Are developers ‘land banking’ or ‘land saving’?

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Richard Payne oblix capital

Allow me to start with a question. When you put money away into your savings account, is it because you’re hoping to build up interest on the balance?

Is profit always your number one concern? Or are you being financially prudent, and putting money aside for when you need it?

You may be saving towards a larger outlay, perhaps a car or holiday. Any one of these reasons (and many others) are perfectly valid and would be considered as sensible forward planning.

Having savings in your account helps to keep your options open.

Why is it, then, that when news breaks of developers holding land with planning permission that they have not yet started to develop, the common assumption is that they are waiting to sell it on for profit?

Could they not just be waiting for the right time to start building?

A recent report from the Local Government Association (LGA) claims that land for over a million homes remains dormant despite planning permission having been granted over the past ten years.

Arguably this should be a good news story.

That means planning permission already exists to meet the Government’s target to build a million new homes by 2025 – it is improvements in the economic outlook that will unlock that potential.

Economics consultancy Chamberlain Walker reported in 2017 that it takes 4 years on average from the grant of detailed planning permission to site completion.

With that in mind, I would be more concerned if developers didn’t have a substantial bank of land to help meet the country’s housing needs.

Imagine the uproar if the country’s housebuilders hadn’t organised access to enough land with planning permission during the last few years, leaving them now ill-prepared to gear-up building activity.

And let’s not forget the B-word. Developers – like most commercial organisations – were less inclined in recent years to invest in the UK without knowing what was around the corner.

As Brexit uncertainty drove land prices down, it made sense for developers to continue to accumulate land ready for when the economic situation changed.

It’s also important to recognise that the majority of land with planning permission is held by the largest, most well-known national housebuilders.

Most developers are smaller businesses, who still play an essential role in increasing the UK’s housing stock, but are less likely to be holding such large volumes of valuable assets in reserve.

The message here is don’t take the ‘land banking’ rhetoric at face value.

We need developers to help plug the gap between housing availability and housing need, and when they do, we will be glad they held land with planning in reserve; now isn’t the time to vilify them.

Richard Payne, pictured, Director of Development, Oblix Capital