“Buy land,” said Mark Twain. “They’re not making it any more.”
“Then once you’ve bought it, sit on it for a while, apply for planning permission, and sell it on for 10 times the price!” retort the land traders.
The same old characters are relentlessly held up as the arch villains of the housing crisis; from greedy developers to bureaucratic planners, to the armies of Nimbys. But it’s fair to say that, beyond these usual suspects, one of the fundamental causes for the current lack of affordable housing, and simultaneous glut of luxury developments, is the iniquity of the land trading industry.
If you get it right, land is one of the most lucrative commodities to be in. According to the Valuation Office, the average price of agricultural land in England is £21,000 per hectare, while land with planning permission for housing is around £6m per hectare. If you have the alchemical skills to transform one into the other, as water into wine, you’ve multiplied the value of your asset almost 300 times over – and at the same time reduced the chance of seeing remotely affordable housing being built on that land.
“The problem lies at the very roots of the development system,” says Pete Jefferys, policy manager at housing charity Shelter. “Land is traded several times over before it gets to the housebuilder, then the flats are marketed and sold off-plan, and sometimes sold again and again before they’re even built. You end up with this speculative feeding frenzy of spiralling values, years before there’s even a house on the site.”
Once a developer gets their hands on the land, they’re often not in any rush to build. A Guardian investigation on “land banking” in 2015 revealed that the UK’s biggest housebuilders are sitting on 600,000 plots of land with planning permission; that’s four times the total number of homes built last year. Berkeley, Barratt, Persimmon and Taylor Wimpey (the four biggest companies in the industry) accounted for more than 450,000 of the plots – while paying out more than £1.5bn to their shareholders.
But Shelter points out that this is only half the story, given it doesn’t take into account land subject to “option agreements”. These are exclusivity deals between landowner and developer that give the latter a legally binding “option” to buy the land within a certain timeframe or if a certain event occurs, such as planning permission being achieved.
They can tie up land for a long time, cutting others out from the market who might be prepared to build on it sooner. Details are murky because such deals don’t have to be registered publicly, but the housebuilders’ “strategic land banks” show there are an additional 480,000 plots in this state of limbo.
The housebuilders have been quick to dispute these findings, arguing that their business model relies on having a healthy pipeline of plots to develop, and none of the sites with permission were actually sitting idle. The beginnings of something resembling foundations had been dug, at least.
Barratt said it has “virtually no sites that have an implementable planning consent that are not in production”. Berkeley said it is building on all sites that have an “implementable planning consent”. The delay, it added, is in “getting conditions cleared for development, particularly on major regeneration sites, and the capacity within local planning authorities to work alongside us”. Taylor Wimpey also pinpointed the “slow and complex” planning process.
It is true that local authorities have had their planning departments ruthlessly slashed, but the delays have less to do with red tape than the commercial desire to keep house prices high. Getting planning permission isn’t the issue: England consistently grants twice as many permissions as homes that are started. Housebuilders build slowly not because of bureaucracy, nor because of the Herculean effort of cementing bricks into place, but because if they built too many homes at once and flooded the market, prices would plummet.
As Jeffreys puts it, land banking is a symptom, not a cause, of our dysfunctional housing market. “Developers have to buy land upfront at a very high price,” he says. “Then they have to get a return for their shareholders, so of course they are only going to build at a speed that keeps prices high.”
The fact that land values are so high in the first place is due in part to an entire industry of land promoters and “strategic land companies”. They enable landowners to make big gains upfront based on the projected profits of a speculative development, without having to shoulder any of the cost or risk of actually building that development.
“We increase the value of your land at our cost and risk,” trumpets the website of the Strategic Land Group. “If we don’t succeed, it doesn’t cost you anything. By working together, it means that we both have the same aim from the start: to maximise the value of your land.”
“We are passionate about winning,” declares Gladman Land, which describes itself as “the UK’s most successful land promoter”, delivering planning permission for at least 10,000 new plots each year. The company is open about its business model: it takes its return when your land is sold to the highest bidder. There are many other such consultancies, and every single outfit promotes the short-term win over creating long-term value for the area.
Of course it makes sense if you’re an absentee landowner; why would you sell your field as just a field, when you could sell it as a field with the lucrative permission to build 100 homes on it? In turn, why would the successful buyer actually want to build those 100 homes, when it’s more profitable to sit on the land for a while, then sell it on again?
By the time a willing builder finally gets their hands on the land, several transactions later, they’ve had to pay so much for it that the only viable option is an enclave of executive homes or luxury flats. The same vicious cycle makes it impossible for smaller housebuilders or community groups to ever dream of getting access to land.
A 2012 study for the Greater London Authority, by consultants Molior, found that 45% of sites in London with planning permission for new homes were owned by a company which did not build homes. The list includes “developers who do not build”, along with owner-occupiers, historic landowners, government, sovereign wealth funds, hedge funds, universities, churches – anyone looking to use land for short-term trading, tax sheltering purposes or simply as a long-term investment.
Those with the longest-term views are now buying up land beyond the green belt, on the grounds it will be a tradable asset in 50 years’ time. Others buy green belt land then intentionally make it so undesirable that the local authority is more likely to grant planning permission. But ultimately there’s no incentive to actually build anything.
“Developers can make much bigger profits by simply selling plots than building houses on them,” says Chris Brown, chief executive of Igloo Regeneration, adding that the whole land value issue is a symptom of how our approach to development and granting permissions has changed.
“When the planning system began in 1947, we said the value of a planning permission should go to the public good,” he explains. “The ‘uplift’ from a field to a housing development was owned by the public. Now we’ve completely changed the model, whereby we almost grant planning permissions for free and the developer takes all the profit. Yes, they must make Section 106 payments and pay Community Infrastructure Levy, but we don’t try and capture as much of that land value uplift as we could.”
A big part of the problem is that developers continue to pay way over the odds for land, knowing that they will most likely be able to negotiate the planning obligations away.
“The planning system needs to be much more robust, so that the policies are actually reflected in the value of the land,” says Toby Lloyd, head of development at Shelter. “If a local plan says a particular site should have 40% affordable housing and a primary school on it, then that’s what it should get. If the landowner doesn’t play ball then local authorities should be able to use powers of compulsory purchase to make it happen.”
Shelter has joined calls from many local authorities for developers to pay council tax on unbuilt sites with permission, while others advocate more fundamental reform, including the introduction of a land value tax.
“The volume housebuilders are an easy target, and they do have a lot to answer for,” says Jefferys. “But it’s time we tackled the root causes and rethought the way we build homes. This model of speculative development won’t do it on its own.”
Oliver Wainwright will be chairing a debate on land on 2 February at Central Saint Martins, London, as part of the Fundamentals debate series
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