On the 28th of February 2024 the Competitions and Markets Authority (CMA) is to report on their market study of housebuilding. The purpose of the study is to consider whether housebuilding
'Has or may have effects adverse to the interests of consumers, and to assess the extent to which steps can and should be taken to remedy, mitigate or prevent any such adverse effects'.
An important element of the study is that of housebuilder land banks, and the study proposes to consider:
The quantum of land held as a land banks.
The role of land banks.
Whether the retention of land banks strengthens housebuilders positions within local markets.
Despite the Letwin Review of 2018 finding no evidence of speculative land banking, the issue of land banks remains a focus of criticism of housebuilder practice at a political level. In October 2023 Labour’s opinion on the subject was voiced by Angela Rayner, that labour would
“Bring to and end land banking”.
This coming close on the heels of Michael Gove stating
"It is completely unacceptable for developers to sit on land to drive up prices”.
Interestingly, Wikipedia defines land banking as 'The practice of aggregating parcels of land for future sale or development'. It’s very hard to quantify how much and what the definition of land banked land is. Does this also include land which is not consented but in control by means of strategic land agreements (options & promotion agreements?
In 2021 the ‘Local Government Association’ (LGA) reported that in the 10-year period to 2021 2,782,300 houses were granted consent, but only 1,627,730 had been delivered. Within the suggested c.1 million consented homes which were not delivered it's hard to ascribe the proportion that represent land banks. Only a proportion of these 1 million consented homes will be held in housebuilder land banks, the remainder being consented sites which I suspect are controlled by land promoters, public bodies, smaller development companies, trusts and private individuals.
The quantum of such land which is both consented and undelivered and under control (promotion/option agreements) would be very difficult to establish.
In the recent CMA paper, Planning and Landbanks – Working Paper’ (15th Nov 2023), it reported that as of 2022, the 11 largest housebuilders together own or control land equivalent to c.1.17m plots across England, Scotland and Wales. The totality of land banked land in the UK will well exceed this when land in control, without planning consent, is added.
Critics of housebuilders consider that land banking is intentional, to take advantage of increasing values and to control and manipulate markets. The practice is seen as a mechanism to distort the supply of new homes and to exclude others from the market, notably the SME and smaller housebuilders.
The main response/explanation from housebuilders is that land banks exist because of the difficulties and extended time to achieve planning consents. This has generated a requirement to have a forward supply of immediate and longer-term land to maintain a stream of future sites. Furthermore, the housebuilders state that the numbers are distorted and the whole situation exaggerated.
It seems though that the CMA maybe coming round to the housebuilders opinion of the matter.
The CMA provided an Update report in August 2023, following stakeholder engagement and emerging analysis. The report seems to already acknowledge that there are commercial reasons for holding onto land as seen in the following statements:
'There are good reasons why a housebuilder may wish to maintain significant land banks. As we note elsewhere in this document, the need to gain planning permission on a piece of land before building commences creates uncertainty around when, if ever, it will be possible to begin building on a particular site. Other factors, such as local market conditions and the availability of skilled labour and other resources may mean that building on a site may need to be delayed. Having a supply of land that can become ready to build on at different points may therefore help builders manage these uncertainties to maintain a steady stream of properties coming to the market'.
'We are also exploring whether large land banks are a symptom of other aspects of the housebuilding market not working well. We are exploring whether aspects of the planning process mean that the holding of large tracts of land is important for the efficient management of risk and cost '.
In my opinion Land banks do exist, but I do not accept that they exist purely to increase value, manipulate supply, and exclude others. They exist because of a planning system that is complicated, uncertain and slow. Additionally, competition for housing land remains strong, so opportunities are not as ready as they recently were (glut of land promotion opportunities post the 2008 recession), so the creation of a land bank to ensure future supply becomes a strategic necessity.
Pre-recession (2008) the large format supermarkets were accused of similar during the end period of their expansion, when the reality was that delivery was often underpinned by complex urban land assembly and planning consents were hard won, necessitating holding land over long periods of time.
I am hopeful that the CMA report in February will remove the myths around land banks and see them as a necessity within the problems of the current planning system.