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“In October last year, Tony Gallagher threw his friend David Cameron a 50th birthday party at Sarsden House, his 17th-century mansion near Chipping Norton, Oxfordshire. He served a dinner of roast beef and lamb, cooked on his Aga, to a private gathering of 23 people.
At the same time, Gallagher was also quietly planning to sell the company that he had built up over three decades, accumulating land, gaining planning permission, and auctioning it off at vast profit.
After reportedly holding talks with the Pears family, the Wellcome Trust and Berkeley Homes, Gallagher Estates was sold to housing association L&Q in January. It netted the entrepreneur a £250m payday, propelling him into 152nd place in The Sunday Times Rich List, with an overall fortune estimated at £850m.
Such is the life of the modern-day land baron. A group of private companies, largely unknown to the public, have carved out a lucrative niche locating and snapping up land across the UK.
Operating in the murky world of “strategic land” promotion, these firms prepare sites for development by doing the time-consuming work of gaining planning permission. It is then sold on “shovel-ready” to housebuilders. These companies don’t ever build homes, but work within the labyrinthine planning system, taking advantage of its weaknesses and loopholes.
It’s a modern-day gold rush: the magazine Farmers’ Weekly is filled with adverts for companies offering to prepare agricultural land for building; Gladman Developments, a land promoter, offers its services on a “no win, no fee” basis to lure landowners interested in selling up, claiming a success rate of 90pc. The reason for this is the sheer profit that can be made by obtaining planning permission on a strategic site of land.
According to Simon Hodson, head of residential land at JLL, while an average acre of agricultural land may sell for £5,000 to £10,000, land with planning permission for residential development is normally worth £1m-4m per acre, depending on its location and the amount of infrastructure and preparation needed before building.
These companies will then take a cut of 10-30pc of the sale value, depending on the size of the site. This means that the murky underbelly of the land market is highly profitable: in the year ending March 31 2016, Gladman made a pre-tax profit of £11.6m, while Gallagher’s was £79m in the year to June 30 2016. The company was bought for £505m, which included land to build 42,500 new homes.
The companies keep a low profile, and so do their bosses. Gallagher quietly donated £110,000 to the Conservative party last year, while Gladman has also built his firm up over decades, selling his family home to invest in his first tracts of land.
The way they operate and the nature of the land market means it is difficult to know the scale of this opaque world.
When promoting land, these companies will seldom purchase it upfront, but instead either pay the owner an option for exclusive rights, or promise the money once it is sold, with the landowner retaining the land and being actively involved in the sale process.
The options don’t need to be registered anywhere, and they are not obliged to detail their deals in their results. A search through a database created by Freedom of Information requests of land ownership by campaigner Guy Shrubsole reveals that Gladman owns just 304 acres, but it says it produces sites for 10,000 homes per year, a far higher amount. Gallagher owns just 714 acres according to this database. Such is the opaque nature of these land deals that mythology swirls around the industry: one – unproven, and very likely untrue – claim is that 90pc of green belt has long-term speculative options in place, in case the Government of the day changes its policy on building on it.
The true size of the industry is almost impossible to find out. There are around eight big companies, and many more smaller ones, quietly preparing land around the country, though largely outside London.
Figures from Savills suggest that land promoters and investors currently control around 20pc of land due to be put through planning, enough for 153,400 homes. This is compared to housebuilders which own just 7.7pc of land at this stage in development. This disparity is caused partly by the fact that these promoters work on a much longer-term basis, picking up options on land for development in 15 or even 20 years. A site for 10,000 homes that Gallagher developed in Northstowe, Cambridgeshire, was acquired in 1998, and then finally sold to housebuilders last year.
A source in one of the large housebuilders says that it buys one third of its plots from these land promoters, although this figure varies. Some housebuilders have substantial land banks that they take through the planning system itself, such as Taylor Wimpey and Persimmon.
Much of the success comes from navigating the planning system. Land promoters track down underfunded local authorities that have not yet set out a local plan for housing in the next 15 years, or a programme for building in the next five years in its National Planning Policy Framework. Enter a land promotion company, which finds sites in these areas where the council is likely to say yes.
David Gladman, co-founder of the eponymous company, told the High Court last July: “We normally only target local authorities whose planning is in relative disarray and … either have no up-to-date local plan or, temporarily, they do not have a five-year supply of consented building plots.” Just 41pc of local authorities have a five-year plan for housing supply, according to Savills. If a local authority doesn’t have that in place, it means as long as a planning application meets certain criteria it will be approved.
Gladman employs a team of more than 50 town planners to develop these sites. Companies searching for land use aerial photography, maps, data and agents to find the sites, often simply knocking on doors to ask landowners if they want to sell up.
Are these businesses a nefarious force? They are “an instrumental part of delivering housing,” says Hodson, and help accelerate the amount of land ready to be built on. Last year, 293,127 homes were granted planning permission, according to the Home Builders Federation, a record high. By preparing large sites for development, like Gallagher does, it’s easier to create a combination of residential and commercial property, parcelling off areas to experts in that field.
But by charging a premium for a clean site that’s ready to be built on, it forces developers to increase house prices to recoup the high outlay on land, while cutting the viability of building affordable homes. “Land promoters deliberately pump the cost of land higher and higher, then reap the rewards when they sell it,” says Catharine Banks, policy officer at Shelter.
While housebuilders have recently been accused of “land banking” by Government, hoarding land with planning permission that could be built on, the same could be levelled at these businesses. Research by Shelter last month found that almost a third of sites that have been approved to have homes built on have not been completed within the last five years. Gladman, however, claims it doesn’t hang on to land and offers it for sale within a couple of months of gaining planning as, under the option system, it only makes money when it is sold.
“The land market is inefficient and fragmented,” says Tom Aubrey, from the Centre for Progressive Capitalism, who argues that these land promoters are a natural product of its dysfunction and lack of transparency.
He likens the model of these businesses to private equity firms, as an agile, speculative force. “It’s a bit like airlines before the internet was set up: it was difficult to know who had the best price because of the asymmetry of information.”
The Government has signalled it wants to open up the land market, making data on land and who owns it more accessible. According to Shelter’s Banks, this “would be a small but very powerful change, which could help the country build the homes we so desperately need.”
https://digitaledition.telegraph.co.uk/editions/edition_nkuOf_2017-08-06/data/361464/index.html
