Land banking, also known as land hoarding, is nothing new but has become a more noticeable issue in recent years due to the increasing housing problem, which is seen as largely a matter of supply. House builders complain of the lack of access to––or the excessive cost of–– building sites, as the main reason for their inability to deliver the houses required. The theory is that building is restricted by the high cost of land acquisition––which is reflected in the final price, hence the high house prices.
The housebuilders are also inclined to blame the restrictive planning laws (which constrain the release of greenbelt land for development) and they constantly press for their relaxation. They disregard the fact that there is a large amount of brownfield land that is capable of redevelopment.1 The developers and housebuilders naturally prefer the easiest route––the development of clear uncontaminated land. This is preferable to the messy business of decontamination and clearance involved with brownfield land, whose potential future value is uncertain. The temptation to hoard land, whose increase in value is assured, and where there is no incentive to develop, is described in Brett Christopher’s book The New Enclosure, where he speaks of ‘developers consciously, strategically deciding to bank land rather than build on it’.2
A great deal of course depends on the granting of planning permissions which for a former greenbelt site can increase the value by as much as 275 times.3 By comparison, the increase on brownfield would be a great deal less, as it would involve remediation work and would be a much longer-term investment. So for developers the release of greenbelt land is the main prize. The existing landowner is well aware of this and aims to exact his share from the future uplift of value. On the anticipation of permission being granted, the claims to this uplift are already being made by many interested parties, except, ironically, those to whom this uplift truly belongs: the general public. Also the transactions of these claims may take place several times over before, or even if, a single brick is laid. It is quite possible for a developer to gain planning permission for a site on the strength of a detailed project submission, which he hasn’t the slightest intention of building. Once the permission is obtained (and the increased value established) the developer can sell the project on ‘with planning permission’ to another developer, who is obliged to carry out the scheme within 3 years. Even if this time limit is allowed to lapse, any future buyer knows that the site has previously been granted permission, and this makes all the difference to the potential value. This is an example of the collection of the economic rent in advance (see Part 3, item 11). All these are paper exercises, but at each stage money is made by the seller, and whoever finally owns the site is often content to sit tight in the knowledge that its value will continue to increase. The logical outcome is the accumulation of valuable sites with planning permission, actual or potential. Housebuilders and developers acquire sites in this way and have no real incentive to build on them as their value is appreciating in any case, without effort. They release sites into the market deliberately slowly to keep the prices high. They have to do this to maintain a profit, after all the previous claimants have taken theirs in advance. This ongoing scandal is described very well by Oliver Wainwright, a journalist and architectural commentator. In a Guardian article he revealed that in 2015 the UK’s biggest housebuilders were sitting on 600,000 plots of land that had planning permission.4 In another article, the planning manager of the Council for the Protection of Rural England, Paul Miner, said that developers maintain their profitability by ‘drip-feeding homes onto the market at a pace that best suits their profits’.5 Christophers also discusses at length the consequences of land privatisation, the selling off of public land that began in earnest with the neoliberal policies of the Thatcher administration in the 1980s. The policy was ideologically based on the belief that land was always more efficiently used under private ownership––a dubious claim. He goes on to show that the three main consequences of land privatisation have been ‘increased land banking’, a shift towards a ‘rentier economy’ and widespread ‘social dislocation.’ 6
An experiment in dealing with land banking has been taking place in Ireland with the Vacant-Site Levy that came into force in 2017. But so far it has proved difficult to enforce and easy to avoid; the resulting revenue being a fraction of what had been anticipated. The scheme appears to have been a failure; many people agree with the idea in principle but the drafting and administration has apparently been a insufficiently rigorous.7
Land speculators have been around a long time––as noted in the early settlement of North America in Part 2. The situation mentioned above is merely a variation on this old technique; now exacerbated by the peculiarities of the planning system. The acquisition of a planning consent is clearly a very valuable and saleable asset, and a number of individuals and organisations are able to privately profit from the system. The Labour administrations after the World War II were very much aware of this ‘betterment’ and attempted to curtail the resultant profiteering, but without success. (see Part 2, 20th Century History). To make matters worse, the Conservatives, who regained power in 1959 introduced a provision––section 5 in the 1961 Land Compensation Act––which allowed landowners to add the future betterment value, the ‘hope value’, into their selling price; a virtual speculator’s charter. This rule is the main cause of the high cost of building land at the outset, which, after each player adds on their own profit, results in the final high cost of housing. This provision should be one of the first things to be repealed in any move towards land reform. There is now an increasing view among many politicians, that it should be abolished, or at least amended. 8
References:
(1) CPRE Brownfield report, 2019
https://www.cpre.org.uk/resources/housing-and-planning/planning/item/5086-state-of-brownfield-2019
(2) Brett Christophers, The New Enclosure, p.300
(3) Thomas Aubrey on Housing:
(4) Oliver Wainwright, ‘Britain has enough land to solve the housing crisis’
(5) Paul Milner, ’The Scandal of Land Banking’
https://www.cpre.org.uk/magazine/opinion/item/4782-the-scandal-of-land-banking
(6) Brett Christophers, The New Enclosure, p.246.
(7) https://www.rte.ie/news/analysis-and-comment/2019/0118/1024157-vacant-site-levy/
(8) An enquiry on this issue in 2018 led by the Conservative MP Oliver Letwin, recommended ‘to cap the value of land at 10 times the agricultural value’. https://www.local.gov.uk/sites/default/files/documents/Independent% 20review%20of%20build%20out%20%20LGA%20briefing%20FINAL.pdf