The budget today will almost certainly see the announcement of new plans for land auctions. Tim Leunig outlines how, if introduced, these ‘community land auctions’ will give councils an absolute right to decide on new development – and the ability to benefit far more greatly from new development than they do under the current system.
The New Homes Bonus and Community Infrastructure Levy increase incentives for councils to allow new housing, but appears too small to work. Councils, particularly in the south, say they will build less, not more.
As part of the growth review, the government is considering “Community Land Auctions”, based on my CentreForum pamphlet “In my back yard”. Under this approach, local councils capture the rise in value when they rezone agricultural or industrial land for housing, creating a big incentive to support development.
It works like this. The council first asks all landowners to name the price at which they are willing to sell their land. By naming a price, the landowner gives the council the right to buy the land for 18 months at that price. The council then writes a development plan. As now, they will take into account the suitability of the land offered for development, but will also consider the price of the land, and the likely financial return to the council.
It is rather like buying a car. You know your preferences, and can choose the most suitable car. But you might buy a different one if it is much cheaper. That possibility means whoever makes the best car for you has to offer you a good price. It is how well-functioning markets work.
Having decided which land can be developed, the council auctions it to developers, keeping the difference between the price named by the original landowner, and that paid by the developer. There is no risk to the council – if no developer wants the land, there is no sale and the original landowner retains the land.
A typical 57 hectare farm in the south east – where housing is most needed – is worth around £1m as a farm, and over £100m for housing (even more in housing hotspots). Most farmers will sell their farm for five times fair value, and many for double fair value, which is, after all, a £1m windfall. (I will sell my house for £1m more than it is worth, if any reader wants to buy it!). The council therefore makes at least £95m per farm, which comes to at least £50,000 per house. That is far greater than the incentives currently proposed.
If Horsham DC allowed housing on one average size farm, they could halve council tax for four years. That, surely, is a winning electoral prospect. More radically, were Cambridge to allow a million new houses near the city – like America’s Silicon Valley – it could give current adult residents around £700,000 each. Again, that should be a vote winner.
Community land auctions respect property rights – everyone can offer their land, or not, and can name any price they like. But landowners have to compete against each other to be chosen, so keeping prices low.
Community land auctions give councils the absolute right to decide how much development to allow, if any. There would be no inspectors to vet local plans. Creating good incentives to allow development means that complete localism is compatible with delivering the houses that we need.
Press coverage suggests that the government may decide to pilot this approach. Kate Barker suggested doing so in her earlier Review of Land Use Planning and the idea was also endorsed by Michael Gove and Edward Davey when they were shadow Conservative and Liberal Democrat housing spokesmen.
I would be interested in hearing from councillors who would like to participate in such a pilot.
This article first appeared in the Local Government Chronicle on 11 March.
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There is little correlation between supply and demand in the housing sector, and this is an oversimplified view. Research by the Royal Town Planning Institute (2007) indicates that a doubling of planning permissions, doubling of available land and doubling social rented stock would achieve a reduction in house prices of only 4% after 4 years. Demand in the housing market is influenced more significantly by factors such as accessibility, amenity and neighbourhood quality, leading to localised constraints, and it would be more productive to tackle these issues than to release even more land to little effect. Higher densities should be sought in existing urban areas, but this requires even more investment in amenity, neighbourhood quality and public realm, and the impact of low-level persistent anti-social behavior on neighbourhood quality really needs to be looked at.
An interesting idea – and one I see the Government has taken up, at least tentatively. I agree that there needs to be more incentive for new building, and that it should include capture of land value uplift.
But other than the human instinct to take the “bird in the hand”, what’s to stop landowners pursuing their own developments? Aren’t many owners in potential housing sites are already housebuilders or speculators who have bought relatively low (but perhaps above agricultural value) in the expectation that they will – sooner or later – get permission to build houses. Would you prevent that, making councils the only bidders? If not, and the Council approaches you for a price-to-sell, isn’t that a strong hint that you could get planning permission for yourself? Under the Government’s recent proposals, it appears that where there is no plan (as you say there wouldn’t be until the bidding process is complete) then planning permission can almost be assumed anyway.
Will councils have to say what it would like to do with the land when it invites bids? A local plan document would have to show this – but you suggest that the plan follows prices, rather than the opposite. That’s fine when it’s a secondhand car – but I’m not sure that’s a good analogy (the whole point of planning being that the land market isn’t like that for consumer goods). You say that “localism is compatible” – but your proposals seem to lock-out third party interests.
Wouldn’t there also be a conflict of interest where councils are responsible for planning and development control – but also for capturing betterment value? Of course, as major landowners this can already be an occasional issue for councils – but you seem to propose making it the norm, and much bigger. With the current financial squeeze, I’m not sure how many councils would be able avoid following the money and basically selling planning permission.