Steve Hemingway

It has always seemed to me that the current land planning system in the UK is about as effective in providing us with the housing and commercial built environment, and infrastructure, as the old Soviet system was in building high quality motor cars for the average Soviet citizen. My latest rant on this matter was written very recently and can be read here.

The omniscient Martin Wolf has already, of course, fully solved this problem with an auction-based system that uses the price that developers are prepared to pay to develop land to determine where the need for building is greatest. Unfortunately, doubtless because Mr Wolf thought it would be an easy exercise for the reader, the details of how such an auction process were omitted from his article on the subject.

Fortunately Edward Davey and Tim Leunig of the Liberal party have filled in the details and have set out their proposals in today's FT, the key elements of which are as follows:

In stage one, the council asks any local landowners to submit sealed-bid letters stating the price at which they are willing to sell their land. Without existing planning permission – which would make the land more valuable – many landowners would be delighted to sell for five times current value. The landowners’ price would be binding , giving the council a call option for, say, one year.

In stage two, the council, in consultation with the local community, decides which land, if any, should be granted planning permission. It then auctions the call options to developers, thus capturing almost all of the increase in the land-value created by allowing development. With agricultural land averaging £10,000 and residential land about £3.2m a hectare, the council could potentially reap a profit of £3.1m a hectare from, in effect, selling its planning permission. Similar margins are available in urban areas. The council can spend these profits in any way, from subsidies for affordable housing, better local services to lower council tax.

The procedure described above seems to meet the requirements of

1. giving local control of development,
   
2. allowing local communities to capture the increase in land values that arises from the grant of planning permission,
   
3. removing planners from the allocation mechanism of allocating resources, thereby putting production of homes on a par with the production of bread or of motor cars.