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Auctioning Local Plan Allocations

The Centre for Cities session on ‘Land Auctions’ was a lively session with some great contributions, particularly from the CfC’s young, and frighteningly clever, policy analysts. The conclusion on ‘Land Auctions’ was that they are a stimulating challenge to the current planning system. If implemented they would completely reinvent the planning system.

The challenge for CfC now, and Tim Leunig the original proposer of the idea and for the civil servants working on the proposal, is to think through how this might look and work.

One critical observation was the need to make the system responsive to the quite different needs of different places. Much of the current debate is really just about how to deliver more houses in the highest priced areas of south east England (which is also where much of the pressure for business growth is). The politics of this are interesting to say the least.

A ‘Land Auction’ system would almost certainly involve the end of planning gain as we currently know it and it is also probably incompatible with the Government’s proposed changes to the Use Classes Order (not the first time the Government’s right and left hands have not been connected). However it probably is compatible with Neighbourhood Planning as the community could be part of the decision making process once the landowner bids were known.

The local plan would be a quite different document to those we have had historically, which doesn’t allocate uses spatially but probably would be closer to a core strategy which provided guidance on the strategic needs of the area.

There are some challenges. One revolves around timescales. The frequency of auctions and the length of the call options are critical aspects in balancing the need to give landowners a degree of certainty around when their land will be required while making the system responsive to changes in the market.

There was also a big debate about how much money would be involved. Currently s106 raises a relatively small amount compared with the amount of development and at a relatively high collection cost on both local authorities and land owners. Many planning applications don’t release significant uplifts in value as 80% of residential development is on previously developed land which often has high existing value buildings on it. It was pointed out that the uplift in land value as a result of planning was a very narrow tax base from which to raise the cost of affordable housing which would be much better raised from the wider tax base of general taxation.

There was widespread ridicule of the idea of Government piloting ‘Land Auctions’ on public sector land but in a twist worthy of Yes Minister it became clear that the Government are only piloting aspects of the proposal. These aspects seem to amount to whether local authorities are competent to give themselves planning permission and auction land. Duh! Sometimes you really feel sympathy for civil servants.

So the conversation seemed to conclude that ‘Land Auctions’ wouldn’t work with the existing planning system and that it would be really interesting to work out what a new system based on ‘Land Auctions’ would look like.

But inevitably the conversation touched on a number of ways in which the current system could be improved quickly.

This mainly revolved around the provision of infrastructure. The consensus was that the public sector needed to be able provide infrastructure (schools, public transport, utilities, public open space etc) to drive market supply rather than the current system where the infrastructure is often funded by the development, loading more risk on to the developer, reducing land supply, reducing market demand and leaving early occupiers in very poor environments.

The main focus of discussion was around the public sector taking on risk while the private sector provided the finance. This is one of the holy grails of development and regeneration but one where the Treasury attitude always seems to tend to a risk averse position that prevents public private partnerships achieving the optimum risk sharing and the most effective economic response. Of course government failure is the real risk that Treasury is trying to manage here.

The infrastructure issue was complemented by a number of other positive suggestions including:

• Using the Homes and Communities Delivery Partner Panel process, as originally intended (but not as currently used) where the public sector take or share the sales and lettings risk allowing the balance sheets of non housebuilders (particularly the major contractors on the panel) to be used at much lower profit margins to deliver new housing.

• Encouraging the mortgage market to advance money against the cost of building homes to allow the ‘self build’ market to develop to the levels seen elsewhere in the world (‘self build’ being something of a misnomer here and ‘build to order’ being a better description).

• Removing CIL and s106 planning gain for a short period of time to kickstart unviable projects.

So there is a twin challenge here. Make the current system work better while thinking through the potential for having a completely new and more effective system. Over to Centre for Cities.


One Response

  1. Consider a case where there is one preferred site for a large urban extension in an LPA – in that case the owner is in a monopoly position and bids low.

    The LPA would be in the invidiousness position of having to defend a widely scattered strategy – such as dozens of small housing sites (the owners of which would know they could also bid low) – how could they appraise this choice through an SEA, and how could landowners challenge it?

    It might only work when there are several large sites of near equal performance where the bids simply reflect what phase a site gets developed in.

    The land auction models internationally have only worked where the state is the landowner – for example in China or Singapore (land created through land reclamation) it doesn’t work in the UK situation where there are limited landowners and most sites are privately owned.

    What could work would be a model whereby a local governbment agency could auction off the rights to develop land chosen in a local plan and the original landowner would get a low % of the uplift in land value on sale, or a land tax model where all sites are taxed say one percent of their potential improved land value – the classic Henry George model.

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