The truth about land banking and the housing crisis

On 2 March, the Guardian reported comments from two MPs under the headline ‘Developers accused of restricting the supply of homes to boost profits.’

Accusations of ‘land banking’ resurface every few months, but does it really happen?

The Charge

The Guardian article quotes two MPs on the issue.

Firstly, Clive Betts MP (Labour), chair of the local government select committee:

I think it is clear that the big developers are building at a rate to maximise their profits rather than addressing the country’s housing need. These are private companies who are very simply trying to make money for their shareholders. They are restricting supply and the government urgently needs to come forward with measures to address this.

Secondly, Brandon Lewis MP (Conservative), the housing minister:

When you have got house builders delivering, on average, 48 homes a year on some [large] sites that’s not good enough,” he told the local government committee. We know they can go further. House builders will talk about saturating the market. But we are aware that in too many places we are still taking 20 weeks to build a house when we can do it in three or four.

But do the facts support these assertions?

The Evidence

House builders are almost all private companies and not philanthropic enterprises. So it would be a surprise if they chose to prioritise the national interest ahead of their own profitability. But let’s put that to one side and look at whether there is any evidence that they actually ‘land bank’ in the first place.

Since 2004, there have been three separate reviews into the house building industry:

None of these found evidence of ‘land banking’ or of developers restricting supply in other ways.

In November 2013, the then planning minsiter Nick Boles MP asked his department to carry out a more thorough review of the facts about ‘land banking’ in response to accusations from the Local Government Association. This research, published in Hansard, found that as of October 2013, there were 507,000 homes with planning permission. Of those, only 257,200 had yet to start on site, which was broken down as follows:

  • 184,600 were progressing towards a start on site (with, for example, pre-commencement conditions being discharged).
  • 13,500 were being sold, or there was no information available.
  • 59,100 were classed as on-hold or shelved.

So fewer than 12% of all the homes with planning permission weren’t actively being progressed. The Home Builders Federation also pointed out in 2014 that most of those homes which were ‘on-hold’ weren’t actually owned by house builders: the 23 biggest house builders owned just 8,800 homes with an implementable planning permission that weren’t being progressed. Instead, most of these shelved projects are owned by third parties who secured planning permission without having a clear intention of what they would do next.

If that isn’t enough, the issue of land banking was investigated by the Office of Fair Trading in 2008. They concluded that:

We have not found any evidence to support the view that, at the national level, homebuilders are hoarding a large amount of land with implementable planning permission on which they have not started construction.

The Judgement

All the evidence points to house builders building homes as soon as is practical once they have secured planning permission. So why does the land banking canard keep re-appearing. One answer is that it is an easy explanation for housing supply still being far below the levels needed. If it isn’t the fault of the house builders, then there are only two other possible culprits: the planning system and the anti-development lobby.

Image courtesy of Jon Candy on Flickr

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