This is an interesting thought

TfL last week published proposals to build across 640 acres by a new subsidiary called Transport Trading Limited Properties. A number of scenarios are being considered with up to 46,350 homes to be built over the next 25 years. Property insiders estimated that the sites would be worth around £10bn.

OK, in London, the vast majority of that £10 billion will be site value. On land already owned. The uplift in value coming from the stroke of a bureaucrat’s pen.

Mr Khan, TfL’s chairman, is now in talks with ministers over a £2.1bn taxpayer grant to finance the housebuilding project.

Why does anyone need a grant in those circumstances?

11 thoughts on “This is an interesting thought”

  1. Because TfL is bound by strict rules on how much debt they’re allowed to have, and that debt can’t be hypothecated against a security like this.

  2. Because the £10bn value can only be achieved by spending probably £3-5bn first. The value you quote is the value of the land when ready to build houses on, with the sites cleaned up (many will be former industrial sites requiring heavy decontamination), with all the new access roads installed, all the utilities on site, all the s106 bribes to the local council paid, the ‘affordable housing’ proportion accounted for, etc etc. When all that is paid for then you can sell it for £10bn. Its is NOT ‘worth £10bn at the stroke of a bureaucrats pen’. There is a huge amount of costs to pay before that value is created.

    How many times does this have to be pointed out to you? Are you stupid or just lying for political argument effect every time you repeat this canard?

  3. Wasn’t this how the Metropolitan line (a seperate company from the rest of the tube lines IIRC) financed itself? Created demand by building the rail lines then selling land near its stations?

  4. Jim

    So in essence, TfL is embarked upon a business which requires borrowing money that they’re not allowed to borrow, how is this a Good Thing?

    Why don’t they just sell the land to someone not so encumbered?

  5. We are repeatedly told that the wicked property developers are land-banking, instead of building. And yet here we have the public sector taking 25 years to build out its land bank!

  6. It’s how the MTR financied itself. Build a railway line, the presence of the railway line boosts the value of the land, build housing on the land, sell the housing.

  7. If nobody wants to live in London any more to whom are they going to sell the houses? Or will they just be used as a Reservation for tame Labour voters brought in from abroad?

    Tell you what, why doesn’t HMG just nationalise the land, cut out the middle-man Khan, and flog it off to developers?

  8. “Why don’t they just sell the land to someone not so encumbered?”

    Because they look at the developers profit margin (standard industry practice is to build in a 15% profit margin from the get go) and think ‘We could do that and get all the lovely moolah!’ So they decide to become their own developer in effect. It can work and it can go horribly wrong, which as we’re talking about public bodies here, it normally does.

    Take my local council. It owns a whole load of land (hundreds of acres of ex-council tenanted farms) that was in a prime spot for development. So it engineered the site as a location for a large urban expansion in the Local Plan which was passed back in 2005 (ish). This was at the height of the 00s property boom. They could have sold the lot for a heap of cash, but got greedy. Rather than sell to a developer (or sign up a deal for one to develop the site) they decided to borrow loads of money, put all the infrastructure in themselves, and then sell plots of serviced land, thus getting absolute top dollar for their asset. By the time they’d managed all this (its a council, guess how fast they move) the financial crash occurred, and the bottom fell out of development land prices. Suddenly they had sunk loads of cash into the project, and the sums no longer added up, what they could sell the plots for wouldn’t leave a profit after costs. So they sat on the project for c.15 years. Grade A example of ‘the developer’ sitting on land with a valid planning permission waiting for the price to go up, only its not a evil capitalist doing it, rather one arm of the sainted State apparatus. Just in the last few years things have started to move, presumably development land price increases now make the project viable again. Only this time they’re involved a commercial developer to run the project – very sensibly given the fiasco that doing it in house created first time around.

    Incidentally, about a quarter of this urban extension was privately owned land, with commercial developers in charge of it. While the financial crash did put things on hold for a few years, they had already started before that, and got moving again about 3 years later and had developed the entirety of their sector by about 2015. Thus proving the private sector development industry, regardless of its many faults, is still a better bet than the State running things………….

  9. Dear Mr Worstall

    “Why does anyone need a grant in those circumstances?”

    Because it’s there.

    The word “grant” suggests it doesn’t get repaid. Another measly £2.1 billion in the bank.


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