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Landbanks


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#1 Alphonsox

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Posted 30 December 2015 - 07:40 PM

Apparently the big four builders are sitting on 600K plots and it's all the planners fault.

http://www.theguardi...ndeveloped-land

#2 ProDave

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Posted 30 December 2015 - 07:46 PM

So they have 4 years worth of land "in stock"

That doesn't sound excessive, given the difficulty in finding and getting permission for building land. What do you (or rather the press) expect them to do? develop all the plots this year then wonder what they are going to build on next year?

#3 Alphonsox

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Posted 30 December 2015 - 08:09 PM

I must admit I would have expected a more. I think the 600K is the consented landbank i.e the land they have outline planning permission for. I think the actual land ownership by the big builders is a lot higher.

#4 temp

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Posted 30 December 2015 - 08:38 PM

Quote

Despite the fact the nine listed housebuilders hold more than 600,000 housing plots, they sold just 66,881 homes between them in their last financial year.

That's more like 9 years worth and..

Quote

...their total landbank could be even bigger. For example, Bellway does not report land that has not got planning permission for house construction, while Persimmon says it controls 18,000 acres of “strategic land” on top of more than 90,000 plots that already have planning permission.

18,000 acres could be another 200-300,000 houses?


#5 joiner

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Posted 30 December 2015 - 10:48 PM

Coincidentally, not far off the figure for last year's net immigration then. They've got to live somewhere. :rolleyes:

#6 jsharris

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Posted 31 December 2015 - 08:52 AM

As pointed out, the released figures understate the true position. Here we've got a stack of new development sites that are just sitting there, waiting for prices to rise, I believe. The last thing the developers want to do is build houses at a rate that might increase supply to the point where demand starts to fall, as that means they risk having completed houses on their books that cost them money (they have to pay Council Tax on completed houses, for example, plus they have to keep them tidy and have sales people around to show prospective buyers around). Their aim is to always keep a strong demand, so they only build just enough houses at any one time in any area.

This isn't at all surprising, as developers don't make much money by building and selling houses, I believe most of their money comes from buying land and getting PP for it, together with the normal increase in land value over time. The plot just along the road from me gained PP over a year ago, yet so far there is no indication at all of any work starting there. They bought the land around 18months to 2 years ago, and in that time they have probably made around 5 to 10% just on the increase in land price over that period. By the time they actually get around to completing the development my guess is that they will probably have made double the profit from the land price increase than they will from building the houses. If they could renew their PP (something that used to be easy but is now far less so) then they could hold the land for many years, allowing its value to increase and adding to their profit.

Because of the costs and risks associated with renewing PP, we're seeing an increase in land being purchased by developers on spec, around here. They are buying land that they feel reasonably confident they will gain PP for and then sitting on it. A farming friend is leasing some land from a developer at the moment as pasture, on a short term annual lease, There's no indication yet of a planning application going in, but the same developer is completing a large development adjacent to this land and it's clear that they have put in an access road (and presumably services) right to the edge of what may well be the entrance to a new development once they gain PP.

#7 warby

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Posted 31 December 2015 - 09:10 AM

You will recall the labour government at the last election came up with a ridiculous arrangement for introducing a House Wealth tax. It would be much easier to introduce a tax on land suitable for development that has not been developed; like a form of punitive advanced Corporation tax. This would either force landowners to develop the land or sell it on to Self Builders to develop. It would have significant effect on increasing the number of houses developed and at the same time give builders a profit on the sale of land but no profit from the building development. Successive governments have done so little to change the way our major builders work technically and nothing to change the habits of those who own land but do not develop it. Rant over. I want a piece of land.

#8 ferdinand

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Posted 31 December 2015 - 12:24 PM

This makes me angry, aside from a valid critique of big developers, which is hidden by the rhetoric.

I think this is quite likely to be political @!##-stirring trolling. The article seems to think there is something inherently wrong about paying a return of a few percent to shareholders, and the complaint isn't even "x level of profit is OK, and they are making more", but a generic free-floating anti-business "their profits are too high" whinge. Shelter are also involved, and they are notorious for being dishonest in their use of statistics (*).

Plus it is an article about construction in the Guardian by a generalist not a specialist, so it is quite possible that the numbers are:

- misunderstood
- not added up properly
- selected very carefully to stir up their readers
- reproduced from a conveniently partisan or exaggerated "authoritative" source
- or simply fabricated

Any "consented" plots beyond 3 years are largely meaningless, since PP expires at that point. If they are beyond that, it will be planning or bats or similar.

When a detailed report was done on this in London quite a number of plots with PP were not regarded as deliverable or buildable by developers, partly because PP had been obtained by landowners to capture planning gain before sale. An example is if something is left to the detailed stage that turns out not to be possible (eg if Ground Conditions haven't been investigated), and it becomes buildable only at a loss. I pointed one out on another thread yesterday. And there were a significant number of plots in 10 or 15 year developments that would be built out at that point that the Guardian and friends pretended were part of landbanks not being built on because developers were benig exploitative.

The "strategic land" thing is meaningless - it might be land not even in local plans that will never be zoned for building. It might be in areas where there is no demand.

And why shjouldn't Tony Pidgeley of Berkeley Homes take a significant benefit from a successful business he has built up over 40 years?

Harrumph. Is it any wonder that Guardian writers and readers are significantly a collection of dumbed-down goops?

Ferdinand

(*) For example, the Shelter claim last year that "We use as much land for golf courses in England as we do for homes", under the headline "Do we prioritise golf or homes?".

That only added up because they restricted the "housing" figure literally to the footprint of "domestic buildings" themselves, ignoring gardens, open space in estates, drives, roads etc. Meanwhile they included all the ancillaries in with golf courses. This was not explained in the article.
http://blog.shelter....-golf-or-homes/

The claim was explored by the R4 programme "More or less". Secnod report down.
http://www.bbc.co.uk...rammes/b044jh75

And Shelters non-response, ignoring (in my view) the main point:
http://blog.shelter....-the-golf-stat/

Edited by ferdinand, 31 December 2015 - 12:26 PM.


#9 jsharris

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Posted 31 December 2015 - 12:36 PM

I can fully accept that developers are businesses that need to be profitable to survive, but my major gripe is that they contribute (far more than I think they should) to the "boom and bust" housing availability/price cycle.

When the economy falls off, they, unlike other businesses, don't take a such a major hit, because they just shut down developments, secure in the knowledge that they are still asset-rich, with assets (land with PP or that is certain to get PP) accruing in value, even when the economy goes into freefall (many will have noted that land prices didn't tumble when other prices did).

When the economy picks up they throttle back the rate at which they build new houses to ensure that demand outstrips supply in any area, so keeping the market price high.

The main problem is that consumers and all those employed in the construction sector have to bear the cost of their behaviour. You can argue that it is "just good business practice", but here we are talking about homes and a considerable degree of social impact from the developer's actions.

#10 NeilW

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Posted 03 January 2016 - 10:54 AM

Essentially the market doesn't work - because of course you can't make any new land, particularly in a crowded country.

By far the most sensible solution I've seen is to stop there being a market in land with planning permission on it. The council buys the land from people at agricultural prices (using their compulsory purchase powers if necessary) by requesting so many square metres/hectares of land, and then buys those with the lowest bids.

People wanting to build can then purchase options on land and get planning permission for their design of house. Once the house is built and signed off, the new owner buys the house off the builder and the land off the council.

The result is:
  • the builders make no money speculating on land - but they don't need to have capital to buy land
  • the local authority has a statutory duty to make sure there is land for anybody who wants to build (within the housing requirement projections) and any planning gain accrues solely to the local authority reducing council tax requirements for all.
  • the local authority maintains a single land bank so that builders don't have to worry where their next job is coming from.
  • self-builders can get access to plots in any area.
the losers are the banks - who don't get to lend so much money propping up land speculation. And land speculators.

#11 windsurf21

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Posted 03 January 2016 - 11:14 AM

View PostNeilW, on 03 January 2016 - 10:54 AM, said:

Essentially the market doesn't work - because of course you can't make any new land, particularly in a crowded country.


They have in Dubai.
I think there is something similar going on in Brighton marina too.

#12 SteamyTea

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Posted 03 January 2016 - 11:30 AM

With about 9% urbanisation of which 2 or 3% is for housing, you don't need to 'make new land' in the UK.

We are really hung up on the idea of 'an over crowded island'. I was in London New Years Eve, yes it was busy, and I don't like it any more, but it was not over crowded. I did not have to constantly dodge people, push though crowds (even the ones taking pictures of Harrods, or the ones trying to get in Winter Wonderland in Hyde Park) or step over any starving people.
I know I have said this many times, the population of Cornwall goes from 600,000 to 2,400,000 in the summer, with a total of 5,000,000 visits ever year.
Some places are hopeless to drive to (St. Ives, Padstow), but you can get a train or bus for the last mile or so.
I nearly always manage to get free parking (local knowledge), it is busy but not dreadful, I have only once been late for work because of traffic (and that may have been an accident) in ten years.


Adding an extra ring of housing around most towns is a pretty effective way of increasing the area without making too much difference to the feel of a place, but we tend not to do that, we cram as much into the middle as we can, don't build enough new infrastructure and heavily criticise anything new or different.

There is also one simple way to stop a new development, just buy up the land and don't develop it. It is also a very good way to find out how much people really object to something.
But because we don't buy up land to stop development it shows the market is working.

Edited by SteamyTea, 03 January 2016 - 11:31 AM.


#13 jsharris

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Posted 03 January 2016 - 11:47 AM

What would be interesting would be to find out how much developers pay for land, how much they pay in levies (CIL, S.106, affordable housing contributions etc) and how much they pay to build houses, then compare these figures and see what's driving new house prices.

If new house prices follow the normal demand-driven pricing that we see with other items, then I'd expect to see high profit margins, yet most seem to say that the profit on a new house is in the 8% to 15% region, and that makes me believe that pricing is really driven by something else. The obvious candidate seems to be land, but as I've discovered in the past year or so, developers seem to dictate the price for land (rather like the supermarkets do with produce), and they pay a great deal less per plot than self-builders do. I was a bit surprised by this, but it seems that developers have no problem in finding land, which seems to contradict popular belief. I've heard this now from three independent sources locally, two of whom have sold land to developers and one who refused on the basis that the price was too low. The one that refused (a farmer) expected a developer to come knocking at his door again, with a better offer, but it seems that the developers have just gone elsewhere.

I suspect that one of the big drivers in new house pricing is really the combination of finance cost and levies charged by the local authority. The latter have risen a great deal in the last few years, and must now make up a significant part of the total price of a new house.

I'm in agreement with ST over land availability, I don't really think we have a problem at all with finding the land needed for new housing. Arguably some areas of the UK have far too many houses that lie empty for large parts of the year already (like Cornwall, that can magically create space for an extra 1.8 million people every summer). We do have a problem with people wanting, or needing, to live in areas where there aren't enough houses and the flip side of that which is people not wanting, or being unable, to live in areas where there is a surfeit of housing.

#14 windsurf21

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Posted 03 January 2016 - 12:01 PM

Isn't the price of a new house dictated by the price of existing local houses, maybe plus a little extra because it's new?
The value of the actual land is insignificant to the majority, it's the desirability of the house built on it that people value.


#15 SteamyTea

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Posted 03 January 2016 - 12:06 PM

I don't have a problem with a home being empty for part of the year down here. Half the income of Cornwall comes from tourism. The 'empty' house is just a 'tool' to be used, just like that 9/16th" reamer at the bottom of the tool box or a large basting tray. It pays for itself when it is needed.

I suspect that the main problem with the price of housebuilding is that we do it on a small scale.
Even at 200,000 units a year, that is nothing compared to our automotive industries which makes about 2.2 million units a year (11 times as many).
As I feel like a bit of arithmetic, let's say that we make 2,000,000 Focus sized cars, so about 1.8 m wide and 4.8 m long.
That is an area of 8.64 m2
2 million of them is therefore 172,80,000 m2
If we divide that by 200,000 we get 86 m2
Now 86 m2 is over 3 times the surface area of my house, so my small two bed place could become a 6 bed place or a nice 4 bed place.

There is a lot of technology in a £20,000 car these days as well.
A house may have a combi boiler and a micowave.

Puts our pathetic building industry into perspective don't it.

Edited by SteamyTea, 03 January 2016 - 12:08 PM.


#16 jsharris

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Posted 03 January 2016 - 12:12 PM

View Postwindsurf21, on 03 January 2016 - 12:01 PM, said:

Isn't the price of a new house dictated by the price of existing local houses, maybe plus a little extra because it's new?
The value of the actual land is insignificant to the majority, it's the desirability of the house built on it that people value.

It's hard to know for sure if that's the case. I think there are significant factors that distort the normal demand and supply pricing model. New houses attract a premium over older houses because for many they are the only way to buy (the Government's Help to Buy scheme only applies to new houses), and for some they are seen as being a safe buy because, being new, they are seen as being "better" than older properties. Another indicator that pricing isn't driven by demand is that new house prices (at least around here) don't seem to reduce when the market falls. I saw no evidence at all of price reductions on any of the big new estates being built in this area, all that happened in the downturn was that they stopped building houses for a few years, leaving partially completed developments. My guess is that buyers were buying "off plan" and were committed to buy before their house was built, at the agreed price.

#17 SteamyTea

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Posted 03 January 2016 - 12:23 PM

I suspect that the price of housing is more affected by irrational behaviour that anything else.

One of the problem we have in analysing house prices is the very fragmented market.
There is size a and location, age and income of buyer, mortgage ratio to capital value, bank lending rates and so forth.

It is easier to just select a small sample, say first time buyers in the 20 to 35 year old bracket that borrow 5 times income, and then get the statistics totally wrong (actually it is the sampling that is wrong).
It is a shame that they don't publish mortgages attached to individual properties, but that is a data security nightmare. The tax and mortgage companies have this data though.

#18 ferdinand

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Posted 03 January 2016 - 02:51 PM

View Postjsharris, on 03 January 2016 - 11:47 AM, said:

What would be interesting would be to find out how much developers pay for land, how much they pay in levies (CIL, S.106, affordable housing contributions etc) and how much they pay to build houses, then compare these figures and see what's driving new house prices.

If new house prices follow the normal demand-driven pricing that we see with other items, then I'd expect to see high profit margins, yet most seem to say that the profit on a new house is in the 8% to 15% region, and that makes me believe that pricing is really driven by something else. The obvious candidate seems to be land, but as I've discovered in the past year or so, developers seem to dictate the price for land (rather like the supermarkets do with produce), and they pay a great deal less per plot than self-builders do. I was a bit surprised by this, but it seems that developers have no problem in finding land, which seems to contradict popular belief. I've heard this now from three independent sources locally, two of whom have sold land to developers and one who refused on the basis that the price was too low. The one that refused (a farmer) expected a developer to come knocking at his door again, with a better offer, but it seems that the developers have just gone elsewhere.

I suspect that one of the big drivers in new house pricing is really the combination of finance cost and levies charged by the local authority. The latter have risen a great deal in the last few years, and must now make up a significant part of the total price of a new house.

I'm in agreement with ST over land availability, I don't really think we have a problem at all with finding the land needed for new housing. Arguably some areas of the UK have far too many houses that lie empty for large parts of the year already (like Cornwall, that can magically create space for an extra 1.8 million people every summer). We do have a problem with people wanting, or needing, to live in areas where there aren't enough houses and the flip side of that which is people not wanting, or being unable, to live in areas where there is a surfeit of housing.

I think the actual prices paid for new houses vary by up to 10-15%. It's just like buying a car - buy the first or the last and you will get the deal because it saves other costs.

At present developers are offering incentives worth 5-10% (eg deposit match to 5%). That is a measure.

On plots, I think there is a disparity between advertised price and sale price.

I suspect a self-build plot advertised at x will sell for anything between 0.7x and 1.1x, depending on all sorts of factors and risks which ahve been removed (eg 5-10k spent on ground testing).

How much did people here pay as a ratio of the advertised price?

For developers I think it is probably usual for the S106 + affordable costs to be about 100% of the final selling price, and the sale price to be about 50% to 100% of the advertised price.

One important factor is that landowners only have 2-3 years to sell it, and then lose all the money they have spent on Planning, so developers can reduce the value by spinning it out. It is usual to try word of mouth before Rightmove. By going slow on negotiations and getting it within say 9 months of planning expiring, devs can use time to create a single customer monopoly on the market for that plot, and the seller is faced with the option of re-entering the game of planning poker or being shafted. And national housing companies seem to like creating situations where they have power, ie shafting people.

So for a plot with Outline PP, I would expect a single seller to advertise for x, and sell for 0.8x, having spent 0.1-0.2x on planning, testing and fees. With perhaps 0.1-0.2x having come of the raw value first for social taxes before they came to the advertised price. They would make a margin of about half to two thirds of their advertised selling price on those numbers.

For a landowner with 20-50 similar plots together, I would expect for each plot to sell for 0.25-0.4x, having been advertised at 0.5-0.6x, with 0.2-0.4x having come off first in social taxes and affordable before being advertised, and about 0.03-0.05x in planning, testing and fees. So they would make about 20-35% of margin per lot as the single seller.

In my very general area quantity x, the advertised realistic price of a single decent plot, is roughly 40k to 100k with a narrower range for any particular "local" patch.

That's my impression where the local market is not exceptionally hot.

Ferdinand

Edited by ferdinand, 03 January 2016 - 03:59 PM.


#19 jayroc2k

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Posted 03 January 2016 - 06:27 PM

Lots of interesting points raised.

Its worth splitting small vs large developers. I don't think small guys make much money unless they get the PP themselves.
Sometimes they strike it lucky like a developer i know who bought a small house which after works barely breaks even, he was lucky as he managed to split the plot into two therefore putting two houses.

On the other hand, the large guys work on large numbers, 15% on £200m is superb. My mate is an accountant at one, they are hoping to get 12% but its on a half billion development.

Small percentage of a lot is still a lot!

Also, the big guy have some leverage with the council, they buy huge land (battersea power station, rams brewery London) and deal direct with the planners are part of town planning. This is very different to buying two garages and hopping to get planning for a house.


On a separate note, the last 3-4 years has been a heaven send, projects starting a viability of x per sqm are selling at x*1.5 per SQM

#20 joiner

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Posted 04 January 2016 - 07:08 AM

We are a very rural county (county, not country - I'm speaking from my own experience). We have lots of 'space'. We don't have local jobs, "industry" is located in urban areas where it has traditionally always been located because the infrastructure already exists there. We have rubbish roads that are falling apart.

It's why I made the point earlier, elsewhere, that what isn't being applied is the joined-up thinking that develops local housing plans with all of the above in mind, not just grasping the opportunity provided by a farmer who has a few fields he wants to sell off to boost his pension.

You don't need to be an economist to work it out, just someone with their head on the right way round! :angry: