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Public intervention proposed for Scotland’s ‘dysfunctional’ land market

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Andrew Thin

A “dysfunctional land market” lies at the root of Scotland’s housing crisis and intervention is required to increase the supply of land for new homes, according to a new discussion paper.

The first in an independent series of discussion papers commissioned by the Scottish Land Commission, The housing land market in Scotland: A discussion paper addresses the “failure of housing supply in Scotland to keep up with demand” through public sector intervention to improve the operation of the land market.

Written by Laurie Macfarlane, economics editor at openDemocracy, the paper provides an overview of how the market for housing land currently operates in Scotland and identifies the various ways in which the public sector could seek to intervene in order to increase supply.

Its main findings include:

  • House prices have risen dramatically in Scotland in recent decades, far outpacing growth in incomes. The driving force behind rising house prices has been increasing land prices.

  • The way the land market operates depends largely on the laws, institutions and political history of particular nations, and so varies widely. In Scotland, the key characteristics are a reliance on the private sector operating on a speculative model to deliver new house building; a legal framework that allocates the uplift in the value of land resulting from planning permission to landowners rather than public authorities; a liberalised mortgage credit market; a taxation system that is highly favourable to land and property; and a paucity of publicly available information on land values and ownership.

  • This system has resulted in an under-supply of housing and escalating housing costs, which in turn has undermined living standards, exacerbated economic inequality, and stifled productivity growth and output.

  • Policy options to improve the supply of land for housing include public land value capture, compulsory sale orders, a new housing land development agency, tax reform, and greater market transparency.

  • Intervening in the land market would have a number of long-term economic benefits including a more productive and dynamic economy; a fairer and more inclusive society; improved living standards; and healthier public finances.

  • As well has helping to meet Scotland’s housing needs, the paper argues that addressing the identified issues would also results in a more productive and dynamic economy, a fairer and more inclusive society, improved living standards and healthier public finances.

    • SLC chair Andrew Thin said: “This is the first in an exciting series of discussion papers. The opinions expressed in the paper are independent of the commissions and Laurie has posed a number of important questions to encourage the debate to continue.

    “We would welcome views on the paper and you can get in touch by either contacting the commission directly, through our blog or at one of our events. We are also continuing the discussion with key organisations and individuals in the sector.

    “Land for housing and development is a key priority area of work for the Land Commission and this paper has helped by not only contributing to the debate but also by helping to identify important knowledge gaps.”

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