Use it or lose it – the Lyons Housing Review spells out the proposal

In mid- October, The Lyons Housing Review published its report. Sir Michael Lyons, a former chief executive of three local authorities, was asked by the Labour Party to look into the causes of the shortage of new houses and suggest action to address the problem. One of the suggested solutions is “Use it or lose it”, actually a concept suggested by Ed Miliband, leader of the Labour Party at the time he set up the Lyons Review – see http://thedavidbrockblog.com/?p=697 .

The Lyons report explains that the market is dominated by volume housebuilders – “During the 1980s there were on average 10,000 active SME builders (those delivering 500 units or less) delivering around 57% of all output; last year there were only around 2,800 active small builders producing 27% of all new homes .” The report speaks of the “Big Six” housebuilders. It also records that mergers in the housebuilding industry actually reduced the number of houses built – see table 2 on page 104. Because it is easier to sell 100 homes from four sites than 100 homes from one site, mergers make it easier for housebuilders to achieve their targets. But in the introduction to the Use it or lose it proposal the report also adopts the observation of the Office of Fair Trading 2008 report on “Homebuilding in the UK” that “ Homebuilders deliver new homes as fast as they can sell them, not as fast as they can build them”. Anyone who has watched the release of houses on a large site will recognise this. Housebuilders will try to manage the sales so as not to put too many houses on the market at once, meaning that only a few houses are available at any moment in time.

Looking at numbers of houses with planning permission but unbuilt Lyons states that:
50,000 homes are on stalled sites
26,000 are on sites yet to start
54,000 are on sites that have started but have yet to finish

There are thus 130,000 unbuilt homes with planning permission. Some of these, it recognises, are on large developments which will take time to build out.  They state that in addition they identify “270,000 homes on sites that have been in the planning system since before 2010 or which have not yet progressed to planning permission”.

Largely on the basis of that analysis, the Review suggests how Use or lose it would operate. “In response to the concerns about the slow build out of sites discussed above the review was asked to look at how a “use it or lose it” power would operate to ensure sites are built out in a reasonable timeframe.” They make four interlinked proposals :
1 Shorten the lifetime of a permission to two years
2 Require more substantial progress to preserve a planning permission than the current material operations
3 Where a site is allocated in a plan, or has planning permission, but development has not been begun within five years, the local authority should be able to charge the owners with council tax, annually, for the number of dwellings proposed
4 There should be streamlined CPO powers in extreme cases allowing purchase by councils either themselves or with another party who wishes to build out the land.

Items 3 and 4 are clearly the heart of Use it or Lose it.

The report says that item 3 will not deter landowners from putting land forward because they stand to gain from its allocation for housing. But on the other hand it would “incentivise them to deal with an agent or developer who is likely to ensure that the scheme is progressed promptly.” It is worth pausing to consider this. Firstly, it should be remembered that anyone can make a planning application over someone else’s land, and that it is not necessary to be a landowner, or even a developer or option holder, to put forward a site for the local plan. In fact, the local planning authority has the ability to include a site in a plan on its own initiative. Planning applications for large sites commonly include land not yet controlled by the applicant. I remember one such site where one landowner was implacably opposed to the development and refused to sell. The development as actually built simply surrounded his land. It would not be right to require a person who hasn’t actually promoted their site to pay this penalty council tax. There was a similar problem with Community Infrastructure Levy, now addressed somewhat unsatisfactorily by Reg 69A of the CIL regulations. Lyons suggests that the power should only apply where the landowner has volunteered the site. That will be an important principle and the detail of its implementation will need to be scrutinised carefully.

But is it right to assert that use it or lose it will incentivise landowners to deal with developers? That assumes that there are developers who want to deal. Perhaps that will not be a common problem. But the penalty council tax will put pressure on landowners and weaken their negotiating position. There will be an imperative to sell, because otherwise, the landowner will end up paying council tax on unbuilt houses. Small landowners in particular will be vulnerable; they are unlikely to appreciate the need the proposal creates to have a contract to sell before supporting the developer’s case for allocation of the land. And the contract will constrain the landowner’s power to deal with his land. Well-advised, the landowner might find a put option is desirable.

Should we not go back to those figures about unbuilt houses and the number of housebuilders? Do they really support “Use it or lose it”? First, the number of houses with permission but unbuilt is only 130,000. The target is to build 200,000 each year, so that is only 65% of one year’s supply. Of course, Lyons concludes that in addition there are “270,000 homes on sites that have been in the planning system since before 2010 or which have not yet progressed to planning permission”. But that figure needs to be interrogated; if the permissions predate 2010 and have not been implemented, then unless the normal commencement condition was amended, they will have expired. And houses “which have not yet progressed to planning permission” are just that; they do not have permission. So why are they being counted?

However it is the observations about the number of builders which seem to me to hold more interest and possibly the solution. The market is dominated by the “Big Six” volume house builders, who, we are told, release houses not at the rate they can be built but at the rate they can be sold. I suggest that is at the rate at which they can be sold consistent with achieving the return the housebuilders desire. That is simply commercial common sense, and is backed up by the sales behaviour on large sites. This suggests that the market lacks competitiveness. More housebuilders getting their houses to the market will provide better consumer choice, bring more houses to the market and keep prices in check. But if housebuilders are able to control the rate of release, the number of houses coming to the market will remain low and house prices will stay high. But there would be less tendency for that to happen if there were more players in the market and therefore more competition. Which suggests that we need more housebuilders. Having a large number of builders is rightly identified by Lyons as an important ingredient for a healthy housing market, and the report suggests various helps for SME builders in Chapter 7. But actually this all suggests that the time has come to look again at breaking up the large volume housebuilders, especially when we remember that housing starts go down the bigger they become. Isn’t that a better step than Use it or lose it?