includes proposals to levy a ‘Delayed Homes Penalty’ worth thousands per unbuilt home, paid directly to local planning authorities. And developers who are deliberately sitting on land, without building the homes promised, could see their sites acquired by councils where there is a case in the public interest and stripped of future planning permissions.

Housing spokesperson for the Local Government Association, Cllr Adam Hug said:

“Local government shares ambitions to boost housebuilding and work hard with communities and developers to deliver new sites. Too often they are frustrated when developers do not build the homes they have approved. While intervention of this sort is a last resort, this move is crucial to help ensure meaningful build out of sites.

“The ability to apply a ’Delayed Homes Penalty’ is a power that councils have been asking for and means that local taxpayers are not missing out on lost income due to slow developers, but it must be set at a level that incentivises build out.

“Private developers have a key role in solving our chronic housing shortage but they cannot build the homes needed each year on their own. Ahead of the Spending Review, we have also set out the measures needed to empower councils to also be able to build more affordable, good quality homes quickly and at scale.”