David Prosser: How to build more houses and make a profit for taxpayers

Outlook This is turning out to be a dismal week for the housing market. Hard on the heels of warnings about a whole generation of would-be buyers being priced out of the market – and calls for limits on mortgage lending, which would only add to the problem – came yesterday's home loan figures. They show the number of people taking out mortgages is still falling.

Those who seek to address the housing market's woes sooner or later all come up against the root cause of the problems: there are simply too few houses in the places where they are needed and new stock is not being built anywhere quickly enough. In any market where supply is so constricted, those with fewer resources find themselves missing out – all the more so if credit, which might otherwise help them compete, is not available.

The deceptively simple solution to these difficulties then is to build more houses. As for how we do that, it might surprise you to know that the blueprint for a cost-free (to taxpayers, that is) solution is gathering dust in the Treasury's filing cabinets. It has previously won support from both Conservatives and Liberal Democrats – as well as Kate Barker, an adviser to Labour governments on housing – and even got a plug in the Chancellor's most recent Budget.

More on why we are still waiting for George Osborne to expand on that mention in a moment. First, credit where credit is due: the big idea, known in the trade as 'community land auctions', is the brainchild of Centre Forum, the liberal think-tank. It is a way for local authorities to cash in on the huge increase seen in the value of land when it is earmarked for residential development.

Centre Forum's proposal is that a local authority keen to see houses get built would ask local landowners prepared to sell up for residential development to name their price. It then chooses which land to buy on the basis of traditional criteria such as planning and development needs but also with value taken into account – which plots might yield the best profit when sold on, in other words. Once the process is complete, the earmarked land is auctioned to property developers.

The scheme works because landowners make a return from seeing their land cleared for development but still have to compete on price when selling – as do developers when buying. The local authority nets a handsome profit as the middleman, which can be used as it sees fit – on local infrastructure projects, say, or even as a sop to existing residents worried about the new developments (the money could be used to cut council tax bills, for example).

The theory seems sound – not least because the economics of it will often work best in those areas where there is the greatest need for new housing. What we need now is a pilot scheme to test out the idea in practice – exactly what the Chancellor's March Budget promised, in fact.

So why has that not happened? Well, one problem is that housebuilders aren't keen – presumably because they already have large land banks that might be devalued by this idea and also because they don't like the idea of having to compete against each other in local authority auctions. Another sticking point, at least according to Whitehall advisers, is that while Mr Osborne is supportive, Eric Pickles, the Secretary of State at the Department for Communities and Local Government, is not.

And so the wait for an increase in housing supply continues. What a pity that a scheme which appears to have every chance of making a big difference is being stymied by vested interests and political disagreements.