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Targeting land banking is only tackling a symptom, not providing a cure

The UK and Ireland are both worried about land banking, but the common denominator is their planning systems.

Blog post published on 23 January 2023 by Stuart Bridgett

Ireland has a very similar planning system to the one in the UK. It therefore comes as no surprise that the problem of ‘land banking’ – the buying up land earmarked for development without starting construction – is also a problem the other side of the Irish Sea. Policymakers there are falling into the same trap as here to address it, targeting the symptom rather than the cause.

The similar planning systems of the UK and Ireland are producing the same problems

Both countries’ planning systems encourage land banking because they create an uncertain and scarce supply of sites for development, and so in response private firms land bank to build a pipeline of sites they know they can work on.

Two aspects of the planning systems are responsible for this -discretionary planning decisions and the rationing of land.

In both planning systems, getting planning permission to build can be costly, lengthy, and risky – even in places where building is allowed in theory. The decision on whether to grant planning permission is based on comparing the proposed development to complex local and national plans, a relatively discretionary assessment.

These barriers seem even higher in urban and suburban areas, where there are more stakeholders and plans are more complex. In Ireland for example, 15 per cent of planning applications for new residential developments were refused between 2012 and 2020, but for the local authorities in the Greater Dublin Area the refusal rates were between 17 and 37 per cent. These high refusal rates increase costs and risks for developers, and encourage more land banking, especially if they operate on urban or suburban sites.

The second similarity across both countries is that their planning systems ration new land for development. Local authorities’ development plans are expected to earmark just enough land for five or six years of future housing (depending on the country) but even if the housing requirement estimates are accurate and the local authorities comply and earmark appropriate sites – which aren’t guaranteed – these short-term plans bake-in a scarcity of new residential land, making it difficult and costly for builders to get a hold of.

To compound this, in both countries the supply of new land where it’s needed most may become even scarcer if mooted policy changes become reality. In the UK, the government is proposing to remove the obligation on local authorities to demonstrate they have five years of housing land supply earmarked if they have up-to-date local plans, along with a number of other measures in the Levelling Up Bill that will reduce the availability of land. In Ireland, conservative estimates about population growth and settlement patterns in the National Planning Framework has led to local authorities around Dublin being instructed to reduce the amount of land they’ve made available for housing – a reduction of enough land to build 100,000 units of housing. Fortunately, the Minister for Housing later committed to reviewing this decision in light of updated census data, but these examples show real risks to the already constrained supply of land for development.

Here and in Ireland, policy makers are set to penalise land banking

To discourage land banking in the UK, the Levelling Up and Regeneration Bill making its way through Parliament will give local authorities new powers to deny planning permission to applicants who have previously let planning permission expire on that site. In Ireland, the government has gone even further and is introducing a tax on land banks to encourage housing to be built quicker.

This approach merely focuses on the symptom, not the cause. Land banking is the outcome of two very similar planning systems, and it is the systems themselves that need to change if they are to work more effectively.

Focus on reforming the planning system to tackle the root of the problem

For policy makers in the UK, the lesson is clear: to tackle the housing crisis and make land banking redundant, they must make sure a steady surplus of opportunities for development come forward.

In the immediate term, the government must not weaken the five-year housing supply requirement. If they do, it will only make the land supply shortage worse and make land banking more attractive, as well as reduce housing delivery.

In the longer run, the government needs to create a planning system with a much greater degree of certainty in it. To do this it should move from a discretionary approach to a rules-based flexible zoning model, which would make the planning system simpler and more predictable. Politically this will clearly be more difficult than moves to directly target land banking. But it is the route required if we are to see any sustained increase in housebuilding.