Land & Housing – Why Land for Housing Matters

In the fifth in our ‘Land &’ blog series, Senior Policy Officer David Stewart explores why land for housing matters for much more than homes – it has an impact on the economy, the environment, and the wellbeing of everyone in Scotland.

Land for housing really matters. The way we deliver land for housing affects how many homes can be built, their affordability, and the quality of new places that we create. This in turn has major consequences for the economy, carbon emissions, and health and wellbeing.

Yet despite significant investment by the Scottish Government to build new affordable homes and support first time buyers, too many households in Scotland struggle to meet their housing needs. Demand for housing is increasing, but we still aren’t building as many new homes as we were prior to the credit crunch in 2008. In recent decades the UK economy has become increasingly dependent on consumer spending underpinned by house price inflation. This has increased inequality and led to cycles of boom and bust. 

In the 2020-21 Programme for Government, the Scottish Land Commission was asked to provide advice on how land could be better factored into economic policy. Over the past two years we have undertaken a review of land for housing and development to examine how reforming the housing land market could help deliver more homes and better places and support sustainable and inclusive economic growth. 

The Scottish Government recently announced £3.2 billion funding for affordable housing, coupled with a goal to build 100,000 affordable homes by 2032. The recommendations from our review aim to support delivery of this ambitious target while helping to stabilise house prices and promote sustainable economic growth.

The review follows the Commission’s work on options to capture the land value uplift arising from planning permission for housing. This value could be used to deliver infrastructure, affordable housing and better places. This work recommended research into how planning mechanisms capture land value for the public good. 

This report, recently published by the Scottish Government, found that ‘planning gain’ helps deliver significant amounts of affordable housing on greenfield sites in high value locations. Planning gain is not so effective in funding infrastructure and the system does not deliver in regeneration areas or in rural Scotland. The Commission’s review provides recommendations to deliver housing and better places in these areas and ensure land value funds the infrastructure required to support development. 

Land for Housing – the Current System

Our current approach to bringing forward land for development is dominated by market interest. Development is focused on greenfield sites in growth areas, and the bulk of new homes for sale are larger, high value properties. This is to maximise shareholder return and to manage the risk developers take in bringing sites forward. This system, focused on maximising sales value, is not suited to delivering more homes or making housing more affordable.

The Case for Change

New housing can enable rural repopulation and help to revitalise town centres, but research shows that private developers – the main builders of new housing – are largely inactive in these areas.
    
So how might Scotland change the way we deliver land for housing to deliver better outcomes such as active travel and 20-minute neighbourhoods? Previous work by the Commission found a strong case for more public interest led development – where the public sector brings forward land and actively shapes outcomes. It also found strong evidence to support an increase in the percentage of the land value created by development being captured for public good. 

There is also a need to involve communities to better shape development and garner support for new homes – in-depth, early community engagement reduces conflict and leads to the creation of better places.

Case studies of a range of sites across Scotland found that re-using brownfield land has major benefits, providing homes close to jobs and public transport. The research concluded that the best new places saw public bodies taking an active role in promoting development, assembling land and shaping local markets. Better results were achieved where a landowner, whether private or public sector, took a patient capital approach and emphasised quality of place over profit. The report found, however, that this type of development is the exception, not the norm.

Lessons from Europe

To understand how Scotland could change the way land is brought forward for housing to deliver more homes and better places, we studied European countries with a strong track record: the Netherlands and Germany. We also looked at Switzerland, a country with geographical similarities to Scotland that has focused development on brownfield sites to create high-quality new neighbourhoods. 

These countries deliver quality places that provide access to greenspace and meet housing need and demand, helping to support a more stable housing market than in the UK. A leading role in land promotion is at the heart of this success. By sharing the risk of land promotion, public interest benefits such as quality infrastructure and greenspace are secured. The role of the private sector is complementary – assessing viability and delivering houses. The muscular approach of the public sector reduces risks for the private sector, allowing more homes to be delivered at a lower price in return for reduced risk.

How can Scotland achieve similar results? In Europe, several tools are used to enable local authorities to lead on land promotion:

•    Active land policies, buying land in advance of need
•    Pre-emption rights giving first refusal on sites for future development
•    Mandatory land re-adjustment, allowing temporary ownership of land to install infrastructure to enable development and recoup the cost from landowners.

Recommendations to Deliver More Homes and Better Places

To support the public sector to play a full role in promoting housing development we recommend:  

•    Creation of a network of place pioneers to enable delivery of affordable housing on unused public land
•    Designation of Regeneration Partnership Zones to facilitate the development of land in fragmented ownership by enabling owners to share in the benefits of development and the uplift in value
•    The introduction of new approaches to land value capture to fully fund infrastructure and quality place-making on new developments
•    The creation of a Land Agency to provide the resource and expertise to deliver a pipeline of sites to meet housing need and demand
•    A new transparency obligation to require landowners to register options agreements to sell sites together with a bulletin setting out land sales prices.

Moving from our current market-led approach to one governed by public interest will not be easy, but the potential rewards make the changes worthwhile – providing the homes people can afford where they want to live and providing a basis for sustainable and inclusive economic growth.