Telegraph Entirely Misunderstands Housebuilders’ Landbanking

The Telegraph is patting itself on the back for having gone and done some research. Which is indeed good, they’ve looked up a few annual reports, seen the number of plots that the listed housebuilders say they’ve got in the pipeline and totted them up. The Telegraph then manages to entirely misunderstand what it is that they’ve found. Land plots are an input into the housebuilding process. They take some years to assemble and gain permission upon. So, what happens as annual production rises?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Housebuilders are sitting on enough land to build more than 800,000 homes, analysis by The Telegraph has found, raising new ­questions about efforts to increase the supply of new properties and reverse the decline in home ownership. The total number of plots in the top nine housebuilders’ land banks has risen by 25pc in the past five years to around 838,000. That is despite a series of Government reviews and policies meant to increase the rate of building. Campaigners claim it is in the companies’ interest to hold on to land for as long as possible and cash in after it rises in value, but housebuilders insist they are held back by the planning system. [/perfectpullquote]

A reasonable estimate is that it takes 5 years from virgin greenbelt field – or even brownfield site to be honest – to rapturous couples being shown around the des res. The actual number doesn’t matter all that much, the logic here is the same if it’s 2 or 20 years.

Land is obviously an input into this process. One that takes some years to piece together. A business should indeed make sure that it has a reasonable supply of its varied inputs. A car maker should know where next month’s steel is coming from, a battery maker the lithium, a restaurant who stocks bacon and so on. A housebuilder should know where the land is going to be.

A useful rule of thumb is that you should have however much of that input in stock to cover the time necessary to create more of that input. Well, at least, to order it in. A restaurant doesn’t need to have 6 months worth of bacon if that’s how long it takes to raise a pig. But if an order for bacon today means delivery in a month then there needs to be that month’s worth in the freezer.

So with landbanks. If it takes 5 years – or whatever – to get more land from moocow paradise to housing then someone building housing needs 5 years worth of plots in stock.

What then happens if annual throughput of house building rises?

Yep, that’s right, the just and sensible number of plots in stock in the landbank rises.

That is, the Telegraph tells us that plots in stock have risen despite government trying to increase the rate of building. When the rise in landbanks is because of government efforts – to the extent that they’ve been successful, those efforts, at least – to increase the rate of house building.

Sigh.