There is a clamour to build more homes. All parties agree we are short of homes, and hope that building more will meet demand and reduce house price rises. Today I wish to look at this without reproducing the long debates we have already had about migration which of course also is part of the picture. Whatever the outcome of the stricter controls on migration there is unsatisfied demand for homes.
Some now say we have a problem with builders and speculators sitting on land which has planning permission to build. They think that if we have new laws or rules to make them build we can solve the problem. As part of Labour’s wide ranging attack on the private sector, or attempt to remodel it, they are talking of penalising developers who do not get on with developing. The truth is more complex than this.
The English planning system is driven by a most important requirement placed on each local planning authority. They need to demonstrate there is a five year supply of land in their area at any given time. The local plan specifies the build rate on which this is based. This in turn is partly a reflection of past experience of demand, and partly a planning judgement made by the Council subject to review by an Inspector.
This means that under planning law at any given time the government requires the private sector to “hoard” or sit on a lot of land with planning permission. There is good reason for this. A housebuilder with a large site may take three years or so to move from putting in the detailed planning application to selling the last completed home. He is not hoarding the site, but proceeding as fast as planning applications, building work and buyers will let him. Time is money for the builder, and turning the land over quickly improves profits.
The same housebuilder will probably want the security of another large site to start work on when he has completed his present projects. He may decide the best way to secure it is to buy it outright, or he may buy an option from the owner who then has to hold it for a further period of years until the builder is ready to work on the development.
If a future government now wants less land holding then it could of course remove the requirement for a five year supply. That might reduce the total amount of land with permission held in the system, but there will still need to be quite a lot given the nature of the housebuilding industry. When trying to intervene like this there is always the possibility that the intervention will work in a perverse way. In this case it could reduce the amount of land where planning permission is sought.
There remains the issue of the gain that occurs when land without permission is granted permission. This is partly a reward for ownership and partly a reward for whoever goes to the trouble of preparing the land for development and applying for permission. However, increasing amounts of the gain are taken by local and national government through requirements on the developer to provide public facilities or a cash sum for such facilities. The arrangements amount to a development tax that is negotiated on a case by case basis in the light of final values of the properties and local infrastructure and service needs.