16 Aug 2012

Who are the real land scammers?

Land bank scams are back in the spotlight. Land banking is nothing new: it was a feature of the selfbuild scene when I first got involved around 20 years ago, and despite our best efforts, it's still very much around.

This is how it works. Unscrupulous people buy fields which never have a hope in hell of being built on and then flog off little chunks of these fields as building plots. They pay maybe £20k for the field, they then charge £10k for a dozen plots, and they pocket the difference.

The poor saps who are persuaded to buy the plots are left with a meaningless subdivision of a field which they don't even have access to, let alone any hope of building anything on it. It's a scam, pure and simple, but it's hard to outlaw because there is nothing illegal about subdividing a field and selling it off in parcels: the fraud relies on exaggerating the hope value placed on the plots and that can be difficult to prove, especially as the land bankers don't use conventional marketing channels, instead mostly relying on high-pressure sales techniques. They will hold out the prospect of a fat profit, but only if you move quickly. Oh, and you don't need to bother with a conveyancing solicitor — you don't need one to buy a car, do you? And this is less than a new car!

Anyway, despite lots of media exposure, and parliamentary questions and such, land banking scams are still with us and may in fact be getting worse. Such has been the publicity surrounding Grant Shapps's "selfbuild revolution" that there is now a whole new cohort of potential suckers out there who know nothing about the perils of land banking.

But whilst the land bankers might trouser the odd £10k from the unsuspecting public, there is a a much bigger scam going on down at the town hall and this is one that the Financial Services Authority will not be investigating. We are talking impact fees, or development contributions, and these mothers are big.

For decades, big housebuilders and developers have had to make infrastructure contributions in return for getting planning permissions. It was par for the course. "You wanna build 100 new homes here? Make 30 of them affordable, and give us a couple of million so we can build you a nice access road with its own roundabout. And some swings for the kiddies. There's a good boy."

But times change and this sort of conversation is no longer for the big guns. It's filtered down to individual selfbuilds and it may even be on its way towards people adding extensions. "You wanna add an extra bedroom? That'll be another desk in the primary skule and that costs us £20k." Long gone are the days when the rates would cover local expenditure: too much local government money comes from central funding, so it's hardly surprising that local government looks at innovative ways of raising extra cash. That won't lose any votes. The squeeze is on.

Trouble is this just may to stop building dead in its tracks. In the past few days, stories of selfbuilders being asked for a £50k contribution have hit my screen, and in one case, mentioned in a Jason Orme blog, £187k. Call it S106 payments, Affordable Housing Contributions, Community Infrastructure Levy, it all amounts to much the same thing - a stealth tax on development.

Now, arguably, if this is all done and dusted before the selfbuilder ever gets hold of the land, and the extra expense is made clear at the outset, it's no bad thing, as in theory, the fees will be deducted from the uplift in value from the granting of planning permission. But this isn't always the case, and lots of would-be selfbuilds in back gardens will be rendered unviable by the introduction of fees. It all begins to make the land bankers look like amateurs.

Behind all this is the very odd way in which land tenure is handled. You can nominally own a piece of land or a house but if you want to do something different with it, the decision rests with others, namely the council. This used to be an entirely political matter — you simply had to convince the planners and your neighbours. But, in these straightened times, it looks like it's going to have a financial element attached to it now, over and above the mere cost of applying for planning permission. In effect, planning permissions will be sold for whatever the market will bear and any uplift in value as a result of that permission will mainly accrue to the council.

So you can see that the two issues — land bank scams and council contributions — are in fact closely linked and reflect two sides of the same coin. Namely, that planning permission is worth far more than land itself, and that this represents a type of public ownership of land by stealth. Granting planning permission on agricultural land is very similar to printing money because it creates value: it's hardly surprising that the ones granting the permission — the councils — are now trying to get their hands on the spoils.

The message is that potential plot purchasers now have two sharks out there to watch out for. The first is to avoid buying a piece of land with no hope of ever getting planning permission: the second is to make sure that if the land does stand a chance of getting planning, that you will be able to afford to pay for it when the permission is granted.