TP9. Shortage of Building Land

 Does the housing shortage mean we have to build many new towns on greefield sites or allow existing towns to eat up more of the countryside between them? Is there any spare land in urban areas? If so, how can we ensure it’s not wasted? Read on to find out.

 There is general agreement that there is a housing shortage, but disagreement about where the new houses should be built, how many houses should be crammed into a  hectare, whether brownfield sites would provide sufficient space for the houses needed or whether encroachment on greenfield sites will be necessary.

Planning law places many restrictions on where, and what, people are permitted to build. The principle behind this is excellent, though the actual results are not always what was intended. Builders and developers often complain that planning law causes the shortage of building land and puts pressure on planning authorities to change their rules, and to allow building to take place on what is now “greenfield” land. Yet in most towns there is quite a lot of land which is either unused, or inadequately used, where new houses and other buildings could be built without any objection from environmentalists or planning authorities, Before we think of encroaching further on our countryside, we should consider ways of bringing that land into proper use.

Why is it that empty buildings are left to become derelict in crowded cities where there is a high demand for houses and offices and shops? Why are empty sites in towns left to become dumping grounds for rubbish and a meeting place for such people as drug addicts and drug pushers? There are several answers: the high purchase price of inner city land, the cost of clearing old buildings, the cost of cleaning up contaminated sites, and the fact that VAT is charged on the renovation of old buildings but not on the construction of new buildings. An even more persuasive reason for holding on to derelict buildings and empty spaces is the owners’ belief that they will be able to sell them at a much greater price in the future, even if they do nothing to protect or improve them. The cost of holding on to the land is negligible. Can that state of affairs be changed without a whole host of new rules, which will be difficult and costly to administer and will impinge on everybody’s freedom?

In other Topic Papers in this series, we discuss a reform which is called Land Value Taxation or LVT. We argue that LVT would benefit the people of this country in many different ways. In this Paper, we will consider its effect on the shortage of building land. Before LVT could be brought in, every parcel of land would have to be valued. This valuation would consider exclusively the value of the site – the land – and would ignore the value of any building or other development on the site. Those who occupied the most advantageous and profitable sites would pay most, while those who had to make do with the least convenient, least desirable sites would pay least, or even nothing at all. A tax would then be imposed, related to that valuation. At the same time, existing taxes would be reduced. At first LVT would be small, but as time went on it would be increased, while other taxes would be reduced accordingly. The rate of land value tax payable on each plot would depend on its market value when the most efficient and profitable use allowed under current planning law was made of it. That rate would have to be paid whatever the owner did, or did not do, with his land. Whenever the market value of a plot of land rose, so also would the land value tax. Landowners therefore could not afford to leave their land idle, or to under-use it. They would either have to develop the land themselves or dispose of it to others willing to do so. This would make a lot more land available for use. including brownfield sites and derelict land. Recent figures  from the National Land Use Database (2011) show that land authorities in England estimate that 33,390 hectares of previously developed land are vacant or derelict. In 2010, there were 10,863 hectares of vacant and derelict land in Scotland.

Another effect of LVT would be to discourage “land banks”. Today, builders and developers often acquire land which they are not ready to use – sometimes land on which they cannot build under existing planning law – so that they can hold it in reserve against increases in land prices or changes in planning rules. This not only means that land is wasted, when it could be used to provide needed housing, offices and factories, but also that land becomes derelict because the owner has no incentive to keep it in good heart.

Land values rise and fall dramatically for various reasons. These reasons include the alternation of boom and slump conditions on a national scale and changes in local planning rules. At the peak of an economic boom, people are able to sell houses, factories, and also run-down buildings and empty land, at a much higher price than they paid to acquire them, even though they may have done little or nothing to keep them in good condition. The reason for this unearned windfall is that increasing population, developing technology, thriving industry and commerce have increased the competition for living and working space and put up the value of land. Similarly, when planning restrictions are removed and building permitted on land previously reserved for agriculture or other purposes, the owner can suddenly sell at a huge profit, even though the increase in the desirability of the land is not the result of anything which he or she has done.

How would LVT affect the situation? When the value of land rose, the rate of LVT would rise to match it. So, instead of providing an unearned windfall gain for landowners, an increase in land values would give greater prosperity to the whole community. This is only faIr and reasonable, since it is the presence of the community as potential customers, the work of the community in constructing and maintaining infrastructure and in providing services, which gives the land its value.

As we have shown here, LVT would help the availability of building land. But it would produce a great many other benefits as well. We urge you to consider other Topic Papers in this series, to see how that would work out.

Further reading

Location Matters – recycling Britains Wealth by Tony Vickers pub Shepheard- Walwyn 2007

The Power in the Land by Fred Harrison

Land and Taxation by Nic Tideman