From The Land Newsletter Summer 2007:
13THE MONOPOLY ON BUILDING LAND
"It's as if you went to the shops to buy flour, and found Tesco had bought up the entire supply and turned it into sliced bread."
Chapter 7 is constantly contacted by people who want to build their own house. We have to tell them that there is no provision within the planning system for individual self-build, low impact or otherwise, other than buying a windfall site on the market at a price usually in excess of £100,000.
The government says it wants to provide affordable housing. But it does not provide affordable land for people to build homes on. In the entire canon of national planning policy you will not find a single mention of self-build housing anywhere. Nor will you find any mention of it in the Review of Housing which Kate Barker's carried out for the Treasury in 2004 . The system is founded on the unquestioned assumption that housing provision is top down, and the providers at the top are large scale developers and housing associations.
Thanks to the structure of the UK planning system, large housebuilding firms have a near monopoly on building land (from which they are obliged to peel off a proportion for the Housing Associations). There was a conspiracy of silence about this monopoly for many years until the Barker Review raised the issue of lack of competition in the housing industry. Now, interestingly, the matter has been taken tip by the Office of Fair-Trading (OFT).
"Land is a Scarce Good" (Kate Barker)
In 2005 TLIO member James Armstrong wrote to the Office of Fair Trading requesting that house-builders’ land banking practices should be referred to the Competition Commission, because they were an unfair monopoly. A representative of the OFT wrote back:
"The Director can refer monopolies to the Competition Commission ... However the legislation only allows for references to be made in respect of commercial activities involving the supply of goods and services. Having taken advice on this matter, it is my understanding that, for the purposes of the statute, the supply of goods and services does not cover the ownership of land."
But now the OFT appears to have changed its mind. In June it announced that it would carry out a market study into "how competition and the planning system affect the delivery of new homes." The study was needed because "the market for housebuilding is not working well and there appears to be significant consumer detriment in the form of low supply response to sustained rising prices," — or in plain English, house-prices are going through the roof. The OFT also observed that there had been no improvement since the publication of the Barker Review in 2004.
The press release states that the OFT "does not consider it appropriate to make a market investigation reference to the Competition Commission at this time," but does not rule out the possibility "if the OFT finds that the Competition Commission’s powers to gather information and impose remedies are required". The OFT also has the power to fine companies up to 10 per cent of their turnover. Recently they fined Argos £17 million for fixing the price of toys.
Their press release identified two key issues for the study: "The first is how land that is suitable for development is brought through the planning process. The second is how land with planning approval is converted into new homes."
Who Turns the Tap?
Let’s take the second of these first. The current debate about housing provision is one of those Tweedle-dum versus Tweedle-dee scraps that mainly serve to obscure the root of the problem (see box on next page). One camp, currently headed by the Royal Town Planning Institute, claims that the top ten housebuilding companies are hoarding land with permission for 225,000 homes from which they "drip feed" houses at a rate which ensures that the price stays high.
The housebuilders respond that this is less than a year and a half’s supply, and that anyway it is all the fault of the planning system, which drip-feeds too little building land, and then delays the construction process with negotiations about Section 106 agreements, highways infrastructure and other legal hurdles.
As the Barker Review suggests, both these factors probably contribute to delay, scarcity and high prices. Meanwhile, the green left (including TLIO) is split between the those who think that housebuilding companies should be pilloried for sitting on land that has permission for housing, and those who feel that the longer it takes them to cover countryside with their concrete boxes the better. Socialists opposed to economic growth argue that there are enough buildings in this country to house everybody adequately already — the problem is that not everyone in need has access to them.
How to Secure a Local Monopoly
All the above disputes revolve around the secondary matter of what the housebuilders do with their monopoly, once they have acquired it. The primary question is how they get it in the first place — or as OFT puts it "how land that is suitable for development is brought through the planning process".
A classic example of how this happens is given on page 157 of the Barker Review's Interim Report . In the early 1990s, housebuilding firm Croudace approached the owner of green-field land near Basingstoke and took out an option agreement — i.e. they paid the landowner an undisclosed sum on the understanding that if ever the land should be allocated for housing in the Local Development Plan, then they would have first option to purchase. Croudace then immediately set about lobbying the local authority to get the site allocated for housing in the Plan.
In 1998 the land was allocated in the Plan. Croudace submitted an application for 800 houses. After two years negotiation about Section 106 agreements and Highways issues, outline planning consent was given in 2000. Detailed planning consent was given two years later, and building commenced the following year.
Self-build as a percentage of owner occupied housing in various countries. The UK at the bottom. From The Whole House Book, by C Hams and P Borer.
This is a typical scenario and it would be hard to devise a system of land allocation better designed to breed corruption. Having secured a large acreage of land for next to no investment, a building firm spends four or five years using its promotion machinery, local connections, entertainments budget and who knows what other undisclosed sums persuading planners to draw lines on a map that will increase the value of the land from about £3,000 per acre to well over £1 million per acre.
The result of this system is that when a community’s land is allocated for development nobody who wants to build their own home has a hope in hell of getting hold of any of it because developers have bought up options on it years before it was even allocated for housing. They'll sell you one of their crappy homes, but they won’t sell you the land. It's like going to the shops to buy flour, and finding that Tesco have bought up the entire supply and turned it into sliced bread.
Moreover, as Barker points out, large sites tend to be sold to one company, rather than several "because competing house-builders would not be able to charge ‘monopoly prices’ for their output" (Interim Report p. 88) and therefore the land is worth more to a single buyer.
This stranglehold on housebuilding land held by companies (whom everybody, from John Prescott to Kate Barker, agrees turn out poor quality houses) is a main reason why self-build in Britain constitutes less than 10 per cent of the housing market, lower than in any other country in Europe. (See table) And as the Joseph Rowntree Foundation revealed in 2001, whereas self-build used to provide a way for poor people to secure a starter home, it is now mostly an option for wealthy people seeking a custom-built luxury residence.