The Land Question

There’s been a couple of interesting articles over the last few days on the political economy of housing development, land markets, planning etc. creating lots of winners (typically older home owners) and losers (typically younger wannabe home owners).  John Plender largely summarises the current situation and then concludes that the business model of the national housebuilders is part of the problem.

This has facilitated a business model in housebuilding that relies heavily on constantly rising land values. Builders have had no great incentive to increase supply, which is one of the reasons why the number of housing starts always lags behind the grant of planning consents. Many have operated, in effect, as land speculators with a building operation on the side.

Discussing the last sentence would make a good examination question – but there isn’t that much actual evidence.  I’d really like to see some good research on this issue.  How much of the financial performance of the housebuilding sector is created through their land portfolio and promotion activities relative to their construction operations?

Yesterday, Chris Giles in the FT reported that the government was considering introducing powers of local authorities to acquire land at existing use values.

Acquiring land at its existing value massively lowers the cost of constructing housing, allows necessary infrastructure to be built and makes ambitious schemes viable. Local authorities have generally been able to take such risks only on land they already own.  Clearly, the Tory plans are limited. Mrs May is considering changing the compensation on compulsory purchases only for “derelict buildings in town centres, unused pocket sites and industrial sites”. Agricultural land, let’s say in Maidenhead, her constituency, is not includedBut a change in the compensation principle is potentially of huge importance. It would allow high quality private and social housing schemes to become viable in many areas with high land prices. That would enable development to be financed by private borrowing rather than public spending. A more radical future government could extend the principle to agricultural land outside city centres.

I’ve written about the problem (and here) of high land prices before.  In areas of high housing need/prices, most of the cost of a home is in the land rather than the structure.  Can/should local authorities pay millions per hectare for privately owned land to build council housing?   Can/should local authorities pay thousands of pounds per hectare for privately owned land to build council housing, capture the land value uplifts for the community and later sell off the homes at a discount to individuals (essentially transfer the land value uplifts  to them)?     These are difficult questions.  It’s hard to see a return to mass council house building.



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