Obscene increases in building/construction materials prices

[blueg33]

Mr Whippy said:

ben5575 said:

blueg33 said:

Don’t start me on land banking. People who claim developers sit on consented land are idiots without the first blue of development economics.

I believe they were in some areas weren’t they?

Which is why they brought in rules to accelerate consent time-outs to something like 2 years from 5 years or something like that?

Government has the same misunderstanding and on that basis they reduced the life of a detailed consent from 5 years to 3. This misunderstanding from people who should know better one of the biggest frustrations for a housebuilder as we get criticised for something that very rarely happens.

By way of example

20 acres of land with consent for 300 plots £20m

Opportunity cost on £20m at internal rates circa £2m pa
Interest at circa 3% pa £600k

So to sit on the land costs you £2.5m pa

Maximum realistic build rate circa 60 units pa. Typical sales rate on a volume site = 4-5 per month, so lets say 60 pa

That means it will take 5 years to build the site out

At the end of year 1 the site will show 240 unimplemented plots, at the end of year 2 180 etc

Add the unimplemented plots across all developers and you have a big number - this is the land bank, but its not something that can realistically be made shorter as the constraints are build and sales rates.

The you add in pre-commencement conditions. We get a planning consent, but cannot start until the LA have approved the pre-commencement conditions, the LA has no legal time limit in which they have to do this and the developer has no realistic route of appeal. On a large site it can take 12 months to clear these. So in the example above that's another year of 300 unimplemented consents, but not the developers fault.

You also have land where a developer buys it with consent obtained by someone else. Most developers are not efficient building someone elses housetypes, so they have to change the planning, typically on a large site thats another 6 months, but the site will show as unimplemented consents.

This is the stuff that is simply not understood by those who witter on about land banking.

Land without a consent eg strategic land, is not land bank in the same context

[Pit Pony]

blueg33 said:

Pit Pony said:

monthou said:

Lord Marylebone said:

You can't build houses at a loss.
We need houses to be built.

If the cost of building a new home increases and house prices don't move then the cost of building land will go down. In the short term some builders may make a loss.

Building land that the developers have been sitting on for years having paid virtually nothing for, whilst they control the flow of supply of houses and keep prices high ?

https://www.theguardian.com/society/2021/may/08/ov...

They barely employ anyone on a long term permanent basis, so an i expect it to get easier to find someone to do my pointing ?

Sorry for the guardian link.

Don’t start me on land banking. People who claim developers sit on consented land are idiots without the first blue of development economics.

Please explain it to me. I only have the spurious adhoc data I have. That is:
Lots of planning permission not used.
Lots of need for housing.
Lots of demand for Nice family sized rentals at an affordable price.
Lots of garden carve ups in my local area.
Not enough tradesmen to build them, if they were to build them.

So tell me, why if we have need and we have planning permission, do we not have building on land that is ready. I don't fully understand the economics, but i do have some of my pension SIPP in house building. Because it's profitable.

That said there's building on a big field near me. It backs on to a busy dual carriage way, and guess what? The affordable homes they are forced to build as part of the estate plan, (by affordable I mean, small, cramped, low spec, tiny plots, squeezed into the smallest space they can get away with), are compromised by the closeness to the roaring of the traffic. Guess where the biggest, most expensive houses are ? As far away from the noise as possible. Still people don't have to buy them. They could buy on the estate that was built in the 60s next to it and spend the next 10 years fixing the dubious bodges of wimpey builders who were clearly on happy pills in 1966 and the bodges of subsequent owners over the last 55 years, but get more space, less noise and pay less money.

[blueg33]

Mr Whippy said:

blueg33 said:

The agricultural land for auction has a very small chance of ever getting resi consent.

House builders identify what we call strategic land that has a chance in around 20 years. We take options with obligations to promote it through the planning system. 99.9 percent of the time we do not buy it until it has a consent.

I wonder how the proposed new planning rules
will change this dynamic?
I can see land values dropping if a lot more becomes available in ‘develop’ areas.

Though in ‘preserve’ areas I can see land values going up a lot.

Maybe a good time to hold off on selling unless you know what area you’ll be in.

Depends whether the land supply is really freed up. NPPF freed up more land but didnt supress the prices

[Sheepshanks]

C Lee Farquar said:

I'm a small independent ready mix supplier. We've had no price increase for bulk cement or aggregates. What we do have is demand exceeding supply and the Nationals seem to be using this to not supply groundworkers who negotiated close to the margin prices previously.

The likes of MV Kelly are now finding they maybe the tail, not the dog.

Different industry but one of the suppliers in our supply chain is insisting they haven't increased prices - they've simply withdrawn the standard 30% discount they gave everyone! So that's a 43% increase in price.

[ben5575]

Pit Pony said:

Please explain it to me.

Very simply and as Blueg33 says above, house building is not a construction project, it is based on sales rates.

You need the cashflow from the sales to service the scheme. You can't do what an RP does for example and build houses like a construction project and deliver 50 on the same day as you'll have £10m tied up in WIP if you're selling 4/month.

Trust me, if I or any other house builder could confidently sell 20/month, I would build 20/month.

ETA the sales rate is obviously based on people's ability to proceed, not everybody is chain free.

Edited by ben5575 on Tuesday 11th May 09:56

[Blackpuddin]

This is a really interesting thread.

[Sheepshanks]

red_slr said:

I do think demand is going to drop off though, in fact we are already seeing it in the last 3 weeks. It seems to have really dropped off.

I suppose if people can't get one part for a process then, logically, they don't need all the other parts. I guess for a while there will be a lot of stuff sat around unused waiting for that missing part to turn up, but eventually it should level out.

For people who are able to deliver at the moment it probably means there will be a lull in their business as their customers use up inventory.

Edited by Sheepshanks on Tuesday 11th May 10:04

[blueg33]

Pit Pony said:

Please explain it to me. I only have the spurious adhoc data I have. That is:
Lots of planning permission not used.
Lots of need for housing.
Lots of demand for Nice family sized rentals at an affordable price.
Lots of garden carve ups in my local area.
Not enough tradesmen to build them, if they were to build them.

So tell me, why if we have need and we have planning permission, do we not have building on land that is ready. I don't fully understand the economics, but i do have some of my pension SIPP in house building. Because it's profitable.

That said there's building on a big field near me. It backs on to a busy dual carriage way, and guess what? The affordable homes they are forced to build as part of the estate plan, (by affordable I mean, small, cramped, low spec, tiny plots, squeezed into the smallest space they can get away with), are compromised by the closeness to the roaring of the traffic. Guess where the biggest, most expensive houses are ? As far away from the noise as possible. Still people don't have to buy them. They could buy on the estate that was built in the 60s next to it and spend the next 10 years fixing the dubious bodges of wimpey builders who were clearly on happy pills in 1966 and the bodges of subsequent owners over the last 55 years, but get more space, less noise and pay less money.

I explain it above a post or so before yours.

market housing cross subsidises affordable housing on S106 sites. So you need to maximise the revenue from market housing and mimimise the cost of affordable housing.

On social housing sites, the housing is subsidised by the tax payer, many LA's and RP's want the smallest possible houses built as the income per house does not go up and they want to minimise the cost to the taxpayer. Eg social rent on a 70sqm 2 bed is the same as social rent on a 90sqm 2 bed but the larger house will cost the LA or RP about £16k more.

[Pit Pony]

ben5575 said:

Pit Pony said:

Please explain it to me.

Very simply and as Blueg33 says above, house building is not a construction project, it is based on sales rates.

You need the cashflow from the sales to service the scheme. You can't do what an RP does for example and build houses like a construction project and deliver 50 on the same day as you'll have £10m tied up in WIP if you're selling 4/month.

Trust me, if I or any other house builder could confidently sell 20/month, I would build 20/month.

ETA the sales rate is obviously based on people's ability to proceed, not everybody is chain free.

Edited by ben5575 on Tuesday 11th May 09:56

The house building I see seems to be like an assembly line.
Each week they start a new house. Gradually the scaffolding moves along to the next plot.
As a manufacturing engineer, I assumed they were working a standard Takt time. Each week the same things happen over and over again, one house at a time. ? If not? Why not ?

[blueg33]

Pit Pony said:

ben5575 said:

Pit Pony said:

Please explain it to me.

Very simply and as Blueg33 says above, house building is not a construction project, it is based on sales rates.

You need the cashflow from the sales to service the scheme. You can't do what an RP does for example and build houses like a construction project and deliver 50 on the same day as you'll have £10m tied up in WIP if you're selling 4/month.

Trust me, if I or any other house builder could confidently sell 20/month, I would build 20/month.

ETA the sales rate is obviously based on people's ability to proceed, not everybody is chain free.

Edited by ben5575 on Tuesday 11th May 09:56

The house building I see seems to be like an assembly line.
Each week they start a new house. Gradually the scaffolding moves along to the next plot.
As a manufacturing engineer, I assumed they were working a standard Takt time. Each week the same things happen over and over again, one house at a time. ? If not? Why not ?

Because its stupid to build them faster than you can sell them. Houses deteriorate if left empty. 60 pa is about the max in terms of trad built houses.

We do social housing using offsite manufacture, this is planned in the factory using the techniques from car manufacture, with similar being applied for the onsite element, but these are sold in advance so we are building to satisfy an order

[anonymous-user]

Pit Pony said:

The house building I see seems to be like an assembly line.
Each week they start a new house. Gradually the scaffolding moves along to the next plot.
As a manufacturing engineer, I assumed they were working a standard Takt time. Each week the same things happen over and over again, one house at a time. ? If not? Why not ?

I think it is safe to say that large housebuilders know the fastest and most efficient ways to build houses. There are quite literally teams of people looking for time and efficiency savings across all aspects of the design, procurement, supply chain and building process.

Things always develop and improve, but right now, there isn't any major or obvious ways to speed up the construction process of housing developments, but of course this is all dependent of the sales of the houses.

blueg33 is involved with MMC construction methods, which in my opinion truly is going to be the next big thing for delivering the houses we need. We have been seeing it more and more in the social housing sector as well as elsewhere, and it has proven itself time and time again on various developments.

MMC really is something that will genuinely deliver houses faster than what we have at the moment.

[tays27]

The availability of both bulk and bagged cement is critical. GGBS is even worse. The lack of GGBS has the potential to really delay infrastrutcture works where it's inclusion is specified. Costs are going up, but by less than ten percent. I had a conversation with one of the major UK cement producers and they're planning a further decrease in allocations over the next few weeks. They're even hoping for a spell of wet weather, just to quell UK demand for a few days.

The increase in taxation of red diesel coming next year will push costs up again. This will be a real increase throughout heavy construction. You'd be amazed how many litres of diesel a quarry can chomp through in a month...

[ben5575]

Pit Pony said:

The house building I see seems to be like an assembly line.
Each week they start a new house. Gradually the scaffolding moves along to the next plot.
As a manufacturing engineer, I assumed they were working a standard Takt time. Each week the same things happen over and over again, one house at a time. ? If not? Why not ?

Housing sites are built vertically, not horizontally.

If I have a site for 50 houses, cheapest and easiest way for me to build it would, for example, get the ground works guys in and dig/install all the founds and drainage for all 50 units in one visit. I.e. horiziontally across the site.

If I did this I would be left with 50 units built to dpc. It makes no sense for me to have that much money sunk (literally) in WIP. So I'll do a first phase of 10-15 units instead.

The actual construction is a function of the finance and cashflow. You're (understandably) thinking of it being a construction project when it's not.

Modular switches this as described and is best suited for delivering schemes quickly and in volume. As above this is based on an order for delivering X no. of houses to an RP. This is a construction project.

This is also why modular works for well for student accommodation, hotels etc. Also construction projects.

[Biggus thingus]

I've worked for a large drainage manufacturer for several years and i've never known us to have the hike in prices we've just had

We've generally had 1 price increase a year of around 6+%

The odd year(probably 1 in 5) we've had a price increase in April and another in September/October in the same year

Basically, the arse fell out the market March/April last year when covid hit and orders disappeared. At this point the directors soiled their pants, cut production and chucked as many as possible on furlough including production staff, order pickers, drivers, sales force, sales office staff etc

Demand gradually crept back up starting in May and by August/September we were practically back to normal demand and had to start pulling staff back in to work

Unfortunately, we're now manufacturing with covid rules of social distancing etc so the work benches where the assemblers all worked putting in seals, screws, caps etc had to be cut in half to comply, so production is reduced

Through most of the second half of last year and this year lots of people have their holiday/furlough money sloshing around and want new landscaping/bathrooms/kitchens etc so demand goes up

This year the increased level of demand for raw material has led to the suppliers holding out for the best price they could get. We used to be able to agree raw material prices for the next 3/6 months but that's gone out the window hence unprecedented price increases in a short space of time

So we've got high demand already, when we announce a price increase we get huge bulk orders placed to stock up before the new price comes into effect which makes it even worse. We got to the stage we were refusing to accept orders from national merchants because it would have blown their credit limit

I think once Joe Public's money starts getting spent on holidays, meals out, pubs etc we'll see abit of levelling out but that might not happen till next year

[blueg33]

Price inflation is a worry.

Reminds me of the time a few years ago when there was only really 1 factory in the UK producing concrete planks (the other was closed for an upgrade or something - i forget which). We suddenly had massive price rises and horrific lead times. We used beam and block floors, my regions margin was hit very hard.

[Mr Whippy]

blueg33 said:

Government has the same misunderstanding and on that basis they reduced the life of a detailed consent from 5 years to 3. This misunderstanding from people who should know better one of the biggest frustrations for a housebuilder as we get criticised for something that very rarely happens.

By way of example

20 acres of land with consent for 300 plots £20m

Opportunity cost on £20m at internal rates circa £2m pa
Interest at circa 3% pa £600k

So to sit on the land costs you £2.5m pa

Maximum realistic build rate circa 60 units pa. Typical sales rate on a volume site = 4-5 per month, so lets say 60 pa

That means it will take 5 years to build the site out

At the end of year 1 the site will show 240 unimplemented plots, at the end of year 2 180 etc

Add the unimplemented plots across all developers and you have a big number - this is the land bank, but its not something that can realistically be made shorter as the constraints are build and sales rates.

The you add in pre-commencement conditions. We get a planning consent, but cannot start until the LA have approved the pre-commencement conditions, the LA has no legal time limit in which they have to do this and the developer has no realistic route of appeal. On a large site it can take 12 months to clear these. So in the example above that's another year of 300 unimplemented consents, but not the developers fault.

You also have land where a developer buys it with consent obtained by someone else. Most developers are not efficient building someone elses housetypes, so they have to change the planning, typically on a large site thats another 6 months, but the site will show as unimplemented consents.

This is the stuff that is simply not understood by those who witter on about land banking.

Land without a consent eg strategic land, is not land bank in the same context

Very interesting!

Thanks for explaining.

We’ve got an interest in about 30 acres in West Yorkshire with next-round potential.
It’s been in the family since the 60s, and might yield for development in the next 20 years.
80 years and three generations to get development opportunity value.
Obviously bought as a farm... but puts the reality into focus.
You can’t get your cake and eat it. Finding value/opportunity is a risk of capital.

As you said, it’s all crystal ball and someone has to put their money on the line on realising that value.


The planners are the gate keepers to adding value.
I often wonder how much corruption there is in the process.

Ie, my new build is being built by a council owned developer who passed the scheme

Hmmmm.

[blueg33]

Mr Whippy said:

Very interesting!

Thanks for explaining.

We’ve got an interest in about 30 acres in West Yorkshire with next-round potential.
It’s been in the family since the 60s, and might yield for development in the next 20 years.
80 years and three generations to get development opportunity value.
Obviously bought as a farm... but puts the reality into focus.
You can’t get your cake and eat it. Finding value/opportunity is a risk of capital.

As you said, it’s all crystal ball and someone has to put their money on the line on realising that value.


The planners are the gate keepers to adding value.
I often wonder how much corruption there is in the process.

Ie, my new build is being built by a council owned developer who passed the scheme

Hmmmm.

Corruption in planning is vanishingly rare, in 30 years and many hundreds of applications I have never seen any evidence of corruption, its never been hinted at. Sadly incompetence on the other hand is disappointingly common.

Council owned developer (many of these around at the moment) actually has to be even more cautious in planning as any errors would leave them wide open tpo high court challenge, plus the scrutiny of the committee is even more onerous.

[anonymous-user]

blueg33 said:

Corruption in planning is vanishingly rare, in 30 years and many hundreds of applications I have never seen any evidence of corruption, its never been hinted at. Sadly incompetence on the other hand is disappointingly common.

Council owned developer (many of these around at the moment) actually has to be even more cautious in planning as any errors would leave them wide open tpo high court challenge, plus the scrutiny of the committee is even more onerous.

This.

My brother was a senior planning officer for a local authority for 15 years, and is now a planning consultant. He used to get jokes constantly from people about 'brown envelopes stuffed with cash' etc.

None of it was true at all. He said they were all absolutely by the book and he never saw any hints of corruption or favouritism. There is no way anyone would risk their cushy local authority job, a decent salary, pension, and their career, by accepting a couple of grand in an envelope, showing favouritism, or whatever. It makes no sense.

If you see a new build development or similar announced on a Facebook news article, there will be hundreds of comments below it from the general public along like lines of 'Money talks' and 'Brown envelopes all round', and it just shows how little the public actually know about development.

If anything, local authority planning departments are overly cautious, and some have a tendency to veer towards refusals for flimsy reasons, which then get promptly overturned at appeal.

My brother has been battling with the same planning officer at a particular local authority for several years over numerous applications he has dealt with. She just refuses practically everything because she hates receiving phone calls from angry residents about why she has approved a new house next to them, or a new development. She is scared to approve. The last time she refused something, her manager was there, and my brother just said, "Right, I'll start the appeal process this afternoon then" knowing full well the appeal would side with him. The manager practically started begging "No, please don't do this to us again, we'll get our backsides kicked". No sympathy.

[blueg33]

Story from a planning committee meeting that I attended early in my career. Location north Cotswolds and had an application for 5 houses in, recommended for approval

various applications for development all recommended for refusal - rubber stamped for refusal

my application comes up

Member - " I cant believe that our officers have let us down by recommending an application for approval"
Member - "I move for refusal"
Member 2 - "seconded"

Vote - unanimous for refusal

Chair - what is the reason for refusal?
Member - we can think of something
Council lawyer - it doesnt work like that
Officer - there are no grounds

Chair - motion passed, application refused

2 month later at committee

Officer - application has made same application again and is appealing the first

member - these developers are taking the mickey

Chair - I think we need to be careful here, we will lose the appeal

member 3 - I move for approval we dont want costs awarded against us

Vote - 5 in favour of approval, 5 for refuse

Chair - votes to approve


Application approved - much time and public money wasted

[Sheepshanks]

Lord Marylebone said:

If anything, local authority planning departments are overly cautious, and some have a tendency to veer towards refusals for flimsy reasons, which then get promptly overturned at appeal.

So they're in league with planning consultants and lawyers to generate more work?


I thought councils got into trouble if they ran up fees defending an appeal when they had no grounds to refuse the original application?