Hammond, Letwin, and the ‘non-fiscal event’

14 Mar 2018

Policy area: Residential

BPF's Assistant Director Alex Green shares his views on yesterday's Spring Statement and the Letwin Review. 

Did the long-trailed Spring Statement produce one or two surprises, despite declarations to the contrary?

No not really.

For all the downplaying and managing expectations around the Chancellor’s Spring Statement, it seems we received precisely what was expected on this occasion. We were told that this would be a new ‘non-major fiscal event’, with major tax and spending changes made once a year at the Autumn Budget, and we were duly provided with a 25-minute speech, no Red Box, and some new consultations announced.

One significant (and suitably ‘non-fiscal’) update provided through the statement was the publication of Sir Oliver Letwin’s interim report on his independent review of build out rates. When this was first announced at the Autumn Budget, the immediate reaction from many quarters was: “Great, another inquiry into land banking!” Onlookers could be excused for thinking that the review was an exercise in political posturing rather than an attempt at stimulating concrete action.

This opinion has not necessarily borne out in practice. A little over two weeks ago, we met with Sir Oliver to discuss the first evidence gathering phase of his review, and the pragmatism we experienced appears to have now been exhibited in the form of his preliminary update. The interim assessment focuses exclusively on identifying and analysing the reasons why there remains a significant gap between the number of planning permissions granted and the associated build out rates - furthermore narrowly in relation to large sites retained by major house builders. Recommendations will not be made until phase two.  

This preliminary update notes seven key barriers highlighted by those that have engaged with the review thus far. These range from a lack of skilled labour, through complex site logistics, to a lack of supporting local transport infrastructure. Sir Oliver does not however believe that these barriers are the primary determinants of build out rates. Instead, “the fundamental driver of build out rates… for large sites appears to be the related ‘absorption rate’ -  the rate at which newly constructed homes can be sold into… the local market without materially disturbing the market price.” Much of our discussion with Sir Oliver was dedicated to this topic.

It is acknowledged within the letter (addressed to the Secretary of State at MHCLG and the Chancellor), that the absorption rate is largely determined by the size, design, context, tenure, and pricing of new homes on a given site, and the limited opportunities for other housebuilders to enter large sites, allowing large housebuilders to exercise control over these key determinants of sales rates. Notably, the relative ‘homogeneity’ of housing types on large sites is seen as the norm. 

What does this direction of travel mean in a policy context, and what actions might be prescribed at the Autumn Budget?

It is too early in the process to guess at the specific associated recommendations. However, Sir Oliver’s line of inquiry seems firmly focused on promoting the co-location of variant models of housing in aid of addressing problems around absorption rates. Crucially, diversifying the offering would seem to be in accordance with an aging, more transient, and informed population, and may even offer social value by way of promoting mixed tenure communities.

The signs are promising, and Sir Oliver’s Review may yet deliver value, where others have previously failed.