Community Land Auctions are an exciting idea to capture land value for the community. They have long had broad cross-party support. Some vested interests are not keen on them, but there is every reason to try a pilot as the Government currently proposes.
Granting planning permission to build homes on a piece of land can sometimes increase the value of that land by a hundredfold. That is because homes – and permissions to build them – are so scarce in areas with easy access to high-wage jobs, like York or London. In such places, it costs far less to build a home than the price at which you can sell it: sometimes only a quarter as much. That difference is reflected in the hugely increased value of the land as soon as it receives permission to build homes.
Under the current system, most of that increase goes to the landowner – and the consultants and lawyers that landowner pays to help them get permission. With the power to run these auctions, local authorities could capture much more of the land value uplift associated with granting planning permissions by effectively auctioning them off. This is money they could use to fund vital local services and to make sure that the wider community benefits when it hosts new development. Land value capture is a ‘holy grail’ for many housing campaigners, which is why so many, including IPPR, the Resolution Foundation and the former heads of the RTPI and the RIBA, support Community Land Auctions, even if they might disagree with the Government more generally.
Community land auctions, initially proposed by economic historian Tim Leunig for Lib Dem think tank Centre Forum, have a simple structure:
- The council invites bids from local landowners
Landowners submit sealed offers of land to the local authority, along with the price they are willing to accept for their land. This gives the council the power to buy that land at the price if they want. - The council picks the best site(s)
The council decides if they want to permit development on any of the offered parcels of land. They pick the land that is most suited to development for the community’s needs, weighing up the payments that can be used for infrastructure and services. They also decide how many homes and of what types can go there. - The council auctions the land to developers
The council invites developers to bid to develop the site. They select the winning bidder, who then buys the land and develops in line with the council’s permission. The council keeps the difference between what the developer pays and the price the landowner offered.
Benefits
This approach has various benefits – not least that the local authority captures most of the value uplift. Landowners have a strong incentive to offer their land at a price low enough to be selected rather than other landowners, and developers need to offer more than their competitors to win the land in the second stage. That maximises the difference between purchase and sale price and thus the revenues to the council. Because it is a purely consensual process, it involves no costly legal disputes about valuation (as are common with Compulsory Purchase Orders).
Development through community land auctions would provide substantial funds to actually improve vital local functions, build new infrastructure and generally offset the negative impacts of new development. That could include more school places, a new GP surgery, green transport services and more. With CLAs, councillors would have the ability to ensure that development both improves the local area and delivers for local residents.
Objections?
The Government is currently planning to trial community land auctions for ten years as part of the Levelling-up and Regeneration Bill.
But a predictable series of vested interests is lining up to oppose the policy. Some major landowners stand to lose because they would have to share the value uplift from planning permission with local people. There is also an enormous industry of consultants and lawyers who make their money by helping landowners to navigate through the UK’s fiendishly complex planning system to get permission.
Some of the objections against community land auctions are quite funny, especially when you remember that they come from brilliant people who are currently making enormous amounts of money – literally millions of pounds a year, in some cases – from people who need help with the difficulty of getting permission in the current planning system.
The incoming head of the Economic and Social Research Council, Stian Westlake, recently tweeted:
Economists and others interested in examples of rent-seeking in the wild should take a look at the current debate on Community Land Auctions, where people who make mega-£££ from the current dysfunctional system are trying to stop a pilot of a far better system.
Here are the concerns from a few people with vested interests in the current system. I hope you find them as amusing as I did.
‘Too complicated’
This concern is, presumably, because the current system is so blissfully simple that anyone could navigate it without professional help. I defy anyone to read the entirety of Richard Harwood KC’s magisterial tome, Planning Permission (which of course, only covers a part of the current planning system) and then to come back and tell me, with a straight face, that community land auctions are more complicated.
‘Conflict between best places and best returns’
Again, this is hard not to giggle about. There are a few flawed assumptions in this argument. The first seems to be that every new place built since 1947 has been of exceptional quality. What do you think?
The second assumption seems to be that raising more money to spend on higher-quality greening and infrastructure might never raise the quality of a place. That seems… wrong.
The third assumption is that local authorities currently have a totally free choice in which sites to allocate, rather than being restricted to the landowners who have chosen to submit this or that site, potentially in the context of a long-term strategic game – advised, no doubt, by some very expensive advisors.
‘Why not just tax them?’
And now we come to the heart of the matter. An auction process, by allowing competition, can ensure that more value goes to the community. Over the last sixty years, various attempts to impose taxes, levies and the like have created lots of lucrative games with structuring and viability assessments, but have meant that often far less of the value goes to local people than it should.
‘Harmful to the principled operation of the planning system’
One good and helpful comment is that it might be difficult to fit Community Land Auctions in with the local plan preparation process – which is an enormously complex and costly undertaking that only happens every five years. There is no reason for the legislation to require councils to wait for a new local plan before doing a CLA, as the current Bill does.
It would be a good idea to also allow councils to choose to do a CLA using a Local Development Order, at any time they wish, as well as during the local plan process. I hope the Government takes note of that suggestion while there is still time to add it to the Bill in the House of Lords.
‘Large amount of work’
There will no doubt be some work – but not enormous amounts, and mainly only for the selected sites. The legal process of transferring rights in land is much cheaper and simpler than planning. The current local plan process, together with all the associated litigation and appeals, often takes many people-years of work per plan. And the costs of CLAs could, in many cases, pay for themselves a hundred or a thousand times over. Where a CLA may not be worth doing, councils generally won’t bother. That will allow the councils where the potential is greatest to pilot the scheme.
‘How will it play out?’
A few comments seem to struggle to grasp how councils might choose to weigh the benefits of different options. But councils have to do that all the time – as do voters. It is perfectly reasonable to consider every option with all of its benefits and disadvantages – environmental, economic, social. If a slightly more distant site will bring in vastly more money for greening, infrastructure and social services, it is perfectly reasonable for a council to choose to allocate that. It is only the current planning system that seems to have forgotten that money exists, except when it comes to charging fees and legal costs.
‘The current system already minimises land values’
Even if this were true – and it seems highly doubtful, given quoted prices for land – the goal should not be to minimise land values by spending as much money on expensive processes as possible. The goal should be to capture as much value for the community as possible. That is what CLAs set out to do.
‘Where’s the community part of CLAs?‘
With CLAs, the community elects the councillors, who collectively make a decision about which sites will deliver the best outcomes for the community. It’s slightly confusing how anyone might think that a system driven from Whitehall of targets, appeals and litigation is more ‘community’ than that. Of course, I can understand why a community of high-earning experts on the current system might not be too thrilled about CLAs. Perhaps that’s the community they meant.
‘We don’t have time to try this’
I’m going to leave this one here. It’s just too funny.
Another answer to most of the objections above is that, even if they were true, there is no harm in allowing councils to try the pilot if they want to. The pilot will only operate where a council chooses to opt in. Why not let them see if they like it?
Piloting community land auctions won’t solve the UK housing crisis overnight. We need to learn more about how they will work, and how to make the most of them and that takes time, especially if they can only be done when a new local plan is being written. But that’s why trials are so important and why we should support their introduction. By giving communities a fair share of the value uplift we can help local people feel like there’s something in it for them, that new homes are also helping make their area a better place. It will also help fund vital local services at a time of incredible pressure on budgets. This means that, hopefully, people will be less likely to object to new homes and we’ll see more and more popular development delivering the homes we so desperately need.
