“Dealing with the issue of developers that are sitting on lands… we have half a million sites that have planning permission in this country where homes are not being built.”
Ed Miliband, 16 December 2013

The background

Everyone agrees that we need to build more new homes. The latest figures show that housebuilding is finally on the rise but well below the pre-financial crisis peak and well below the numbers needed to keep up with demand.

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The result is overcrowding, oversubscribed council waiting lists, soaring rents and impossibly high prices for many would-be first-time buyers.

Labour says England needs 200,000 new builds a year by 2020 – about double the numbers we have seen recently.

Ed Miliband says he is going to stop councils blocking growth in neighbouring local authorities, and crack down on “developers that hoard land”, saying they must “use it or lose it”.

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The allegation that the big construction companies are guilty of “land banking” – sitting on land rather than building on to artificially constrain supply and raise land prices – is one of the persistent themes of this debate. Are the big developers really to blame for the housing crisis?

The analysis

A number of independent reports have tackled the accusation of land banking by the big housebuilders, only to dismiss it as unfair.

Back in 2008 the Office of Fair Trading investigated the issue and concluded that: “Homebuilders are not delaying building on permissioned land to an extent that would appreciably affect the rate of delivery of new homes.”

That was at the start of the downturn in the housing market. Five years on, and the landbanks have shrunk, not grown, according to most studies.

The Local Government Association says the number of private homes not built despite planning permission being granted has fallen 23 per cent from 421,000 in March 2008 to 323,385 in March 2013.

A report by Savills in August this year looked at the biggest eight housebuilders and came to a similar conclusion: “Relative to recovering build rates, the supply of land held by housebuilders is in fact falling.

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“In 2009 the volume of permissioned land held by the top eight peaked at held 7.5 years of permissioned land, as the rate of delivery slowed. In 2012, permissioned landbanks declined to 5.3 years supply.”

The authors cautioned against reading too much into these timescales, saying: “These headline supply figures are deceiving as not all of this permissioned supply will be financially viable to develop in the short term.”

This independent report commissioned by the mayor of London – who like Mr Miliband has threatened to use compulsory purchase orders to stop developers hoarding land – also found that the massive headline figures on land banking were misleading.

Authors Molior said planning permission had been granted for 210,000 homes in London… but there was no way you could build them all at once. A realistic target was somewhere in the region of 50,000 to 70,000 dwellings over three years.

And only just over half the land was in the control of house builders. Some 45 per cent of land where planning permission had been granted was owned by investment funds, owner-occupiers, historic landowners and the government. In other words, people who had no intention of building on it.

Matt Griffith from the Institute for Public Policy Research has commented: “This is a shockingly high number, and suggests that speculation is significantly hampering housing development, not just in not bringing forward new homes that should be being built but also in pushing up the price of land for all market participants.”

He lets the developers off the hook, saying: “Labour therefore needs to target not landbanks themselves, which are usually a legitimate tool of the mainstream building industry, but the factors that cause land-hoarding by other speculators.”

Molior’s report concludes: “Site-by-site interviews suggest the obvious: builders intend to build their sites, non-builders do not! So the fact that non-builders control of almost half of the planning pipeline is a constraint on housing development in London.

“When accusations of land banking are directed at builders, those accusations are misplaced.”

The verdict

Land banking or hoarding could be a problem, but there is no evidence that the big developers are guilty of hoarding land. In fact, the number of unimplemented planning permissions has fallen since 2008.

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Developers appear to be working through their land banks more quickly.

A string of independent reports has found no substantive evidence of the big housebuilders trying to rig the market by sitting on land. All of which suggests that Mr Miliband might be aiming his lance at the wrong windmill here.

By Patrick Worrall

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Category: UK
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