Landowners make £13bn profit in one year, as high land prices stifle affordable housing

Landowners are pocketing billions of pounds of profit every year just for getting planning permission, which raises prices and makes it harder than ever to buy land for new social housing, according to the Centre for Progressive Policy and the National Housing Federation.

19 September 2018

A new report shows that landowners in England made more than £13bn in profit in 2016/17 alone (1). In 2014/15, the figure was £9bn, the research from the Centre for Progressive Policy has found. This means that profits have increased by around £4bn in only two years.

Landowners’ total profits are more than the global profits of Amazon, McDonald’s and Coca Cola combined (2). Meanwhile, in the UK, the six biggest energy suppliers made a combined profit of £913m in 2017 (3).

At the same time, the National Housing Federation has found that organisations trying to build social housing are increasingly outbid on land by private developers.

On the day of the National Housing Federation’s Housing Summit, both are urgently calling for a radical overhaul in land sales so this profit is captured, and put to use funding much-needed new affordable housing and infrastructure, like roads.

Today’s new report reveals that agricultural land now becomes 275 times more expensive once it receives planning permission, even before a single home is built. Two years ago, planning permission increased the value of farmland by around 100 times (4).

If more of this “uplift” in land price was captured, today’s analysis reveals that the Government could use it to build as many as 100,000 much-needed affordable homes every year, as well as vital infrastructure. In turn, these new homes could help bring down the Government’s £25bn housing benefit bill, which helps people on low incomes to afford expensive rent in the private market (5).

Meanwhile, housing associations across the country are increasingly struggling to afford land for much-needed new social homes. Private developers often build fewer affordable homes, allowing them to sell more homes for high prices and so pay more expensive prices for land. This practice is pricing housing associations out of the market for land:

  • Staff at Stafford and Rural Homes (SARH), in Staffordshire, have placed bids on ten sites so far this year, but they have been outbid on all but one. On one site, SARH planned a development made up entirely of affordable homes on public land, but were outbid by a private developer, who sold the site for a profit shortly after, without building any homes.

  • Housing Plus Group bid for a plot of disused public land in the West Midlands to build a development made up entirely of affordable homes – their offer was rejected in favour of plans for a luxury care home where the developer offered a higher price for the land. That fell through and a second developer was selected but the development was delayed by two years and it is not yet known how much affordable housing will be built on the site.

The National Housing Federation and the Centre for Progressive Policy are urgently calling on the Government to radically reform the way that land is bought and sold to help tackle the housing crisis. Ministers should change the law to allow public bodies to capture the increase in the value of land that comes when it is granted planning permission. This money can then be used to fund much-needed infrastructure and social housing.

This is a significant step, but could be achieved through a relatively simple change to one law (the 1961 Land Compensation Act), bringing the UK into line with most of Europe and Asia. This would not be unprecedented in Britain – this policy is how the Government built new towns like Stevenage after the Second World War.

David Orr, Chief Executive of the National Housing Federation, said:

“This research shows the astronomical sums that landowners have been able to pocket, before they even build a single new home. At the same time, the numbers of people in desperate need of social housing is sky rocketing – we have to build 90,000 new homes for social rent every year to meet this need.

“In the face of a disastrous housing crisis, it is clear that the broken housing market is simply not delivering. What’s more, the way we buy and sell land is the key cause. Now, we need a fundamental rethink to tackle this fundamental problem.

“Our proposal would be a significant step, which would show that the Government is truly determined to tackle the housing crisis. There are also other steps that that the Government can take straight away, such as ensuring at least 50% of homes built on disused public land are affordable to people on the lowest incomes.”

Thomas Aubrey, adviser at the Centre for Progressive Policy, said:

“This report provides further evidence how city and county regions can use the uplift in land values to help fund the infrastructure and affordable housing that the country urgently needs. People need to be connected to jobs and close to schools and hospitals. By reverting to how the country built the garden cities and the new towns, the government could create economic opportunities for everyone and enable a far more inclusive form of economic growth.”

Housing associations raising the alarm about the price of land

  • Will Gardner, Director of Development at Home Group in the North East says: “We have actually had to stop bidding for sites across the country over the past couple of years, because we could only make offers that fell far below the prices sellers expect. It’s a really serious situation. Undoubtedly, there are fewer affordable homes being built as a result.”

  • Jigsaw Homes Group, which operates in the North West and East Midlands, have also had issues with the high price of land. “We’ve lost out on four sites in the North West in just the last two or three months,” Garnet Fazackerley, the Operations Director for Development, explains. “Bidding is highly competitive and finding enough land is getting harder. We find it difficult to compete with private developers, and so we do miss out on a regular basis.”

  • Staff at Grand Union Housing Group say: “We have lost out on several sites all across the East of England, South East and East Midlands. In so many cases, this has been because the eventual winner has built far fewer affordable homes than we planned to, which allowed them to pay more up-front for the land.”

  • For Notting Hill Genesis, this has been a major problem in London. “Now, the high price of land means we are putting forward far fewer bids for sites,” their development director explains. “This is exacerbated by the price rises caused by the Help to Buy programme and planning permissions that allow low levels of affordable housing to be built. We can’t compete with private developers while still providing affordable housing”.

  • Nottingham Community Housing Association has been outbid for sites across the East Midlands. “We are seeing very high construction costs”, their head of development says, “which exacerbates high land prices – very soon there might not be enough affordable homes to meet local people’s needs”.

  • The high cost of land is a major issue for Longhurst Group, alongside concerns about construction costs and availability of materials. In high-value areas, particularly parts of the East Midlands and East of England, Government grants do not cover enough of the costs of building affordable homes. “We want to build as many affordable homes as possible,” one staff member explains. “Private developers aren’t as concerned about this, so they are generally able to pay more for land. This means we are being more selective about which sites we bid on, because we know we are likely to be less competitive.”

References

  1. A new study, conducted by the Centre for Progressive Policy, shows that private landowners made pre-tax windfall profits of £13.359bn in 2016/17, as a direct result of land being granted planning permission. 
  2. Profit data taken from MarketWatch: AmazonMcDonaldsCoca Cola.  
  3. Taken from Ofgem, Domestic supply profits in £ million by supplier
  4. See, for example, Onward, Sharing land value with communities: An open letter
  5. Taken from National Housing Federation, The growing Housing Benefit spend in the private rented sector