The Government focused attention on the debate between development of brownfield, or previously used land, and greenfield sites last month when it said it wants to increase brownfield development to 60 per cent of all new building from about half. But it stopped short in the Budget of imposing any firm tax measures to back that proposal.
But companies such as the Berkeley Group are moving ahead with city development in the hopes of gaining an early advantage over others, such as Wilson Bowden, that see no benefits or profits in the effort.
"I've always believed we should be in the inner cities, because that's where people want to live," said Tony Pidgley, Berkeley managing director. "We've been buying brown land up quietly for five years."
One of Mr Pidgley's reasons for buying brownfield sites is that local planning permission can be faster. The sluggishness of the planning process, which the Government admits is a problem, was highlighted this week when Barratt Developments chairman Frank Eaton attacked delays for causing land and house price increases.
"I think that planning in this country is a dinosaur and a disgrace," Mr Pidgley said. But he added that while delays can last several years on some greenfield sites, permission on brownfield sites can be gained in 18 months.He believes the Government will eventually impose a tax on greenfield sites and "that will drive our competitors back into the cities where most of them don't have much expertise."
Part of Berkeley's expertise is in solving the financing challenges, said Simon Brown, an analyst at Williams de Broe. While greenfield developers can often get buyers to make a deposit after seeing only a display house, "preselling" is harder in cities.
"You have to put in quite an extensive part of the building before you show flats because people want to see what it looks like," Mr Brown said. "Berkeley have got around that on occasion by actually building a show flat raised above ground level in a special sales centre."
Mr Brown said companies suchd as Berkeley, Barratt and Persimmon were well placed to profit from an upswing in brownfield development. "A lot of companies find it mucks up their return on capital for a year or so, where people who have been doing this for some time are experienced in the financial elements. Urban development requires more capital up front."
Housebuilder Wilson Bowden has been boosting profits by building bigger, more expensive homes, 75 per cent of which are on greenfield land. The strategy helped the company raise earnings per share by 67 per cent last year.
Chairman David Wilson said: "It remains a fact that there is a different level of risk involved for the buyer of accommodation built on brown land in terms of certainty of future mortgage funding availability. This issue has not yet been fully addressed by the relevant authorities. In addition there is also considerable demand from buyers for housing in less urban surroundings."
If brownfield development becomes more popular, companies such as Wilson Bowden "would be more exposed because they build 80 per cent or thereabouts on greenfield sites," said Robin Hardy, an analyst at Panmure Gordon.
But he said that brownfield land included sites such as golf courses and football fields that would suit a company such as Wilson Bowden. Mr Hardy was also sceptical about Berkeley's view that people want to live near town centres. "The vast majority of people still have this rural idyll of where they want to live," he said.
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