Housing supply: noisy signals

Glenagins have just reported on more evidence of a tendency for new development to be concentrated on larger sites.  Although they find that the number of units permitted is increasing…

…there is concern at the drop in the number of sites permissioned, falling by 11% compared with 2015 (from 19,600 in 2015 to 17,500 in 2016). This indicates that permissions are being granted on larger ‘strategic’ sites. Whilst the headline number of plots permissioned now exceeds the pre-crash peak by around 15%, the number of sites on which those homes could eventually be built is down by more than 10% on the same time period…Due to the infrastructure requirements associated with larger sites, these permissions tend to take longer to start being delivered and will tend to be built out over a longer period of time…The average size of permissioned sites has increased by 16% in the last 18 months as local authorities focus their attention on larger sites. This highlights the problems small housebuilders have in finding suitable sites and progressing them through the planning process

It’s difficult to know whether this is caused by local authorities actively preferring large sites or due to larger sites being more actively promoted.  I argued in an earlier post that the economies of scale issue can be pretty pervasive.  The amount of resource from the planners’ perspective is not much different for a 30 unit project compared to a 300 unit development.  It makes sense for the local authorities to allocate (widely agreed to be) scarce planning resources on larger rather than smaller sites.

However, this is also the case for site promoters.  I’d guess that land promoters have become more prevalent over the last decade too.  Since they’re experts at promoting sites through the planning system, they probably improve the rate of sites getting planning permission.  However, they are much more likely to focus on larger sites?  Given that they typically will want 10%-15% of any sales proceeds from sites that they’ve promoted through the planning system, there are clear incentives for them to promote larger sites rather than smaller ones.  Obviously, 10% of £30 million is ten times more than 10% of £3 million.  However, the difference in the cost of promoting a £3 million site compared to a £30 million site could be in the tens of thousands.   I know what I’d do.  Of course , it could be the result of the preferences of both the local authorities and promoters

It’s also interesting that, in another post, Glenagin state that, at the same time that more units are being permitted, more schemes are being put on hold.  It tended to vary with sector.

The number of office and industrial projects placed on hold rose during the second half of last year as investors re-appraised their projects potential viability in light of the referendum vote. This process appears to be stabilising with a similar numbers of office and industrial projects being placed on hold in the first quarter of this year…In contrast the number of private residential schemes being placed on hold has continued to climb. At 170 the number of private residential projects put on hold was 35% up on the final three months of 2016… Strikingly, however, the sharpest increase in projects being placed on hold during the first quarter was in government funded areas. The number of education projects put on hold was 70% higher than a year ago, while the number of health projects more than doubled to 55.  There has also been a sharp rise in social housing projects being placed on hold. This suggests that government policy and funding issues, rather than wider economic concerns, have been factors behind the latest rise in projects being placed on hold.

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