Crackdown on land banking in UK misses the point

The UK housing debacle has taken another turn, with a report commissioned by the homeless charity, Shelter, claiming that it now takes a single person 14-years on average to save for a typical UK home, or 30-years in London.

The negative press around Shelter’s findings prompted the Labour Opposition leader, Ed Miliband, to sharpen the party’s focus on housing affordability in a bid to win the next election.

In a new “use it or lose it” plan outlined by Miliband, developers that have been granted planning permission could be forced to build on land they are banking or hand it back to communities:

…that building firms should be fined if they refuse to develop land that has been given planning permission. Councils could also be given “compulsory purchase” powers to buy back sites that lie empty for years…

Planning permission has already been granted for 400,000 homes across the country, equal to a city the size of Birmingham, but they have not yet been built, in a practice known as “land banking”.

The Labour leader is concerned that property prices have risen too high, making homes unaffordable for many young working families.

He believes that homes must be built across the country but the priority should be to develop land that already has planning permission, rather than seeking to build on new greenfield sites.

In a speech to Labour’s National Policy Forum, he will say that the “promise of Britain” – that each generation does better than the last – has been broken because young people cannot afford their own homes.

“For decades now, Britain simply hasn’t built enough homes”.

While I have some sympathy for the “use it or lose it plan”, I can’t help but feel that it is treating the symptom of the UK’s highly restricted and constipated land supply and planning system rather than the cause, and could have unintended consequences.

In some respects, developers in the UK have become the meat in the sandwich between the original land owners and house buyers. They have to out-bid each other for the limited supply of land and yet still meet the market. So they bid the maximum possible price for the land, and then often cannot supply anything to the housing market unless it, too, is at the maximum possible (unaffordable) level.

To add insult to injury, there are people and firms who get involved purely as “land bankers” that are neither developers or farmers. But it would be a can of worms trying to sort out “intent” in land buying, since anyone could pose as a farmer (as happens in New Zealand with ‘lifestyle blocks’).

For actual developers, the whole game is made hugely risky, which is why their numbers in the UK have fallen, and the size of the workforce has fallen. To be able to survive through cycle after cycle, securing sites and managing to sell finished housing at a profit, is a major feat in itself.

If planners want to say “there is X years land supply” within the boundary (greenbelt), then they have to force the owners of all that land to actually sell it at a rate that runs approximately 6 years ahead of physical growth, because developers do need to secure sites in order to ensure continuity of production, which is not the same as “land banking”.

There are other ways besides compulsory acquisition, such as targeted land taxes. But these could add to developers costs, with unintended consequences for affordability.

There is also the issue that the bulk of the vacant land might be in places where planning permission has been granted but there is little actual demand.

Ultimately, the best way to ensure an adequate supply of land and minimise land banking is to open up the market to competition via relaxing the greenbelt, in combination with broad-based land taxes.

The existence of high levels of competition would enable would-be developers to purchase land more cheaply, facilitating cheaper development (and lower home prices). It would also make land banking particularly risky, as another nearby owner would always have the opportunity to move to the market ahead of the land banking firm.

It’s not like the UK doesn’t have ample land that could be made available for development. According to the BBC:

The urban landscape accounts for 10.6% of England, 1.9% of Scotland, 3.6% of Northern Ireland and 4.1% of Wales.

Put another way, that means almost 93% of the UK is not urban. But even that isn’t the end of the story because urban is not the same as built on.

In urban England, for example, the researchers found that just over half the land (54%) in our towns and cities is greenspace – parks, allotments, sports pitches and so on.

Furthermore, domestic gardens account for another 18% of urban land use; rivers, canals, lakes and reservoirs an additional 6.6%.

Their conclusion?

In England, “78.6% of urban areas is designated as natural rather than built”. Since urban only covers a tenth of the country, this means that the proportion of England’s landscape which is built on is… 2.7%.

In short, it is government regulation that is primarily to blame for land banking and the UK’s sky-high land/house prices. If they allowed more open competition between land holders and developers, land prices would be much lower and homes would be far more affordable. It’s as simple at that.

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