Housing land supply: good and bad options

I attended a very good event on “Land” last night hosted at the University of Arts London (great location and venue).  There was lots of thought provoking presentation and discussion.  A lot of ground was covered.  One niggling point was that the tendency to focus on UK land markets meant that the fact that many similar problematic issues were similarly problematic in many overseas markets was largely ignored.  Another was the focus on land problems (I know – it was about land!).  I suspect that, as a society, we get the land problems that we deserve in that the land problems are just the outcome in land markets of much broader socio-economic and institutional structures and trends (globalisation, migration, technological automation, financialisation, austerity, shrinking welfare sectors etc.) creating wealth inequalities,  labour market insecurity and associated cultural and populist backlashes etc.

More prosaically, land options came up.  Toby Lloyd, the Policy Director at Shelter, has been making the case for more transparency in land markets/data for a while now.  It’s hard to argue that increased transparency would not increase the efficiency of land markets.  However, I’m not convinced that land options are a major problem in housing land supply.  As noted in a previous post, they may even be part of the solution.

The basic argument seems to be that housebuilders are seeking to control the supply of land by using options which effectively give them exclusive rights to promote land through the planning system for a fixed period of time (typically five years).  Hence, the argument runs that other developers are prevented from developing that land.  It’s also argued that other developers, the community and local planners can’t even find out what’s going because details of these agreements aren’t publicly available.  Shelter put the issue well.

Option agreements are extremely important for the functioning of the land market and development process. They give landowners and developers more certainty and security. They also de-risk the initial planning process for a developer – allowing them to make enquiries without being completely financially committed to a site. However, in their current form they also stymie potential transactions and growth. Not knowing who truly controls a piece of land makes it difficult for local and combined authorities to plan effectively, for new entrants to break into the development sector, and for land to be accurately valued.

I’m not convinced that exclusivity is a major cost given the benefits.  My colleague, Peter Wyatt and I, thought that we’d look into this issue a few months ago and decided to do some preliminary work on it.  There’s hardly any published work on land options, promotion agreements etc. and they seem to be rife in the operation of land markets.  Surely there must be a story here?   So we decided to dig around a bit and talk to some contacts.  In the end we didn’t think that it was worth pursuing.  We struggled to problematise (I hate the word) the issue.

There’s no doubt that transparency is a problem.  They whole thing looks murky and, probably, that alone raises suspicions.  I’d agree with Shelter’s recommendations from an ‘Open Society’ perspective. But I’m not convinced that there is a significant effect on the supply of housing land.  Land owners and option holders/promoters tend to be desperate to get a planning permission and then realise their profits.  Remember most of the so-called ‘strategic land holdings’ don’t have planning permission.  So land with planning permission is not being withheld from the land market.  Options do give the developer control of the process of promoting the site through the planning system and they may use this power strategically sometimes.  However, they’re taking a lot of risk.  If sites haven’t obtained planning permission before the option expires, the developer has wasted time and money.   Put simply, it’s in both the land owners and the developers interest to get planning permission.

It’s the community (well, a vociferous part of it) that’s usually trying to oppose land getting planning permission.

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