On Monday we heard that pilot development land auctions are to be announced in the budget (click here to view) as part of the drive for growth through development and construction. It’s an idea that has been knocking around for years and was first proposed by Dr Tim Leunig – his paper In My Back Yard is here - as a way of freeing up more land for development and incentivising communities to welcome development. As such it should be welcomed, but couple of questions immediately arise: Are Local Authorities actually going to use this as a means to increase development or just ensure that they get the entirety of the “planning gain” of current plans? Do Local Authorities have to allow all land owners (not subject to designations preventing development) to put in bids – and do they have to accept the lowest offer? Local Authorities may be keen to bring in auctions on land earmarked (officially or unofficially) for future development, but what happens when the cheapest land in the auction sits apart from other developments, or on green belt (a scenario Dr Leunig predicts), or, heaven forbid, next door to a particularly NIMBY marginal ward? These areas may well be perfectly suitable for development in social and economic terms, but are local voters going to see this the same way? Are voters in wealthy areas (in the South East perhaps) going to be swayed by the notion that the Local Authority will have swelled its coffers? Will the cash from the auctions be spent very locally where the development is situated? These questions are not posed to dismiss the land auction idea, but to point out some practical political realities – the New Homes Bonus raises similar issues with regard to the financial incentive aspect. The other issue at hand here is the idea of planning gain. Development has increasingly become seen as a cash cow where land owners make their windfall and then Local Authorities take as much money as they can to pay for local services, infrastructure etc. These costs are huge in comparison to the literal bricks and mortar of a house and they were only sustainable at all in the boom times because of a lack of developable land. Land auctions could change that by making more land available and - through competition – cheaper, but the idea that Local Authorities then take as much money as possible from the resulting planning permission could well act as a counter-incentive to continue to restrict development and so fail to tackle underlying problems with the cost of development and therefore the cost of housing. The fundamental problem is that Local Authorities (and even Central Government) have a direct economic reason (the political and wider economic reasons are obvious) for keeping house prices high even if land becomes cheaper – they can use planning gain as indirect taxation.
