Coffee House

Exclusive: No 10 advised to punish land hoarders

19 October 2012

Though the government’s planning reforms will make it easier for developments supported by local communities to gain planning permission, one of the big blockages in the system is made up of developers themselves. The government is becoming increasingly aware of this, and one ministerial aide close to housing policy has come up with a solution.

Jake Berry, who has worked as PPS to Grant Shapps since November 2010, has written a paper for Number 10, which Coffee House has had exclusive sight of. It argues that developers who land bank sites with planning permission should be penalised for doing so. There are currently 250,000 units with permission for residential development sitting untouched while developers wait for the value of the site to rise, and every five years, developers renew the permission and keep the site empty. In 2007/08, councils granted 50,488 planning permissions. Some of those sites will still be empty and will be coming up for renewal over the next few months. In the paper, which Downing Street officials are still mulling over, Berry suggests that councils should demand payment of the New Homes Bonus from a developer for each unit which has permission yet remains undeveloped as a condition for granting a renewal. Berry writes:

‘This would be a powerful incentive to commence development within five years or the alternative would shorten the time a developer was happy to hold a site as there would be a cost of doing so. This ‘penalty’ for not developing is similar in effect to vacant rates on commercial buildings. The imposition of vacant rates has driven down rents and helped many small business find affordable premises.

‘This incentive to develop would see builders forced to build. In addition their lenders would bring pressure to bear on the building company to either sell the site or to start building. If the site was sold, because of the holding costs, bank funding on acquisition would be conditional on starting to build. The benefit to jobs and growth of construction of new homes is well known and this would be a proactive way of developing out existing permissions.’

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Berry is one of the PPSs who, if the Conservative party were governing as a majority, would have been snapped up as a minister months ago. He also knows the housing sector, not just from working with Shapps as housing minister, but also from his previous non-political life as a solicitor specialising in development. His paper makes a number of other interesting suggestions, including one that treads rather neatly on the toes of the Labour party. Hilary Benn and Jack Dromey have been mulling over some form of long-term tenancy agreement for those in the private rented sector, which would give families stability and make the sector more attractive to institutional investors. But Berry has his own idea, which he has badged in the briefing paper as a ‘New Deal for Generation Rent’. It would involve long-term leases of seven years where the rent was reviewed every three years, and tenants could negotiate a discount on their rent by taking over the maintenance of the property from the landlord.

He also wants the government to increase the discount available for housing association tenants who want to buy their homes, in the same way as the government reinvigorated the Right to Buy, and offering discounted internet tariffs for social housing. These ideas may well cheese off certain groups – developers and housing associations being chief among them for the disruption it would cause them – but they could also make a big difference to getting the planning system moving again, without the need for huge legislative overhauls.

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Show comments
  • Mike Christie

    Yet another area where a select group of speculators drive up prices for us mere mortals. For decades a clique of ‘already-haves’ have lauded rocketing house prices as a good thing, yet since when has galloping inflation been good? Whilst for one or two generations it was undoubtedly a good thing for some as the number of pensioners retiring to the sun would attest, however for younger generations trying to get on the property ladder the ratio of the value of an average house to average earnings can now be well into double figures in some parts of the country. Remember the days when the rule of thumb for a mortgage was 3.5 to 5 times earnings often based on a one income household? Jake puts forward a good idea that at least starts in addressing the rampant speculation that has helped fuel double-figure inflation in house prices in the boom years and still well above average inflation now. The less we have to spend on basics, the more we have to spend on other goods that help the economy grow, surely a roof over our heads is as basic as it gets and in a few generations from now economists will be pointing and scratching their heads at the 90s and 00s and quite how we thought it was so brilliant that the cost of something so simple as a home was allowed to spiral uncontrollably upwards.

  • Darwen Dave

    The same Jake Berry who enthusiastically voted to cut the HMR programme which was refurbishing terraced homes in his and neighbouring constituencies !

  • Meg Howarth

    Land-value tax (LVT) would curb not only land-banking but also property-price inflation – aka house-price rises so beloved of rentier-mindset UK which sees this inflation as ‘a good thing’ – and tax evasion/avoidance: land can’t be hidden or off-shored. A tax supported by such a motley crew as Adam Smith, Winston Churchill and Karl Marx clearly has something going for it. The Smithian right-leaning Institute of Economic Affairs recently published a simple-to-read excellent piece on LVT, a tax supported by FT’s Sam Brittan and Martin Wolf, and a long-time policy of both the Green and (former) Liberal parties before latter became LibDems. Here it is:

  • The Wiganer

    There are plenty of sites where, despite having planning permission, it is not economical to build as the costs of building outweight the profits. People commenting on here seem to forget that housebuilding is not cheap and there are many areas of the country where houses are worth less than it would cost to build them.
    There are also costs hidden amongst the planning conditions that you can’t appreciaite until you’ve had to pay them.

    • Douglas Carter

      A developer applying to build property on a plot in which he knows he’ll make a loss is an incompetent one.

      In which case, don’t apply for permission. Rocket science comes to mind here.

  • andagain

    So developers will refrain from asking for planning permission in the first place?

  • Upsizer

    Yes, the house builders aren’t in a hurry to build when they see house prices falling. The need is to offset the asset value to those who to sit on development land, which shows up in the balance sheet rather than as Profit/loss activity. e.g. either remove the planning consent after a ‘reasonable’ period to devalue the land, and/or charge for holding the undeveloped portion of the land like a business rate, so the longer it is held the lower the profit. The trick is to get the numbers right so that the motive is to buy land for development and not for balance sheet assets. Land banks would then reduce in size and this in turn would reduce the cost of development land an get it into the hands of those who actually want to build. Of course there would be more than a mere squeak from the house-builder lobby looking to their share prices, so don’t imagine this would happen any time soon!

    • Steve-o

      Oh ye gods! nice post, read it, it really is this simple, thanx Upsizer, shit hot analysis easy to understand no?

  • Rhoda Klapp

    More government interference in a market they don’t understand? What could possibly go wrong?

    • Steve-o

      Not a lot unless your a land speculator, land prices will be driven down, thus house prices will be driven down so people now have more money to spend in the real economy creating jobs. If developers can make more money by sitting on land than building house they won’t build, disastrous for the next generation and the social repercussions will be disastrous for every generation.

      • Rhoda Klapp

        Your problem here Steve-O is that you think this process will go a) new rules b) developers fall into line at their own expense and to their own detriment. It won’t. It will go a) C) through to Z) There will be consequences outside of the simple plan.

        What is stopping the building is lack of demand. Somebody has to want to buy the building, occupy the shopping centres, open the supermarket. Right now they don’t. This is where the real problem lies. It all comes back to confidence. Absent the return of that commodity, simplistic solutions will not work.

        • Steve-o

          Lack of demand? for houses? try huge demand for houses everyone needs shelter more so young couples wanting kids, but because land is so expensive very few can afford the house especially since banks won’t lend to anyone with a pulse anymore.How’s ‘land value tax’ for a simplistic solution, in fact LVT will solve most of our economic and social problems, have a read up on it.Oh and developers will fall in to line because they can’t hide the land in the cayman islands, seems simple to me.

          • Ruby Duck

            Steve-o “very few can afford the house especially since banks won’t lend to anyone with a pulse anymore”

            in other words, no demand

            • Steve-o

              That’s correct now how do we create demand? is that a sound of a penny dropping?

    • HooksLaw

      I do not see how you can fail to condemn developers sitting on land.
      If there is no demand or market for new houses then i could see why people would not build them, but assuming the houses would sell then we simply have these people holding the country to ransom.
      The very nature of ‘planning permissions’ is in fact an interference in the market. Why should permission be granted only to see sites sitting empty?

      • Douglas Carter

        When I was a member of the local round table, two of the members were local developers, one an accountant who worked on both of their behalf and two solicitors, who also specialised in conveyancing.
        Each of them used to boast in their own way that they had administrative links to several thousand acres of local land which had building permission agreed, but that no work would commence until house prices and property prices had once again peaked.
        It’s a cynical and offensive manipulation of the market. There are hundreds of thousands who dream of buying new homes but are intentionally precluded from doing so due to the avarice of an industry which has wilfully disappeared up its own backside.

  • John Moss

    This is easily dealt with. Most consents include obligations to provide affordable housing and contribute cash sums to local infrastructure, school places etc. Increase these by 10% every year. Development will soon start!

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