Thursday, 18 April 2013

The land question?

I had a bit of a daft day yesterday. Appalling diary management meant I spent most of the time in taxis in the west of Edinburgh between campus and the city centre. I'd been invited in the evening to a "Pride and Belonging" booze and nosh event at the Principal's house. Being a socialist cynic I came into this with the aim to drink the University dry and came out having rather enjoyed myself and being rather proud of the University. Which was nice.

Anyway, that's by the by. In the afternoon I was speaking at the Scottish Cities Knowledge Centre event at the University of Edinburgh's Teviot House. The SCKC is a joint initiative between Saint Andrews Uni and Glasgow Uni. I was speaking on my middle classes and diversity working, applying some of the ideas there to community planning and the Community Empowerment and Renewal Bill proposals. You can download a copy of my slides here.

Mine was a flying visit as I had to be in campus for supervision at lunch and back out for the evening do. I walked into a debate about urban design and poor housing quality in Scotland. I tweeted swiftly that I was already pondering land reform. Why was I pondering land reform?

One of the great things about the planning courses at Heriot-Watt is we make you study real estate development - indeed our undergraduate Urban Planning and Property Development BSc is joint accredited by RICS and RTPI and we also have a jointly accredited MSc Real Estate and Planning (did I mention we're the best planning school in the NSS?) I was similarly subjected to the horror of learning about the bottom line of property development when I was a planning student. And most planning students do find it very difficult - they choose the degree to save the World from evil developers. However and I'm very glad I was taught this; keep your friends close and your enemies closer.

What this taught me is two basic facts about the UK property market that most people do not understand. Firstly land values are derived from the activity that takes place on that land. To put it very simply, if you own an acre of land in the greenbelt (i.e. restricted to agriculture use) it has a negligible value - it's value will be derived from the local agricultural land market and the output and profitability of local agriculture. If you manage to get planning permission for two four-bedroomed houses which sell for £250,000 each, your land value suddenly leaps to the selling price less the development costs (when I was crunching these sorts of numbers for coursework in the heady days of 2006, this was about 25% of the selling price of homes on the land). Once you understand this, why our new build houses are crap starts to make sense. Two actors in the property marking produce said crapness: landowners want maximum uplift in the value of their land; and developers want to make maximum profits. Therefore a landowner will hold off selling their land to a developer until someone promises to build thousands of two-bedroom flats selling for £100k each. The developer will then build the worst properties they can to maximise profits. They'll be thousands of the "Victorialey" faux-mansion flat blocks that they've put all over the country because they can just run the plans off the printer. 

That is a purposefully exaggerated description of how it all works - but if you look at new developments in places like West Lothian and Fife, you'll see it's not that different from the truth. This can lead to good development of planners consider themselves as market actors, shaping markets, as argued by Steve Tiesdell and David Adams in Shaping Places (my review for Housing Theory and Society available here)

And this is why land reform matters and why it does annoy me that planners don't really get into debates about land and land ownership very much. Basically, for all of Maggie's much-vaunted pluralisation of home ownership the majority of land in Scotland and the UK is owned by very few people - a case Andy Wightman makes brilliantly in The Poor Had No Lawyers. Unlike much of continental Europe we did not have a widespread peasant-led revolution leading to distributed land-ownership, except in bizarre cases like the emergence of copyhold as a tenure. So essentially we have an oligopoly land supply facing an oligoponist housing development industry, which in turn is an oligopoly supplier of new housing. Back when I did A Level economics, non-price competition was the key way to identify oligopolistic markets - Green Shield Stamps, Esso wine glasses etc. Frankly, I'm surprised you don't get Tesco Clubcard points with a Barratt Home. 

So, with this situation in the land markets, it's never a surprise to me that we always struggle to deliver good housing and well designed places. And it's why land reform matters. For example, the new towns could compulsorily purchase land in their area at agricultural value, put in place an effective masterplan (basically telling developers what to do) and make a profit from the uplift in value to support the ongoing development of the town. This is the sort of thing we need to do more of if we're going to deliver good places. Similarly, it's why I am utterly convinced of the need for a land value tax to ensure the most economically efficient use of land.

1 comment:

  1. I often make this point about the madnesss of how land values are calculated, and I get the impression that people just don't believe me. Typically I use to illustrate why building more houses won't necessarily reduce prices.

    I don't think this is the only problem of course, but it is a biggie!

    The other elephant in the room is how we value property (I'm pointing the finger at estate agents and mortgage companies here). One company builds a really basic 3 bed home, with minimal insulation and undersized rooms. Another builds a more generously sized 3 bed home in the same area with much better insulation and maybe an extra study. In all likelihood, they will be given an almost identical value.

    Worse, some more forward thinking housing developments, maybe utilising pre-assembled units, are often valued lower as estate agents argue that the lack of bricks will scare buyers.

    The result is that major hosuebuilders continue to build houses of the minimum standard, selling at the maximum market price.

    A land value tax sounds a pretty big change, but I'm unsure if it is dramatic enough to sufficiently shakeup all the vested interests and market peculiarities that we currently see. Depressing :(