Bovis Homes - unit sales and land bank 2005 to 2014

Prompted by an article in City AM, I did a quick summary (from here) of units sold, plots with planning consent and 'strategic land', i.e. plots where they are likely to get planning permission in the near future.

Total units sold over ten years = 25,124
Land bank in 2005 = 35,304 plots
Land bank in 2014 = 39,412 plots

So assuming typical annual sales of 2,500, they own enough land to keep them going for, er, sixteen years.

The Faux Libs and socialists both insist that if we liberalise planning restrictions i.e. grant these people more planning permission, they will increase output. The Faux Libs blame it on the government; the socialists blame it on the 'greedy developers'. Both sides blame it on the NIMBYs.

It strikes me that Bovis et al have a profit-maximising level of output and they will stick to it. If they get more planning permission for more, they will just park it to one side. Clearly they aren't too worried about planning permission lapsing again after three years, or else they wouldn't be holding onto 18,062 plots which already have planning.

Please also note:

The Group employed 928 staff directly at the end of 2014 and up to a further 3,000 sub-contractors work on its sites on a daily basis. In 2014, the Group legally completed 3,635 homes predominately on greenfield sites.

I have got the impression that it takes at least two man-years to build a house, so some of those sub-contractors will be medium sized businesses (with their own sub-sub-contractors) in their own right. Either way, they have off-loaded all their risks onto their sub-contractors, if they want to curtail supply because of falling prices*, they just lay them off.

* 2007: 2,930 units sold; 2009: 1,803 units sold.

Oh no, we're not land banking or anything like that...

From Bovis Homes' Interim Trading Statement:

· 54% increase in legal completions to 1,487 homes (H1 2013: 963 homes)

· A record 4,597 consented plots on 23 sites added to the land bank

· Growing consented land bank of 17,702 plots as at 30 June 2014 (31 December 2013: 14,638 plots)

· 19,608 plots of strategic land (31 December 2013: 20,108)

Righty-ho, if they sell 3,000 homes a year, that's enough land for the next twelve years. I wonder whether they've also stockpiled enough bricks for the next twelve years?

And anybody who says that they need this land in advance to enable them to build houses in future, the answer is that they don't build houses.

Their 2013 accounts show that they had 741 employees, these are primarily sales and admin people. Building a house is on average two or three man years, so the 3,000 homes they sell would require 6,000 - 9,000 workers - but these people are all subcontractors who are perfectly happy building houses and being paid for it, they do not demand a share of the planning gain.

Bricks And Mortar Fun

Let's do a thought experiment, based on a few real life facts, as follows:

1. We currently have a free market in building materials - bricks, mortar, timber, slates, floorboards, pipes, cables and the like. Anybody can buy as much of this stuff at he needs for a modest price (total cost of these for an average semi is in the order of £30,000), but he is not allowed to assemble them into a house, which would cost maybe another £50,000 in labour costs (two man-years). For that he needs planning permission.

2. The current Lib-Con government is determined to keep new home-building to an absolute bare minimum of around 100,000 new units (half of what is needed to cope with population increases resulting from longer life expectancy, even if net immigration is reduced to zero). Quite why they are doing this is a mystery to me.

3. The result of this is that the value of a fully connected building plot is around £100,000 (i.e. average price of a house minus £80,000 for materials and labour). The average price paid for the planning permission alone was recently given as £55,000 per plot , to which you add the profit/risk element of building the houses as well as the cost/value of the roads, the utility connections and so on.

4. Thus, under current rules, you can make a massive windfall gain when you get planning permission - as Sobers will confirm, the value of farm land (about £5,000 per acre) goes up to £500,000 an acre with planning (assuming ten homes per acre).

Thought Experiment

Would things be better, the same or worse if the government tried a different tack: it could completely scrap all planning restrictions, so that any land owner could build as much as he liked on his own land BUT, to prevent farmers at the edge of conurbations (where most of the new homes would be built) from making massive windfall gains and building willy-nilly, the government could draw up a short list of approved suppliers of building materials (let's say Jewson, Travis Perkins and Wolseley) and allow them to only sell sufficient materials to build 100,000 new houses (of pre-approved size and build quality) each year?

Supplementary question: let's assume an average semi in the South East sells for £300,000 and farm land in the South East currently sells for a bit more than average - around £10,000 - and labour costs to build one house are £50,000 (with other bits and pieces like road, utility infrastructure costing £45,000 per house, as above). How much would the construction materials supplier be able to charge for the building materials for one house, i.e. what would the farmer be prepared to pay for the materials to build a house and still make a profit?

My guess, FWIW, is about £200,000 (click and highlight to reveal)

"Stamp duty axed below £175,000"

Woo hoo! They are getting desperate now.

As the BBC helpfully point out in the second paragraph "The current £125,000 threshold will be raised from Wednesday in a move aimed at kick-starting the housing market." So, big deal. Further, with prices falling faster than 1% a month, all a purchaser has to do is delay his purchase by a month, then another month, and another ...

We know that even a complete Stamp Duty holiday wouldn't work. The Tories tried it in 1991; it didn't work then and it won't work now.

This "30% interest free loan" idea won't work either.

The gummint appears to have overlooked the fact that the larger homebuilders, e.g. Bovis, Persimmon and Taylor Wimpey have been offering what are effectively interest free loans of 25% of the purchase price for months, has that 'kickstarted the market' for newbuilds? Nope.