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Ed Miliband announced that developers who sat on land would be told to ‘use it or lose it’ in what seemed like a new policy.

The reason is to penalise developers who hoard land.

However, Douglas Alexander appeared to back-track on BBC Radio 4’s PM programme, saying that councils already had compulsory purchase order rights and as such, these powers really already existed and would simply be strengthened.
 
This may seem a good plan, but it’s not as simple as ‘land banking’.

I was on the board of a small development company in 2009-2012 and we were extremely keen to build. We had no wish to tie up land for the future. Planning was submitted on a small development of 24 apartments in a leafy London suburb which we had identified as being ideal for people wishing to downsize from family homes.

Planning was straight-forward, until we received the section 106 requirements. Not only was there a substantial reduction in gross development value (GDV), but it was clear that saleability could be affected.

This may appear snobbish – however, these were the words of the bank, on advice from their valuer. The bank subsequently declined funding for an extremely viable project as they believed this element created an unquantifiable risk in what was an already challenging market.
 
In fairness, the local authority agreed and revisited the situation. The GDV was projected at £6.5m. The council placed a section 106 requirement condition that we would pay them £750k, plus interest from completion of works until paid. The bank didn’t like this either, but finally agreed to ‘take the risk’ provided we met the ‘arrangement fee’ which was over £20k.

Consequently, we had to reduce build cost and, in honesty, prices of the units were higher than they should have been. Those that didn’t sell quickly were rented out to avoid high interest charges.
 
It was the same with a number of other schemes where the s106 created massive problems and, in the words of our architect and project manager, was not fit for purpose.
 
Another such scheme acquired in 2009 remains undeveloped as the social housing requirement is just too onerous and the council is totally inflexible. I understand that funding is still impossible to secure, and as such, this site is likely to become a supermarket instead of much needed housing rather than being sold at a loss.

If Ed wants to buy it, I urge him to give me a call.
 
Herein lies the fundamental flaw in Ed’s plan. ‘Use it or lose it’ is a great headline, but what if you want to use it, but can’t? Instead of threatening developers, encourage them.

A savvy developer will avoid this Labour initiative by taking out options rather than buying outright. The threat means nothing.
 
Mr Miliband also hinted at new planning powers. In reality this is the key to the policy, not the headline sound-bite, but sadly, this hint lacked any detail. If the acres of land around London which appear to have been ‘land banked’ are to be developed, then make it economically beneficial to do so.

Government should offer incentives, not penalties, to encourage developers and investors. This would offer employment, regeneration, and income for the Treasury, and start to make a dent in the huge housing deficit.

Some councils want up to 40% social housing element included in a development which can render a scheme uneconomic or hard to fund. Better that some homes are built rather than none.

This increased supply would negate the calls for rent capping in prime London and would help stabilise the precarious housing market whilst beginning to address the problems we can foresee in the future.
 
We subsidise farmers not to grow crops, which always seems a little odd to me. We give wind farms £1.2bn each year, equivalent to £100k per person employed in that industry.  

Why not incentivise builders to build something we really need and which has profound benefits for the whole of UK plc and its population?

It seems that even Ed Balls is happy to spend £40bn on HS2, yet everyone agrees the most pressing issue is housing. Stimulate building and we will have a great foundation for recovery.   

We need to find a way to make development work, not confiscate land because of extremist councils and terrified bankers.

* Eric Walker is managing director of estate agency and lettings firm Northwood, which has over 70 offices nationwide

Comments

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    EW talks a great deal of common sense. It seems like an eminently sensible and pragmatic plan. I would only add that these develpoments need to be targeted at FTB's. not swanky expensive units. Make them affordable.

    • 28 September 2013 10:16 AM
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    A well written and original piece. Some excellent points which merit further consideration.

    • 27 September 2013 19:03 PM
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    "new planning powers - In reality this is the key to the policy"

    Exactly. If Ed had said he would make schemes easier to build through whatever incentive and developers chose not to take advantage of this, then I would actually support the idea. He didn't. A hollow promise to appeal to the left wing audience designed to get cheers.

    • 27 September 2013 11:44 AM
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    One point not made is that with the Governments initiative to offer funding to buyers next year, demand will increase. IF we dont solve the supply issue, this is recipe for another boom bust cycle. As such, I absolutely agree that these land banks must be used - CPO's are NOT the answer.

    • 27 September 2013 11:29 AM
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    I agree in part - but 'by 'incentivise builders' do you mean subsidize? Voters money being spent on what the public see as fat cats wouldn't go down well.

    • 27 September 2013 11:25 AM
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    Some really valid points. I have said for ages that the Lefty Councils are anti developer / investor / landlord. I agree that social housing is needed as are affordable homes, but with the shortage we are seeing, empty land in the Royal Docks (Newham) is just criminal

    • 27 September 2013 11:21 AM
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    Interesting, but social housing is much needed. I understand the well made point, but it cant be ignored just so developers can make bigger profits - its not all about London

    • 27 September 2013 11:17 AM
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    Good blog Eric. Hope all is good with you

    • 27 September 2013 10:55 AM
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    We pretty much agree on this. Uk is too reliant on service industries. You can only create wealth by creating something of a higher value than the sum of the cost in creating it. Supply will help stabilize the market. It really is that simple. We have buyers with money to spend - but schemes need to be viable and offer a return.

    • 27 September 2013 09:57 AM
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    Can't argue really. That said, it all seems pretty hypothetical as its totally impractical. I absolutely agree that 106 agreements are out of control, especially inside the M25. I can think of several schemes that are effectively blighted as a result. All that revenue from SDLT, income tax, VAT etc unrealised. This is how to effect recovery.

    • 27 September 2013 09:54 AM
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    Great comments - totally agree. It's just political posturing and empty ill thought out ideas with no substance.

    • 27 September 2013 09:41 AM
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