Just over seven months on from chancellor Philip Hammond’s Budget announcement that an “urgent review” into accusations of land banking would be set up, former Tory MP Sir Oliver Letwin has delivered his verdict.

Sir oliver letwin

Sir Oliver Letwin gave his first phase review findings this week

Source: Policy Exchange/Flickr

Letwin was asked to investigate why it takes housebuilders so long to complete large housing developments after statistics revealed that just over half of the 684,000 homes with planning permission granted in July 2016 had actually been completed.

Split into two parts, the first phase of the review, published this week, sought to identify the causes of the slow pace of housebuilding. The second part of the review will take place over the next six months and will focus on the policy changes required to improve build-out rates. Letwin plans to publish his findings ahead of the November Budget.

Here are the key findings from phase one of the Letwin Review:

1) Debunking the land-bank myth

As part of the review, Letwin was asked to investigate whether major housebuilders were intentionally land banking, whereby they hold on to land and wait for it to rise in value. Letwin says the idea that housebuilders are behaving like financial investors, speculating over future land values, is not compatible with how they run their businesses. Housebuilders’ profits are generated from selling homes, not from an increase in the value of land, he argues.

Justin Gaze, Knight Frank’s head of residential development land, says the review brings some clarity to the discussion around land banking. “Those in the industry have long known that the often-repeated idea of housebuilders ‘sitting on’ land was a misconception,” he says.

2) Absorption rate is slowing delivery

The root cause of the slow pace of housing delivery on large sites, says Letwin, is that to avoid driving down prices housebuilders don’t want to release too many houses. Housebuilders call this the absorption rate.

Letwin found during his initial six-month review that on average it took 15.5 years to complete a large housing development after planning consent had been granted. The problem, he says, lies in the type of homes being built. Housebuilders are churning out identikit houses, which, if released to market all at the same time, would create a glut. Instead, he wants to see developments made up of homes that stand out from each other in terms of size, design and tenure, appealing to a range of markets including the retirement and student sectors.

“We found that if housebuilders were to offer more variety of homes and in more distinct settings, then overall build-out rates could be substantially accelerated,” he says.

3) Facing up to the skills shortage

Letwin estimates that around 15,000 more bricklayers are needed to deliver the government’s annual 300,000 new homes target. To boost numbers to this extent, he recommends the government and major housebuilders work together to implement a five-year “flash” programme of on-the-job training.

4) Infrastructure delays have ‘huge effect’

Delays to making the infrastructure decisions needed to support a housing scheme were found to have a “huge effect” on building rates. Letwin cites Barking Riverside as an example of infrastructure delays holding up a housing scheme, as “considerable time was spent considering whether to construct an extension of the Docklands Light Railway” that did not get built. While multiple government schemes are available to support infrastructure development, Letwin wants to see more “effective co-ordination” between government agencies to speed up decision-making.