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The Letwin Review: right direction to accelerate housing delivery – but the issue of land value remains

This week, Sir Oliver Letwin’s long awaited Build Out Review was published alongside the Autumn Budget, just under a year after it was commissioned.

The analysis highlighted the gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand. It showed an annual build out rate of 3.2 per cent for sites of over 1,000 homes in London, as developers are concerned about pushing prices downwards if they build too quickly, meaning they limit the rate at which they build to avoid ‘flooding the market’.

Faced with this challenge, the review makes a number of recommendations:

First, new planning rules on large sites (above 1,500 homes) in high-demand areas should be required to diversify the tenure (i.e. provide more affordable housing), size and design of housing developed. The drive for diversification should also be complemented by incentives for builders. This is welcome, as London needs a lot more than simply more identikit homes for private sale: for example, the London Plan outlines that ‘low cost rent’ represents 47 per cent of the net requirement for new homes in London between 2016 and 2041.

Second, the Review calls for more powers for councils and other local planning authorities (LPAs): power to designate which areas in their local plan can only be developed as large sites, where a range of tenures and designs are delivered. It also calls for statutory powers to purchase the land designated for these large sites at prices which reflect their value once they have a planning permission. The Review calls for this ‘with permission’ value to be “capped” at 10 times existing use value, rather than any multiple of its existing value as is too often the case. For instance, agricultural land is currently worth around £20,000 per hectare on average in the UK, but can rise to some £2 million per net developable hectare in certain parts of the country once planning permission for housebuilding is granted, a hundredfold increase.

These propositions are welcome. But there may be some stumbling blocks.

Landowners of larger housing sites may balk at development which reduces the market value of their land and therefore profits. And although Letwin has considered this in calling for powers for LPAs to be able to take over and drive development using compulsory purchase powers, the 1961 Land Compensation Act allows landowners to be reimbursed for the ‘hope value’ of land associated with planning permission, which would often be more than tenfold.

Moreover, council budgets for planning and development fell by 50 per cent in London between 2010-11 and 2016-17. And although the Mayor has recently announced a £10 million Homebuilding Capacity Fund, LPAs need increased capacity and skills to implement Letwin’s recommendations on planning rules, diversity of tenure, size and design, and masterplanning.

Letwin is right, we do need to diversify housing offerings. But the Review overlooks the need to diversify housing providers too. Councils across London are ready to get back into building. and the government has lifted the borrowing cap for councils, as well as offered more funding to housing associations (and councils via the Mayor). SME developers should also be supported further, especially to build on small sites, which are an important part of increasing housing delivery in London, and are to be considered further as well as the large sites Letwin has examined in order to boost housing delivery.

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Victoria Pinoncely is Research Manager at Centre for London. Follow her on Twitter.