Solving the UK's Housing Conundrum
- AuthorJulia Lock
In the Autumn 2017 Budget Chancellor Philip Hammond set out a package of reforms to deliver 300,000 homes a year by the mid 2020s in a bid to tackle the UK’s chronic shortage of housing. The following year, the Government announced that more than one million new homes had been delivered since 2010 – an average of around 217,000 homes per year.
However, the National House Building Council (which registers 80% of all new private and affordable homes built in the UK) announced in May 2019 that it had only registered 37,500 new homes in the first three months of 2019 (a 3% increase on same time period in 2018).
This could in part be down to the extreme weather that swept the country in early 2018 which resulted in fewer registrations. However, if the rate stays the same for the rest of the year, the NHBC would only register around 150,000 homes in 2019 which means there would still be a deficit and numbers would still below what they were in 2007/2008.
Although there has been progress in recent years thanks to the reform of the planning system and the introduction of other measures such as the Help to Buy scheme and reductions in stamp duty, it is clear more needs to be done.
To address this issue, Sir Oliver Letwin MP was tasked by the Government to undertake an independent review to better understand the reasons why hundreds of thousands of homes haven't been built despite having planning permission.
He issued his initial findings in March 2018 highlighting some obvious practical problems: lack of skilled labour, lack of construction materials, land remediation issues and slow installations by utility companies. He also identified that the fundamental driver of build-out rates on large housing schemes is absorption rates (the rate at which homes can be released for sale without destabilising the market price). If too many houses came onto the market at one time, prices would drop which would not be commercially viable.
It may therefore be that smaller schemes will play an important part in meeting the Government’s target of 300,000 homes a year.
Following the publication of the report’s findings, the Government has issued a call to arms to encourage developers to start building on sites that already have planning consent and for more land to come forward for development.
So what options are there for landowners and developers seeking to bring forward residential development sites?
One option would be for developers and landowners to consider planning or land promotion agreements. This structure allows the landowner to retain control of the land with the other party providing a service (normally funding the planning application) in return for an agreed share of any eventual profit.
The advantages are the flexibility, relative simplicity and confidentiality of such agreements. Each party would also only be taxed on sale proceeds in accordance with its individual circumstances. A landowner does not share the financial risk of pursuing planning unless and until a sale is agreed, but a developer will ordinarily want a larger slice of the profit from the sale to reflect the work/services it has provided at its own risk.
Parties may also consider an option agreement. This would normally be an option for the developer to call for the property to be transferred to it once planning permission has been obtained.
From a landowner's perspective a contract conditional on planning may be the preferred route. In this instance completion of the sale would take place once planning permission has been granted. There are, however, several pitfalls and very often what can from an initial overview look like a binding contract for sale is little more than a developer's option to purchase. This is because developers want to be able to decide whether planning permission is acceptable to them before proceeding with a purchase.
Unfortunately, there is no easy solution to the housing shortage and, while new home figures are slowly continuing to rise, it is clear more needs to be done to tackle the true extent of the problem.
Andrew & Co Solicitors acts for private or corporate landowners, property developers and builders. For advice on planning and development, please contact Julia Lock or one of her team in Lincoln on 01522 512123 or in Newark on 01636 673743.