Tim Leunig, CentreForum’s chief economist, has written a piece for the Local Government Chronicle on the benefits that could be gained from the introduction of Community Land Auctions. This is a policy that has been debated previously in Liberal Democrat circles, but which was rejected at party conference in 2007.
Anyway, here’s how Tim explains the policy:
It works like this. The council first asks all landowners to name the price at which they are willing to sell their land. By naming a price, the landowner gives the council the right to buy the land for 18 months at that price. The council then writes a development plan. As now, they will take into account the suitability of the land offered for development, but will also consider the price of the land, and the likely financial return to the council.
It is rather like buying a car. You know your preferences, and can choose the most suitable car. But you might buy a different one if it is much cheaper. That possibility means whoever makes the best car for you has to offer you a good price. It is how well-functioning markets work.
Having decided which land can be developed, the council auctions it to developers, keeping the difference between the price named by the original landowner, and that paid by the developer. There is no risk to the council – if no developer wants the land, there is no sale and the original landowner retains the land.
A typical 57 hectare farm in the south east – where housing is most needed – is worth around £1m as a farm, and over £100m for housing (even more in housing hotspots). Most farmers will sell their farm for five times fair value, and many for double fair value, which is, after all, a £1m windfall. (I will sell my house for £1m more than it is worth, if any reader wants to buy it!). The council therefore makes at least £95m per farm, which comes to at least £50,000 per house. That is far greater than the incentives currently proposed.
You can read Tim’s piece in full, which includes a link to his CentreForum report on this issue, here.