A recent article in the Telegraph drew attention to evidence of land banking in the UK.One of the main factors driving up housing costs in the UK, and especially in London, is land banking. This is a process whereby investors buy land as an investment but don’t build on it because they know the value of the land will go up regardless of what they do. I find the idea of a land value tax attractive because it would discourage land banking as the owners would be taxed according to the value of the land even if they have not built on it.
“Almost a third of sites which have been given the green light to have homes built on have not been completed within the last five years, according to new research by Shelter.
It found that just 68pc of sites with detailed planning permission had completed properties built on them within five years. This meant there were 320,000 homes which had not been built over this period despite having been given the go-ahead, and suggests that developers and landowners are engaging in ‘land banking’, sitting on land and waiting for it to increase in value.
There is a particularly high deficit in London, where 52pc of detailed planning permissions granted for homes have been completed within the last five years, with a one year lag between permission being granted and a unit being built. This equals a shortfall of 106,968 homes in that period.
Areas around the capital conversely have much higher levels of building: in the east of England, 86pc of such sites have been completed, and in the South East, that figure is 71pc.
Part of this geographical disparity can be explained by the more complicated nature of development in London, which is largely on brownfield land that takes longer to prepare.
Anne Baxendale, head of communications, policy and campaigns at Shelter, said: “Our country’s inefficient housebuilding system means developers perversely make more profit sitting on land than they would by building homes – this is especially acute in London.
“The situation is slightly better outside London where developers can take advantage of lower land costs and rising house prices. This means planning permissions have been converting into more actual homes.”
Developers deny land banking, saying that generally they make more profit by building on it. The Shelter research also found that during the same period the profits of the five biggest housebuilders in the UK soared by 388pc, as they recovered from the financial crisis.
The housing white paper, announced by the Government in February, suggested that councils would be given greater powers to carry out compulsory purchase orders on land which was not being built on.”