Philip Barnes – Blog

WILL TAXING LAND BANKS SPEED UP HOUSING DELIVERY?

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One of the things I love most about Twitter is the speed you get informed opinion, from both sides of the debate, on the key issues relating to the housing crisis. In recent weeks its been Help to Buy with the debate showing a clear split between those concerned about house price increases and those welcoming the boost to supply. The former seem to outnumber the latter.

This week the issue is land banks – more particularly the suggestion by the IMF that developers holding onto development land should be taxed. The twittersphere seems, at first blush, to be generally supportive. As with last weeks post on H2B I wouldn’t pretend to have all the answers but am happy to set down a few observations.

State Intervention in the Market

Firstly it seems that many of the opponents of H2B came from the standpoint of unnecessary Government intervention into a free market. Some of the same commentators seem now to be supporting state market intervention by means of taxing “idle” development land. The reality of course is that the housing market is already state controlled in that the planning process controls the level of units to be sold, cognisant of population growth but largely ignorant of market factors. If demand for cars goes up carmakers make and sell more cars. Not so housebuilders. If demand (or even need) goes up the state’s planning system has shown itself to be consistently unresponsive in allowing more homes to be consented and hence built and sold.

In my view thank goodness for state control. We only have to look at Ireland, Spain or the banking sector to see the folly of an unconstrained housing market. However the balance is now wrong. Housing is recognised as a human right by the Human Rights Act and a positive public and private sector response to the housing crisis is required. Between 1931 and 1934 private sector housing output over doubled. Don’t tell me that such a scale of increase wasn’t the result of both sectors working together to create homes and jobs. Cheap finance, positive planning and willing housebuilders were critical.

Seeking a Normal Market

Everyone seems to want a return to a “normal” market or an efficient anti boom/bust model like in Holland or Germany. There is clearly no “normal” in a state controlled market but surely we should look to the conditions of the 1970’s. Positive planning for growth by all local authorities, 5-10% deposit levels, generally stable prices and significant funding for social housing.

And comparisons with Europe? Population density is greater in Holland yet it does not stop the introduction of positive urban growth strategies which actually deliver the homes and jobs needed.

The Policy Paradox

Everyone is acutely aware of the Gordian knot which means in the short term the Government does not wish to countenance significant price falls yet in the medium term this is necessary to deliver Government objectives to improve housing market access. The IMF was clear that the way to slip this knot must be greater commitment and action to increase supply. Indeed they pointed out the unhelpful role Green Belts play in denying this increase. IMF, in my opinion, did not say H2B was bad policy, simply that it would be bad policy without a supply increase. This is evidently true – without more supply it’s only effect would be to increase prices and, with a rising population and static incomes, worsen market access.

What is a Land Bank?

On land banks it would be interesting to know how much the IMF researched the UK planning system before it talked about taxing unused development land. The first question must be what type of land can be regarded as “land bank” and is therefore theoretically taxable.

Firstly lets consider land with planning permission. This is the only source of land which is capable of being built on. There is only around 400k units of this consented land. This is around 2 years supply. Most of us who work in housing believe this is actually too way too small a land bank and reflects an inefficient planning system.

Many of the 400k units will be under construction and there will also be some sites in the land bank which are not being developed because they are now simply not viable. The proposed mix and product will probably be getting changed by the developer as we speak. Taxing developers as they approach this tough task of trying to make such sites viable seems counter productive to an objective of getting more homes built.

What About Developer Owned Land?

Another potential source of land for the land bank tax might therefore be ANY land owned by a landowner, developer or housebuilder – even if it doesn’t have planning permission? Should all such land be taxed? This also seems illogical for a number of reasons.

Firstly, without planning permission, such land can’t be built on so simply can’t be regarded as “idle” or “land banked” land.
Secondly a definition solely by ownership effectively renders all land in the UK as forming part of a land bank. Whether land is owned by a developer or the National Trust – without planning permission it’s status is the same – namely that it can’t be built on. If developer owned land is to be taxed then all land would similarly need to be taxed.

Of course developer owned land has a purpose – to be developed in the future. However there remain clear logic gaps in assuming that taxing such land will increase new homes delivery.

Firstly such land is usually controlled by means of an option agreement rather than ownership. The price of that option will reflect the location of the land and risk/reward nature of the development process. The land tax may be a greater cost than the speculative option investment thereby further disincentivising developers in securing longer term land interests. In my view this would be a counter productive as developers need to encouraged to take a long term forward facing approach to land acquisition and delivery. Encouraging them to live hand to mouth only buying buying short term sites is not, in my opinion, the way to encourage housebuilders to commit to the long term delivery of the new homes and infrastructure that the country needs.

Secondly not all developer owned land will realise its development potential. Some will secure consent and some won’t – that is the nature of the state controlled planning and development process in this country. It would appear extremely difficult to tax land simply on the possibility it may secure planning permission at some unspecified date in the future.

Lessons

The housing paradox is clear. Prices need to fall to ease market access but it will be extremely difficult to get developers to invest strongly into a falling market. Not to mention the political unacceptability. For me the best recent analysis of a potential route through the paradox came from Frances Coppola arguing for separate short and long term strategies. http://blogs.lse.ac.uk/politicsandpolicy/archives/33684?utm_source=buffer&utm_medium=twitter&utm_campaign=Buffer&utm_content=buffer46274
The only simple thing we do know is that housebuilders, for the first time in 5 years, have an appetite to invest and build. Now, more than ever, is the time for the planning system to respond. In particular we need an a unbuckling of the Green Belt where it is strangling city growth and housing aspiration. Developers need to be incentivised to bring forward land into the planning process now. That can only be achieved via tangible and positive results from the planning system. Which brings us all back to Localism and the power of NIMBYs…….

Author: philipbarnesblog

Group Land and Planning Director for Barratt Developments PLC. FRTPI, FRICS

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