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.
Tuesday, 18 August 2015
Bovis Homes - unit sales and land bank 2005 to 2014
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19 comments:
Re Bovis and its "profit maximising level of output", clearly house builders will try to park extra land with planning permission on one side. That sort of restriction on output is classic behavior of a monopolist set out in the economics text books. But the trouble is that Bovis and other house builders are not monopolists. That is, there are hundreds of building firms all of which can enter the market and build more houses.
Strikes me that’s a classic example of a free market working at its best: the price of some input declines, so costs decline and output rises. Or have I missed something?
RM, this is free markets at their worst because it is not a free market. There are huge barriers to entry in other words getting planning is very expensive and time consuming so it is only worth it if you can get planning for hundreds of homes at a time
@MW
You should post this over on Chez Worstall.His answer to everything to do with housing is "issue more planning permissions" although he has the strongest theoretical grasp of LVT theory of all the bloggers via his familiarity with the works of Adam Smith.Just lately he has been going through the motions (like swimming in a sewer) pushing out any old right-wing crap to his low-brow supporters who demand racism, laissez faire economics of the "we don't need no government" type and steadfastly ad hominem attacks .
@RM
If you own land, by definition your are a monopolist.
I would think that Bovis Capital to Land ratio makes them one of the most pure monopoly enterprises that exists in the UK.
Of course, the monopoly value of bank assets in property and someone like the Duke of Westminsters are going to be more, but their Capital to Land ratio higher.
I'd guestimate for the banks it's 1:3, the Duke 1:8 and Bovis >1:20.
DBC, thanks but can you post it?
BJ, yup
@MW Why?
Dbc because otherwise it looks like self promotion
Mark,
I don't really buy your idea that getting planning permission is so expensive that it's only worth doing for hundreds of homes at a time. Tens of thousands of people every month get planning permission to build single houses on very small plots and permission to do house extensions.
Ben,
A monopolist is someone who is the SOLE producer of something. In the UK there are MILLIONS of land owners, and thousands of building firms. There are of course well known grey areas between those two, e.g. duopolies and markets where one firm has a significant market share that gives it a dominant position in the market (e.g. it has about 30% of the market). But neither of those "grey area" scenarios apply to land and house building.
Ralph, yes there are millions of land owners. But this is like saying shares in a monopolist water company are widely spread so it isn't a monopoly.
RM, in that case, why are they a handful of large land bankers who own more than half of all land with planning in the UK? How do they get away with employing sub-contractors for the actual building and keeping all the profits to them selves? If it is that easy getting planning permission, why don't the sub-contractors do it?
And one way of recognising a monopoly is where an increase in demand leads to increases in prices without any increase in quality or quantity of supply. So in this sense land is very much a monopoly. It behaves exactly like a monopoly so therefore it is one to all intents and purposes.
See also R's example with shares in water companies. Still a monopoly.
FWIW Barratt could and did build a house in about 14 weeks.
And as I have said before small developers work with about a two year land bank.
And the biggest problem they have are (a) planning and (b) cashbook and ( c) labour.
Apologies - this is not a very sophisticated comment
From my personal perspective/experience in the East Midlands, the 'price optimization' explanation is probably closest to the reason but it is a bit more complicated that 'greed'. Building houses is a profitable business most of the time but not spectacularly so. As you know the real money is made by buying land and making it much more valuable by getting planning permission, so perhaps showering planing permission on everyone would lower the price of land - a bit.
But surely, in general, new houses are only a very small part of the housing market. I cannot imagine the scale of building that would be necessary to make a significant difference to the price of all the houses in an area. Houses sell for prices that people can get, not cost plus. To me that is a matter of wages and the ability to borrow.
In my local area house prices have hardly moved for years - I have just sold a Victorian terrace I recently renovated for more or less the same price I got for a similar one 10 years ago. The situation with new houses is a little different, I know, but the local reality is that there are not many potential purchasers who are realistically in a position to buy - low wages and scarce jobs. In this area the 'pent up demand' for housing is a demand for social housing or perhaps buy-to-let.
bstoat. You have noted the fact that building more houses doesn't lower prices, quite the opposite in fact. That is because 'we' consider land to be the almost perfect monopoly and the aggregation or network advantages of larger settlements
Its a franchise, get over it. The only successful enterprises are franchises. Any enterprise not collecting rent has bankruptcy priced in. If they are limiting their building of units its because there is no more rent to be collected by releasing more.
What is the evidence that "strikes" you?
L. I also meant to point out that a) only an idiot would build more houses than he can sell and b) that there are other factors in play than just the price, such as the ability of the buyer to organise a deposit/mortgage at all never mind at a particular price.
bstaot @ 14.23. Indeed. The 'more houses than he can sell' is based on the quantity and ease of access to the credit available.
L, I've seen stuff being built round my way within a few months, 14 weeks seems about right if you're organised. But how many "man years" does it take? Six blokes for fourteen weeks = 1.5 man years.
BS, yes, good anecdotal.
RS, the same evidence as strikes you. Same conclusion, different words.
I don't think the Faux Libs believe that liberalizing planning restrictions would cause the existing land bankers (sorry, "developers") to build more houses.
Rather I expect they believe that first-time buyers themselves (or the actual building companies which the land bankers currently use as subcontractors) would build more houses on land that hasn't been "banked" (because it used to be Green Belt) -- perhaps on farmland that was on the market anyway because its owner had died or decided to get out of the farming business. At which point presumably the land bankers would be forced to take huge losses...
... and the farmers make equal and opposite gains. The landowners always win.
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