In his recent Autumn Budget speech, the chancellor announced a review to look at the gap between planning permissions and housing starts. In London alone, there are 270,000 residential planning permissions unbuilt.


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Funding that is currently available

£630m has been designated to assist developers in unlocking small sites to accelerate the building of homes where remediation or lack of infrastructure has stalled development. SMEs will benefit from the Home Building Fund, which will provide loans to small house-builders who cannot access the finance they need to build. Meanwhile, new powers are being drawn up to implement tougher consequences where planned homes are not built.


Discouraging land banking

The array of measures announced in support of developing small sites is long overdue, the anti-land banking initiative in particular, having been originally proposed by Ed Miliband in 2013. There are many sites within British towns and cities, particularly those with high land values such as London, that are either land banked or locked up by constraints such as contamination, rights to light or planning issues.

The chancellor went on in his speech to explain the outcome of his review: ”if it finds vitally needed land is being withheld from the market for commercial, rather than technical reasons, we will intervene to change the incentives to ensure such land is brought forward for development. Using direct intervention compulsory purchase powers as necessary.” While overtly laudable, the difficulty with this statement is that the definition of “vitally needed land” is necessarily vague. “Changing the incentives” could mean fines or taxes among other things, however it is less than certain how rigorous these would be and the effect they might have.


An undeveloped land tax?

Perhaps a more expedient approach to discourage land banking would be to dispense with a review, and instead to impose an undeveloped land tax with immediate effect on permissioned, undeveloped sites. The levy could be coupled with tax-relief based on delivery of units within a specific timeframe. As a result, whatever the exact extent of land banking in operation, viable and permissioned sites would immediately become unattractive to hold on to. The new tax would quickly reveal the pattern and proportion of sites being withheld.

Contrary to the assertions of some house-builders, this tax would not unduly punish the housing industry. In London for example, some 45 percent of undeveloped land is held by companies that do not carry out construction work. Development sites without planning permission are often land banked against a notional future relaxation of planning laws, their owners sometimes having failed to acquire permission for overambitious schemes in the past.

Under an undeveloped-land tax, these sites would rapidly become more profitable as built units. As a counterpoint, sites that are stalled by outdated planning constraints would benefit from planning reforms. Those made unviable by technical difficulties could be eligible for a greatly enhanced remediation and infrastructure fund, buoyed by the receipts of the new tax.


Will the chancellor’s announcement make a difference?

As an immediate result of the chancellor’s announcement, shares in housebuilding companies fell by several percentage points. This was seen by some not as proof of land banking, but as a reflection of house-builders’ dependence on the appreciation of property assets for profit. If this is the case, a squeeze on housebuilding businesses can only be a good thing, placing the impetus on developers to improve their housing offer in order to increase competitiveness, while incentivising the release of land for new homes.

The country is in the midst of a housing crisis today. Action is required now with a view to unlocking small sites and housing people where there are jobs, and this means developing urban sites.


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Image: Dudley Miles