Skip to main content
Putting people at the heart of economics since 1894

Land Banking

October 9, 2011

No one doubts there is a housing shortage in the UK but opinions differ on how to solve it. A culprit that is easy to blame is the planning system and the Government’s approach has been to attempt to relax planning rules. This has met with some opposition. In their campaigns against this relaxation which they think will destroy the green belt organisations like the National Trust and Campaign for the Protection of Rural England have been pointing out the existence of land banks – land with planning permission for the say something like 330,000 homes. So why is this land not being used? To understand that you need to realise that the main purpose of house-building firms is not to make houses to but make profits. If they start to build more than a trickle of houses the supply will increase and prices may start to drop. That would not be just the price of the building but the price of land. The land affected would not just the land that had been built on but all the land in the banks. This would hit the builders’ balance sheets drastically and dent their profits which are determined to a large extent by the value of their land.

The remedy? If there was a tax on land values then there would effectively be a penalty for not using land. If applied at the right level it would make it more profitable for house-builders to build houses rather than not build houses to the advantage of the rest of the economy. © Copyright Sarah777 and licensed for reuse under this Creative Commons Licence

Share Post

Posts you may also like

Follow Us