This was posted on the Labour Policy Portal in Septtember 2012. The Labour Policy Portal no longer operates. Thanks to Martin Leah for his help in editing.
Wealth distribution and the housing crisis
The planning system in the UK restricts the supply of buildings and other developments. This makes existing buildings as well as new developments more valuable. This wealth has not been fairly shared; it lies at the disposal of property owners. It is spent by people who inherit property, people who downsize and by the multitudes that are able to borrow against the value of this undeserved form of wealth generation. This takes from the poor and gives to the affluent and takes from the young and gives to the old.
The restriction on the supply of planning permission – not the shortage of land – that has caused the current housing crisis for not much more than 10% of the UK land area has been developed. Early returns from the recent census have led to headlines such as UK housing shortage turning under thirties into generation rent and Census reveals housing shortage. Search for “housing prices UK” and you will see the concerns even of the affluent classes: Parents have to house their grown children … and the grandchildren. The poor have been priced out of home ownership long ago.
The value of planning permission
The York wants half website has taken a now-disused sugar refining site as an example of the value of planning permission in York:
In recent years the value of land for development in York has reached several millions of pounds per hectare. These reports were for city centre land, an estimate of the land value for suburban land is £1.9 million per hectare. Using suburban land values the British Sugar site can be valued at £100 million. Almost all of the value of this site derives from planning permission as residential development. For example, if planning permission restricted the use of the land to agricultural purposes its value may not even reach £1 million
Associated British Foods, parent company of British Sugar, still owns the site. The grant of planning permission increases the value of their site by £100 million – possibly more. As developers of the site they may engage in a useful economic activity but as owners of the site they receive a bonus of £100 millions for doing very little. As owners, all they need to do is get planning permission for the site and then sell to another developer.
The question here is “Who owns planning permission?”. Government or local government institutions are giving enormous amounts of wealth away in the form of planning permission. Under current tax laws, the state may capture a few percent of this value. There should be better ways, which capture more of this value.
Less rigid plans
An important part of local plans is the maps which identify changes of land use. Once a map has been drawn showing an area as housing, industrial or agricultural, the values of the land are set – and that value now resides with the land owner. In the case where land-owners have sold options on their land, the value resides with the option owners. An important point here is that to be enforceable a option on land must be registered with the UK Land Registry.
Here I propose that local plans (previously called Local Development Frameworks) should avoid the use of maps which rigidly specify future land uses but are written in a way that is more flexible allowing different scenarios which will be dependent on inevitably changing circumstances. The current planning process is based on the assumption that the best possible plan for the future can be devised. Not only is this unrealistic, it gives away the planning authority’s hand in the negotiations with developers and option owners.
The Localism Act inserts financial considerations as material in deciding on planning applications. The map defining future land use sets the – sometimes enormous – value of the planning permission that development status brings. Thus, the biggest financial consideration is determined as a consequence of the plan prior to the consideration of any planning applications.
Plans should avoid the use of maps which rigidly designate areas as being of a particular use. They should say things like (using York as an example) “We will grant planning permission for 1000 homes a year. We suggest 500 might be located near public transport hubs on the south and west of York near the outer ring road.” A less rigid approach like this can be made easier by the following proposals to capture more of the value of planning permission for the community.
A register of land option values
To aid the planning process I propose that option and land owners should register a legally binding price at which they are prepared to sell as a prerequisite to their land being given development status. A register of land option values could begin to make sense of these “financial considerations” in the Localism Act. In the formulation of local plans, planning authorities would have as part of their considerations the values of these options. If the option values are too high then the planning authorities would refuse them development status.
But what would prevent a option owner placing an artificially low option price so that the land parcel concerned would receive development status and how does this help planning authorities recover be done and an undeserved value given to option owners when planning permission is granted? First we need to look at the roles of the options owners and developers.
Option owners and developers.
Option owners and developers should be considered as separate entities. then the planning authority should take up options and sell them to the best bid from developers for a planned development. A planning authority would make profit which represented most of of the value of planning permission.
Often option owners and developers are one and the same. Certain developers may have built up a portfolio of land options. These proposals will mean that their roles as option owners and developers are separated.
In some cases there may be one of monopolistic ownership of land options in a particular area. Such cases should be referred to the Monopolies Commission.
How will this help?
These proposals will give more power to planning authorities to shape local environments. A change in the way we live is desperately needed to mitigate and cope with climate change. Planning authorities need developers that can rise to this challenge. These are not necessarily the developers favoured by the option holders. We need the separation between option holders and developers to create an efficient market amongst developers and option holders separately. With the right to take up options, the planning authority will have greater power to specify the purpose of planned areas, such as designating an area as starter homes or social housing.
The planning system is designed to encourage the temptation of corrupt practices. Many believe that shady practices and undue lobbying exist within our planning system. There are almost certainly more cases of corruption than are made public. Those that are can occur accidentally. Of the Poulson case Wikipedia says
It swiftly became apparent that Poulson was at the centre of a massive corruption scandal, and in July 1972, the Metropolitan Police began an investigation for fraud. This precipitated the resignation of Reginald Maudling, then Home Secretary and notionally in charge of the police.
It is worth noting that the case only came to light because of Poulson’s bankruptcy.
Wikipedia also says
The bankruptcy hearings in Spring 1972 were assisted by Poulson’s meticulous record-keeping which detailed his payments and gifts.
Throughout the rest of his life Poulson insisted that he was simply developing advanced public relations and consulting techniques.
Taking the enormous profit out the gift of development status will reduce the rewards for “advanced public relations and consulting techniques” and make them less likely.
A good example of these advanced techniques is when a developer, who is also an option holder, asks for a development that a planning authority wishes to refuse. The developer simply has to indicate that they will fight any rejection through the courts and up to the Secretary of State for review. The threat of the legal costs has been known to influence the outcome of the application. Under my proposed scheme this would be less likely to happen. No longer would the grant of planning permission enrich the option owner by enormous sums at the stroke of a pen.
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