There has been much talk recently about the practise of land banking, with key political figures criticising its practice.
Earlier this week, in his 2020 Vision document, Boris Johnson set out plans to do more to combat land banking and stalled developments, while last month Ed Miliband, the Labour leader, announced potential plans to give councils more powers to penalise firms that do not proceed with building projects, despite having planning permission.
Milliband believes that firms are “sitting on land” as it gains value, and that they should “use it or lose it”. He also suggested that the lack of house building cannot be blamed on local councils, with planning permission already granted for over 400,000 homes across the country.
In cases of land banking, Miliband also believes councils should be given “compulsory purchase” powers to buy back sites that lie empty for years.
The government dismissed the plan, insisting rules that are already in place encourage builders to start work.
Planning minister Nick Boles said: “Most normal planning permissions already expire after a three-year period and councils don’t have to renew them. Confiscating any land from development will not help build a single house.”
He added: “We’re already incentivising developers to build 170,000 affordable new homes for hard-working people by getting mortgage lending flowing again, using our Getting Britain Building scheme, unlocking development on stalled sites and renegotiating planning permission for sites that weren’t previously commercially viable to build on.”
Milliband’s idea to penalise ‘land bankers’ was greeted with criticism from developers and housebuilders who believe that the focus should be on incentivising building projects rather than penalising stalled starts.
While in practice, Milliband may be onto something in terms of encouraging building starts, developers have a duty beyond just delivering new properties. They must consider the sale value of the land and the economic value that will be gained by the area as a whole from the regeneration.
“Commercial developers have a duty to their investors and shareholders to make decisions based on their own commercial interests – and do not have the same responsibility that the Government has to resolve housing shortages,” says Assad Maqbool, a partner at law firm Trowers & Hamlins.
“As soon as it is in a developer’s commercial interest to develop land, they will do so,” he adds.
He also believes that going forward “public sector bodies that do own land that could be redeveloped should be looking at entering into development agreements with private developers on terms that will be commercially viable for the developer”.
But, while land banking in the broad sense involves projects being delayed, land banking investment schemes can involve the deliberate sale and purchase of land which is notoriously difficult to gain planning permission on, such as green belt land or conservation sites.
Just this week, five directors – who between them ran three land banking companies that raked in over £7m from around 80 investors – have been disqualified from being company directors for a total of 53 years.
The sites the firms were offering were on green belt land, conservation sites, sites at high risk of flooding, landscape protection areas and land adjacent to areas of outstanding natural beauty. Given the nature of these plots, there was never any real prospect of them ever gaining planning permission.
Many of the plots were sold to investors for more than ten times their original purchase price, despite being sold within a few months of purchase.
While this is an extreme example of land banking and quite different to developers sitting on land till it increases in value, many believe that the practise is ultimately contributing to the nation’s housing shortage. And this comes at a time when it’s being argued that the UK needs an extra 250,000 homes a year to help combat the current housing crisis.
But as Kate Henderson, chief executive at the Town and Country Planning Association says, we cannot meet the scale of the housing crisis on a plot by plot basis.
“We need cross-party consensus about what we want to create in terms of future housing,” she says.
“Times are hugely uncertain, it’s really difficult to plan but it’s crucial to the future of communities. We need vision and to consider how we ensure growth and renewal in the sector.”
So while Miliband and Johnson are taking steps in the right direction, it is clear that a more joined up and considered approach is needed.
To help tackle our nation’s housing crisis and economic woes, policy makers and developers must work together from start to finish to deliver more homes that are financially viable and built for purpose – and it is through increased support, changes to policy and planning regulations that a more joined up approach can begin to be developed.