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