Barratt Redrow merger underlines a broken planning process
Housebuilder Barratt Development has purchased their rival Redrow in a merger costing £2.5bn. The new company, Barratt Redrow has said that it will help "accelerate the delivery of the homes this country needs".
Regarding the purchase, Sky News reported a Barratt statement reading, ‘planned combination would realise a model better able to navigate market challenges, such as last year's pressures on house price values.”
Yet what has not been said is why a better model is required and how the new company will accelerate the delivery of homes.
All companies need work pipelines, especially housebuilders as planning can take years to achieve, and despite land banking accusations, having a planning permission does not mean builders can physically put spades in the ground. Becoming Barratt Redrow immediately increases the likelihood that works can begin more quickly, while also reducing the exposure to NIMBY councils.
This is important because the cost of building a home is about to skyrocket with the Future Homes Standard 2025 (FHS) pushing them up by more than 30% on some homes and alongside other costs such as Biodiversity Net Gain (BNG), a company with land for BNG and permissions to keep building is in a far stronger place, particularly in an environment where the Government has made permissions harder to get, more expensive to submit and less certain to achieve.
In anticipation of the FHS, Barratt has also invested £45million in a new offsite housebuilding facility to help cut costs and meet the new regulations. With so many offsite companies recently going under because uncertain planning made their factory building processes unviable, a large company with greater permission certainty and pipeline opportunities might be able to make offsite work.
Planning risk, which is not just permissions, remains the main culprit impacting development and business viability, and well exampled by councils shelving their own projects. Yet while the big builders can mitigate this risk more easily because Local Planning Authorities (LPA) have a fondness for allocating large sites in local plans, corporate finance can absorb planning delay more easily and economies of scale brings down build costs, it seems even the biggest companies realise they are not immune from the broken planning system and so are acting.
Some have paused new applications or slowed phased development submissions to ensure vacant stock is kept to a minimum, but this has not been as much seen by small and medium-sized housebuilders (SMEs), who are building out their sites despite the challenging times.
Once SMEs have planning permission the risk of not building it out is far greater to business viability than slowing down, plus, due to site size and a need to target local markets, they are less exposed to the market failures. When times are tough, this is an inherent benefit of enabling SMEs.
However, what they are exposed to is a broken planning process, a process which unlike their big builder colleagues, they are unable to mitigate. Yet the upcoming perfect storm of market struggles, regulatory overreach and planning system crisis is going to hit them the hardest.
As an example, several NFB members have reported that in the next twelve to eighteen months, their site allocations will run out and the smaller sites they could deliver, but Local Planning Authorities (LPAs) increasingly do not deem worth allocating, will move into the windfall, or speculative development column.
This is a problem because now the Government has removed the housing delivery targets and penalties for non-delivery, LPAs, or councils, have no need to dip into that windfall column and offer the scraps to their local SMEs.
Instead, as was the case before the targets and penalties, LPA’s can allocate a large site with the hope it will be delivered but no concern if it is not.
Worse is to come for SMEs because the Government has ignored the concerns expressed with regard to BNG and why onsite solutions offer the best outcomes for business and the environment, and the FHS consultation costings ignore grid costs and are based on the largest builder’s figures. This is going to add hundreds of thousands to some smaller developments, making them and businesses totally unviable.
Barratt Redrow is not just a story about a merger but the consequence of a broken planning process that the public sector broadly controls and the Government shapes. It should serve as an alert to those who fought reforms, blame builders but espouse a desire for better places, more locally employing SMEs and a stronger economy. Sadly, this is not the case – it is the opposite.