Ed Miliband’s speech today at the Labour Party conference contained the following promise (or threat, depending on how you look at these things). “… we’ll say to private developers, you can’t just sit on land and refuse to build. We will give them a very clear message – either use the land or lose the land. That is what the next Labour government will do.” Douglas Alexander, Shadow Foreign Secretary, fleshed this out on the PM programme explaining that where housebuilders are “hoarding” land local councils will be allowed to purchase it compulsorily and secure escalating fees where they are landbanking. Hoarding he said is where a developer judges that because of a significant year on year rise in the value of that land it is worth more to them not to build and to hold on to it for the future than to build the houses the country needs. No-one he said doubts that hoarding is taking place.
So this suggests that regardless of the profitability of the construction and sale of houses at that time, a developer holding land with planning permission will be required to build, or face compulsory purchase and some sort of penalty charge or tax.
What will the results be?
First, local authorities will need to raise the funds to purchase the land. I would welcome comment from experts in CPO valuation, but will that not be at market value which will reflect the planning permission for housing? They will then need to build, themselves or via other developers. If the profitability is low at the time, it may be difficult to find developers willing to take that on, and if councils do so they will risk poor returns.
Second, between now and the election developers may run down their stocks of land. Then when they do want land to develop as demand for houses and profitability increases, they will have to buy at the time (a spot market) which will in turn create a rise in land prices. Keen readers of this blog know that I espouse fairly straightforward supply and demand economics. Who will bear the increased land price? Housebuilders will seek to pass it on to the buyer, and that will work as long as buyers have funds. So there will be house price inflation. But when the buyers run out of funds, the builder then faces the choice, take less profit or stop building and it isn’t the work of genius to predict that builders will stop building.
Isn’t there a simpler course to get more housing? Simply grant more planning permissions and in effect flood the market. To those who say that even more land will be hoarded, I suggest that completion notices are used more. They require completion of a commenced but incomplete development, failing which the permission lapses for the unexpired portion.