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Gaining the plot

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Britain’s biggest housebuilders could see the value of their land holdings rise by hundreds of millions of pounds as a result of the government’s drive to cut red tape.

As I blogged yesterday, the last month alone has seen the scrapping of the HCA’s core standards, a pledge to get rid of an ‘alphabet soup’ of local building standards and simplification of the Code for Sustainable Homes.

Add a re-definition of zero carbon due early next year and the way that the housing reform paper stretched the definition of ‘affordable’ homes and it’s clear that housebuilders’ longstanding call for a reduction in the regulatory burden has been answered.

That makes sense to some extent. They had a point when they complained about the way that the last government imposed an ever-increasing list of regulations and obligations to pay for affordable homes, infrastructure and sustainability on the assumption that rising land values would pay for them. In a recession and housing market downturn, and with housebuilding at its lowest level since the war, there are good arguments for reducing that burden to make more developments viable.

It’s hard to come up with an accurate figure for the regulatory costs involved. However, Grant Shapps said that scrapping the core standards would save £8,000 per home on schemes built with public funding or on public land. And studies by quantity surveyors of the Code for Sustainable Homes have estimated the cost of meeting levels 4 to 5 at more than £30,000 per home. 

Making the case against the regulatory burden in 2008, John Stewart, economic affairs director of the Home Builders Federation (HBF), made what he described as a conservative estimate that the affordable housing land subsidy was £30,000 per plot or £1.2m per hectare. He put the total cost of affordable housing, zero carbon and community infrastructure at £2.5m per hectare - on top of other section 106 demands, remediation costs, on-site infrastructure and rising building regulation costs.

On that basis up to £60,000 per plot could potentially be at stake in the drive to cut red tape. Not all regulations will go of course: some such as Boris Johnson’s new standards in London will be retained and some will be relaxed rather than scrapped. However, huge amounts of money are involved if even a fraction of those savings are achieved.

The biggest five housebuilders (Barratt, Taylor Wimpey, Persimmon, Bellway and Berkeley) owned a combined total of 245,000 plots in 2009. At a saving of £10,000 per plot, the value of their land could potentially rise by £2.5bn. At £20,000 per plot, it could rise by £5bn. To put that in perspective, their combined turnover was £6.6bn in 2008/09. 

Smaller companies (and housing associations with significant land holdings) would also see their value of their land rise

In the real world, of course, values will not rise on all sites and the overall outcome will depend on what happens in the wider land and housing markets. 

However, the good news for anyone that wants to see more homes is that sites that were not viable before should become viable. Housebuilders should be able to build and sell more homes at more affordable prices. At worst, they should be able to cope with any new downturn in the market.

The downside is that much of what’s now dismissed as red tape was put their there for a reason. Those numbers could come at the expense of standards - and contributions to genuinely affordable homes.

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