Partner John Dingle, in our Commercial Property team, discusses the issue of land banking during the housing crisis.
The “housing crisis” is never out of the news and ways in which to encourage more housebuilding is continually at the forefront of the Government’s agenda.
Recently an emphasis has been placed on so-called “land banking”. This is where landowners and developers purchase large quantities of potentially developable land and “sit” on it rather than either applying for planning permission for development or, where planning permission has been granted, not building out that permission. In response to the results of a study carried out by the Local Government Association (“LGA”), which concluded that the planning system is not a barrier to development as the number of planning permissions granted by local authorities had only continued to increase, the LGA took aim at developers, stating “No-one can live in a planning permission. Councils need greater powers to act where housebuilding has stalled”. The LGA is thereby shifting the blame onto the landowners and developers and raising land banking as an issue.
The Home Builder’s Federation defended developers’ rate of house-building by arguing that land baking does not suit developers’ business models, which require site development to be carried out as soon as possible so as to see the return on their investment (by selling newly-developed dwellings). However, there is some debate around the actions of strategic land companies whose business model is to purchase various parcels of land, obtain planning permission, and then sell that land on for profit gained from the uplift in value which residential planning permission tends to provide. The additional time required to source a buyer, effect the transfer, and then arrange possible reserved matter applications, leading finally to the commencement of development, can mean that where outline planning permission is granted the development is not actually commenced until 3-5 years down the line.
A review led by Sir Oliver Letwin was announced in late 2017 to explore why there is a gap between the date on which permissions are granted and the subsequent rate of build out, and commentators expect the review results to confirm whether or not land banking is occurring and how much of a problem this is. If evidence is forthcoming that land banking is occurring the next stage is to consider whether or not this is occurring for technical reasons, such as lack of infrastructure, delays caused by the planning system or construction costs, or whether land is being banked for commercial reasons, such as pushing up prices of existing new build homes and land with the benefit of planning permission.
We will produce a series of blog articles detailing potential options for closing this gap – so watch this space!
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This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.