An alleged cause of the housing crisis is a lack of supply which is sometimes blamed on developers ‘land banking’. Is there anything in this assertion?
Summary
It is claimed that developers are hanging on to land rather than building houses and thereby limiting supply, thus contributing to the ‘housing crisis’. Evidence however, indicates that lack of supply is not the cause of the ‘housing crisis, with more dwellings than households. Developers land bank to ensure their own business viability and limit output to match demand. The land banking issue is a bit of a red herring!
The assertion
So what is land banking? Basically it is where developers buy and maintain a stock of land so that they have a pipeline of supply for future development. The sites usually have planning permission.
The argument is that developers rather than building the houses that they have planning permissions for, sit on the land, reducing supply of new houses and thereby pushing up prices. It is also the case that some developers then sell on sites to other developers, often making a profit in the process.
What do people say?
In Kate Barkers interim report, she stated that housing on large sites was “trickled out to the market over extended time periods.” [Kate Barker, Barker Review of Land Use Planning, Interim Report – Analysis, 2006].
Oliver Wainwright set out his views on the role of developers. “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.” And,
“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.”
Oliver Wainwright, Guardian, January 2017.
In March 2018, Theresa May criticised developers “The gap between permissions granted and homes built is still too large,”…I expect developers to do their duty to Britain and build the homes our country needs.” [May, T. PM speech on making housing fairer: 5 March . https://www.gov.uk/government/speeches/pm-speech-on-making-housing-fairer-5-march].
The Letwin review summarised the issue. “…the largest sites are dominated by the major house builders and other major participants in the residential property market, and it is in relation to these major firms that concern has been expressed in some quarters about “land banking” and “intentional delay.[Independent Review of Build Out Final Report, Rt Hon Sir Oliver Letwin MP, CM9720. October 2018].
It is true that permissions for housing are higher than additions to the housing stock. “Last year 372,000 units were granted planning permission, but only 244,000 net additions were made to the housing stock in England. Nor was that an aberration. The number of permissions granted outstripped net additions by almost 100,000 per year on average during the 2010s.”
[Tony Blair Institute for Global Change, May 2021, https://www.institute.global/insights/geopolitics-and-security/planning-fail
].
What is happening to supply?
If developers were building fewer houses than needed we would expect to see supply issues, but we don’t. “It is commonly claimed that we have failed to build enough houses to meet the demand for places to live. But official data suggest this is not the case: since the 1996 nadir of house prices, the English housing stock has grown by 168,000 units per year on average, while growth in the number of households has averaged 147,000 per year. As a result, while there were 660,000 more dwellings than households in England in 1996, this surplus has since grown to over 1.1 million by 2018.” [Mulheirn, I. Tackling the UK housing crisis: is supply the answer? UK Centre for Collaborative Housing Evidence, August 2019].
Land banking – some explanations
There are good reasons as to why developers don’t built all the properties they have permission for. The Letwin Review, specifically established to examine whether land banking was an issue stated – “… that the homogeneity of the types and tenures of the homes on offer on these sites, and the limits on the rate at which the market will absorb such homogenous products, are the fundamental drivers of the slow rate of build out” [Independent Review of Build Out Final Report, Rt Hon Sir Oliver Letwin MP, CM9720. October 2018].
In other words if you are a developer, with a site with permissions for say 500 dwellings, and you know the local market will only take 50 per year, that’s what you build. You will not tie up money in building a property that will be left empty.
What also needs to be considered is that developers are in competition with one another. They want to make sure they have the land to maintain their business.
Conclusion
The claim that developers are hanging on to land rather than building houses and thereby limiting supply, thus contributing to the ‘housing crisis’, is not supported by the evidence. Various reports have shown that a lack of supply is not the cause of the ‘housing crisis, with more dwellings being provided than the growth in households. Developers land bank to ensure their own business viability and limit output to match demand. If they build more there would be lots of vacant properties about.
There are issues about the role of developers in the housing market– should they be allowed to sell on sites thereby gaining a profit? Either need to limit transfers to other developers at cost price or impose taxes.
Reform of what developers can and cannot do is certainly necessary, but that should be part of a reform of the planning system.
We also need to be clear about what is meant by the housing crisis, rather than bandying it around without being clear about what it is and the causes.
Sources
Barker, K. Barker Review of Land Use Planning, Interim Report – Analysis, 2006.
Letwin, O. Independent Review of Build Out Final Report, Rt Hon Sir Oliver Letwin MP, CM9720. October 2018.
May, T. PM speech on making housing fairer: 5 March, 2018. https://www.gov.uk/government/speeches/pm-speech-on-making-housing-fairer-5-march
Mulheirn, I. Tackling the UK housing crisis: is supply the answer? UK Centre for Collaborative Housing Evidence, August 2019.
Tony Blair Institute for Global Change, May 2021, https://www.institute.global/insights/geopolitics-and-security/planning-fail.
Wainwright, O.Guardian, January 2017.
Комментарии