Housing minister John Healey says the government is looking at a different kind of housebuilding model (17 July, page 12), “less development-based, and almost contractual”, which is designed to overcome “housebuilders’ reliance on the development land market”
But there is an important distinction between the residential development model and the traditional homebuilders’ business model.
The residential development model has a series of stages: identifying and assembling land, assessing local market supply and demand, designing an appropriate scheme, obtaining a planning permission, building the scheme and selling the homes. This process has three key areas of risk: planning, construction and marketing/sales.
Traditional housebuilders, who provide most of the new homes in the UK, undertake all these stages, so carry the planning, construction and sales risks.
If the public sector puts land into a development by way of some form of risk-sharing joint venture with a homebuilder, this will reduce the developer’s capital requirements and change the risk and reward calculations. But this does not turn the homebuilder into a contractor. A contractor, building to a client’s instructions, takes no planning, marketing or sales risk. A public–private partnership on public sector land, selling to private buyers, must carry the full market and sales risks.
Some post-credit crunch homebuilding may be undertaken using other business models, but it is wrong to believe that risk can be eliminated. Unless the state is planning a massive social housebuilding programme, or setting up an operation to sell new homes on the open market, the homebuilder or joint venture will still bear the sales and market risks.
John Stewart, director of economic affairs, Home Builders Federation