Owners wait for the value of the land to increase, or obtain planning permission to develop the land, and then sell it at a profit, sometimes having broken it into smaller parcels of land. Land is seen as an attractive investment as it is a finite resource, historically it has increased significantly in value, it requires little looking after and cannot be lost.
Land owners can wait many years before selling the land, during which time it will often remain empty, even if it is a developable site and there is a demand for property in the area. This can create blighted sites in key areas of communities that sit vacant for years, having a negative impact on the area and preventing other developments from taking place.
In cities such as London, the rapid increase in the value of land can make land banking a lucrative investment, however, by tying up sites, it can also prevent the demand for property from being satisfied, a demand which is the key cause of the increase in value of the investment.
Land banking can also refer to sites for which planning permission has been granted, but where no construction work has begun, or where minimal construction has been undertaken to satisfy planning requirements that construction should start within 3 years of permission being granted. However, these may simply be stalled sites, where finances are not available to continue the works.
In August 2013, the Local Government Association (LGA) reported that despite the urgent need for new housing, there were 400,000 homes with planning permission that had not been built (although these figures were disputed by Planning Minister Nick Boles).
The charge of ‘landbanking’ is often directed at property developers. In particular there is a belief that developers regulate the supply of land in order to artificially inflate prices. In 2014, then housing spokesperson for the Liberal Democrats Stephen Knight said, "…developers can get away with digging a hole in the ground weeks before their permission is due to expire in order to keep their planning consent alive, with no intention of actually carrying out full development for years to come."
However, a 2012 report for the Mayor of London, Barriers to housing delivery, what are the market-perceived barriers to residential development in London? found that 45% of housing planning permissions were not built because the owners were not developers at all. Instead, they were owner-occupiers, historic land owners, the government and investment funds. In contrast, property developers generally wanted to build as soon as possible. Similarly, a report published in May 2014 by the Home Builders Federation (HBF), Permissions to land – debunking the land banking myth suggested that only 4% of the land owned by Britain’s larger home builders had an implementable planning permission but had not started on site.
Stewart Baseley, Executive Chairman of the Home Builders Federation said, “When you look beyond the rhetoric and the lazy accusations, the facts are quite clear: house builders do not hoard land or landbank unnecessarily.”
Proposals intended to combat land banking include the introduction of ‘use it or lose it’ powers allowing planning authorities to pressure owners to implement permissions more quickly. Alternatively, an annual land value tax could be introduced on all land other than owner-occupied properties to increase the incentive to put land to use.
The Financial Conduct Authority (FCA) identify land banking as a potential scam investment scheme, whereby land is purchased, broken up into small plots and then sold to individuals, sometimes from outside the UK, looking to cash in on the property boom. However, plots are often sold at very high prices, with the suggestion that they can be developed and good returns achieved, even though the land in question actually has no possibility of being developed. The FCA state, ‘Land banking companies divide land into smaller plots to sell it to investors on the basis that once it is available for development it will soar in value. However, the land is often in areas of natural beauty or historical interest, with little chance of it being built on.’
In June 2015, eight men were been convicted for running a £4.3 million land banking investment scheme, following an investigation by the FCA.
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