LibLink: Tim Leunig – Land auctions will help give us the homes we need

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.

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10 Comments

  • Tony Greaves 20th Mar '11 - 3:31pm

    I am sorry that this nonsense has been resurrected. But I suppose it’s the kind of silly stuff we can expect from the Centre Forum.

    Tony Greaves

  • patrick murray 20th Mar '11 - 6:49pm

    easy to say tony if you’re a cllr in the north – if you’re in the south east where there is no land available due to planning restrictions then this is one of the only ways you can get affordable housing in areas of high demand.

  • “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 suspect most farmers know their land is worth far more for housing than for farming.

    But is the unwillingness of land owners to part with property (for a massive profit) the big stumbling block in house building?

  • @Patrick – it assumes that landowners will sell there land at a much reduced value. If they want to do that for altruistic reasons they can do so now.

  • Nicholas Lane 20th Mar '11 - 9:15pm

    @Tony Greaves

    Why is a proposal such as this necessarily nonsense? Some Centre Forum ideas have been interesting and worth looking at seriously, some less so, but this is true for all think tanks. Just dismissing ideas like this out of hand without debating the issues does not befit a member of the House of Lords.

    As to the proposal itself, it seems to me that it would operate to deny landowners of realising the true value of their land and handing the difference to local authorities? The sums involved seem potentially to be quite large, too. Firstly I am not sure that this is desirable and secondly, won’t this act as a slight disinsentive to landowners agreeing to take part? Most will surely wish, if seeking development investment, to realise the full value of their land and will take steps to do this rather than come to an agreement to sell their land to the local authority at a huge undervalue? If Tim Leunig is reading this thread it would be good if he could make some comments on other peopls’s points of view.

    Nicholas Lane

  • On a related note, there are various noises coming out of the coalition about sweeping changes to planning laws to encourage more housebuilding. According to Mr Cameron, planners are “enemies of enterprise” and Mr Cable adds that the standard answer from planners should be “yes you can build”, not “no, you can’t”.

    In fact, around 85% of planning applications are approved already. Sweeping away planning guidance and rights to object could result in houses (or supermarkets) being built in totally inappropriate locations, adding to traffic problems and congestion, as well as undermining traditional town centres.

    And how exactly does this new freedom to build fit in with “localism”? I thought that was all about giving more power to local communities, not taking away their rights to object to new developments. Remember all the fuss the Tories made in opposition about Labour’s “top-down” housebuilding targets? Now it seems they’re going to be resurrected in the name of “enterprise”!

    I suggest councillors (of all parties) keep a very close eye on this one.

  • I have just spotted this, and am happy to reply to the questions.
    The LGC article is here for those who do not subscribe: http://www.lgcplus.com/briefings/services/housing/planning/land-auctions-will-help-give-us-the-homes-we-need/5026985.article. It was also endorsed by Sam Brittan in the FT on Friday, as the best idea to promote growth currently doing the rounds: http://www.samuelbrittan.co.uk/text391_p.html.
    I think that the policy was first accepted by conference (as part of the last FPC housing group, on which I served), then rejected in a specific motion, and then accepted at the following conference. It is already party policy! (Michael Gove also adopted it as Tory policy, when he covered housing, perhaps the first case of Lib-Con agreement?)
    The reason landowners will play along is the same reason that you can buy milk cheaply, or baked beans, or computer printers. The seller has an incentive to offer you good value, because if they don’t, you will go elsewhere. The current planning system does not allow that – we say “this piece of land is going to be built on, and no other”. At that point the land owner can hold society to ransom – which is why, in parts of the south east, land sells for a Kings’ ransom. Landowners can’t develop at the moment without planning permission, under this system they could not develop without going through a CLA.
    Under community land auctions, all land owners have an incentive to undercut each other. When I test ran it informally I found that about half the farmers were willing to sell for twice “fair agricultural value”, and all that I spoke to for 5x “fair agricultural value”. That is why I assume in the LGC article that they would sell a farm worth £1m for £2m, which is still quite a nice bonus. (In passing, if any reader wants to buy my house for £1m more than it is worth, do get in touch). So I think that is pretty realistic. The £100m figure comes from government stats.
    So there is no altruism here – any more than Viking etc are altruistic when the offer good prices on A4 paper for us to print Focus on. It’s competition, nothing else.
    Nor does it get rid of the planning system. Local authorities can still say no to housing (or supermarkets) in general or in specific locations. AONB.SSSI, etc all remain. But it does mean that LAs that allow more houses will make a lot of money by allowing new houses. That gives them a greater incentive than at present to say yes. Although most applications are approved today, many prospective applications are not made, because people know that they will not be approved. CLAs are entirely compatible with localism. All existing rights to object would be preserved.
    The effects are:
    - More houses will get built, particularly in places where affordability is bad.
    - Prices are less likely to rise. If we can keep prices stable for a decade, affordability will increase by about a third compared with today and houses will be about twice as affordable than they would otherwise be. Rents will become more affordable as well
    - As prices become more affordable, so do monthly mortgage payments, reducing financial stress and repossessions in recessions
    - As market rents become more affordable, housing benefit bills fall – by perhaps £5bn a year after 10 years.
    - As market prices and rents fall, some people leave social housing voluntarily, and others do not need to join the waiting list, freeing up properties for those who need them.
    - People will end up in less cramped houses
    So if my contribution to society is to have devised a refinement to the current planning system that leads more people to be able to afford a place of their own, that reduces overcrowding and social housing waiting lists, that makes people less vulnerable in downturns, and cuts £5bn a year of the housing benefit bill, then yes, I think I have earned my CentreForum salary, and yes, I think CentreForum has done something useful!
    Best wishes
    Tim
    PS To Tony Greaves – CF also championed the pupil premium, and I am about to launch a paper on how to reduce university fees. Are these bad things too?

  • Tim is one of the most intelligent, creative thinkers we have in the Party. I doubt anyone agrees with every idea he comes up with or every view he holds but he’s already a one-man think tank, so Centre Forum are very lucky to have him!

    More generally, I think we need to be wary of the kind of knee-jerk reaction to any idea just because we don’t like other ideas coming from the same stable. I hope we can all accept that from time to time even Labour & the Tories have some good ideas (ok, it’s rare, I know), so I think we do Centre Forum a disservice to dismiss out of hand any ideas they produce.

  • The whole problem with the UK is greed, instead of seeing the house as a home some see it as another bank balance, we have had boom and busts (Housing) and we still have not learned, I hear talk about social housing and yet the stocks of housing for rent are low, it is all well and good selling land to build housing but we are then just waiting for the next boom and bust cycle, the government need to stop this problem and yes it is only a problem government can sort out, the problem is no government wants to…

    We need at least 50% of the UK housing to be protected good quality rented accommodation; mortgages on properties should be 30% – 50% of value, land prices have got completely out of hand and need to be sorted.

    Look at the German model they don’t have this boom and bust cycle caused by property, governments in the past have caused this state of boom and bust by removing protection from rented accommodation, there used to be fair rents that protected people now land lords charge whatever they can, for some the properties are not fit for purpose and yet not enough protection is offered to those who rent.

    Until we take rented accommodation seriously and protect those who rent we will never change this cycle of boom and bust, market forces are killing this country slowly and we are doing nothing, other than waiting for the next bust cycle to come and ruin our economy again.

    We hear a lot about affordable housing, I think the government should look at what the people at the bottom those not on average earnings, just more housing benefits, what are we going to do, we will eventually have tent cities springing up because of the failure of governments to sort our housing problem out, market forces will kill this country and we are being led meekly to the slaughter.

  • David Rundle 1st Apr '11 - 10:18am

    OK, so it’s an idea worth trying. But the question is whether the authorities who should will try it. There’s an assumption, as so often, that people will act logically (where logical is assumed to equate to in their own self-interest). But what happens if a council is popular precisely because it keeps large green space and stops the masses pitching up in the area? So they don’t get an extra cash bonus — councils and their voters might consider that a fair exchange. Those on the housing lists in an authority next door might not be so happy.

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