Proposals to tackle the harmful practice of land banking is welcome, but stronger action is needed - Bartek Staniszewski

If the amendments pass, “developers will have to report annually to councils on their progress and councils will have new powers to block planning proposals from builders who have failed to deliver on the same land”.

And although some of the amendments were watered down as a result of rebel pressure, this was not on account of the land banking measures.

Indeed, Bob Seely MP – one of the rebels, who opposed the amendments over their commitment to mandatory housing targets – has not long ago written about his support for just those very measures.

The problem is rather that, while this amendment is a step in the right direction, it is not enough.

Land banking is the practice of owning land that a developer has, or expects to acquire, planning permission to build on, but deliberately chooses not to proceed with the development.

It is common in the UK. Land promoters - companies that buy land with the intention to secure planning permission on it and sell it on without developing anything themselves – control 55.5 per cent of all the land with full planning permission in the UK.

The problem is not only with land promoters, but also with housebuilders. In 2020, the top six UK housebuilding companies themselves controlled a number of plots equating to ten years’ of housing supply at current housebuilding speeds that they have not even applied for planning permission for yet.

Between 2010 and 2015, over 1.2 million planning permissions for home development were given, but only around 700,000 homes were built. In the following two years, almost 700,000 permissions were given, but, again, only under 300,000 homes were built.

This is largely caused by the anti-competitive structure of the housing market. Two-thirds of all homes sold in 2021 were sold by the five largest housebuilders.

Between 2010 and 2015, the top five housebuilders’ pre-tax profits surged from £372m to over £2bn. Academic studies from 2008 and 2016 suggest that land banking is a deliberate effect of major developers ‘drip-feeding’ housing supply to maximise their profits, and a 2016 House of Lords report claims that the housebuilding sector is an oligopoly and, as a result, “does not deliver an increase in the supply of new homes on the scale required”.

Naturally, if land banking is to be tackled, those who engage in it would be disadvantaged. Due to uncertainty over planning decisions and the volatility in land prices, developers are incentivised to land bank not just because it allows them to ‘drip-feed’ the housing supply, but also because it insures against those risks.

Furthermore, the drop in house prices resulting from increased supply would harm the developers’ profits in the long run.

But the profit margins of large developers are already very high, at 15 to 20 per cent, and so can afford to decrease. Those large profit margins can also serve as added insurance against some of those aforementioned risks – risks that should not be overstated.

The country’s second largest house developer has recorded positive profits every year since at least 2010 and some developers remained profitable even during the global financial crisis of the late noughties.

Despite this, the housing supply remains too restricted and house prices remain too high. The home ownership rate in the UK has declined from 73.3 per cent in 2008 to 65.2 per cent in 2019 and is now the seventh lowest in Europe, while the current backlog of households with housing needs across the UK is 4.7 million.

This is reflected in the price of homes; the ratio between earnings and the average house price in the UK shot up from 4.3 in 1996 to 8.4 in 2020. Buying a house is, as a result, a distant fantasy for most young people.

If house prices are to fall and the housing supply is to improve, land banking must be tackled.

While the Government proposals are welcome, they are not enough to address land banking. Many local authorities lack the political capital to block planning proposals from land banking builders as they are under pressure to deliver housing targets (though this could change now that said targets are being relaxed), especially as they are also having to persuade the developer to maximise the volume of affordable houses they build and the value of planning gain for the local authority.

Indeed, when devising a land supply strategy, planners are often advised by the developers themselves.

Furthermore, once a developer acquires permission for a large development, annual reports are of little help to the council if the development is slow - the planning permission was already given.

There need to exist stronger disincentives against land banking. One idea was explored in our 2021 report Home Truths, where Bright Blue argues for a tax on unimproved land, proportional to the land’s value.

Bartek Staniszewski is a researcher with Bright Blue.