One factor which is currently affecting how the market develops, or at least how it is appearing to develop to those not familiar with it, is some BNG landless operators are tending to represent the market price at what we consider are artificially high levels. BNG landless operators offer a variety of different models to landowners. Typically they either acquire BNG units and sell them in partnership with a landowner or sell the units for themselves whilst paying a rent for use of the land. These operators, therefore, often have a direct interest in the units they sell, which contrasts to the approach of ‘pure’ brokers, who are motivated only by turnover and commission. Such polarised approaches have created a two-tiered market in which landless operators are selling at significantly higher prices than ’pure’ brokers, who are aiming to maximise turnover. By doing this, these brokers are more representative of a transparent and efficient element of the market place. Reasons why we suspect that landless operators are less flexible are:
1. Landless operators, are often selling a limited range of habitat types sometimes isolated in a single location. They are unable to easily avoid the spatial weighting penalty trading into other LPA/NCAs (shortly to become LNRSs) and tend not to want to bear the discount themselves (see below).
2. Some landless operators started creating habitat banks with landowner partners early on, when habitats unit were thought to be worth >£25,000. In many cases, to deliver the promised works needed for a project, the landless operator is held to these prices, even though brokerage prices are hitting £15,000 and below before the effects of spatial weighting, which can take the gross return per unit transferred by a vendor to less than £7,500.
3. Another reason why landless operators tend not to drop their prices to compete at the level of the brokerage market is the threat of a withdrawal of a line of credit, where leveraged against the value of BNG units they own when they were expected to remain over £25,000 per unit. Should they drop their prices too far and compete, the value of their assets may fall to a level at which their accountants will not sign off their books, thus forcing the landless operator to become insolvent.
All the above appears to create a market where landless operators cannot go below a certain price, so a false impression of the overall market can be given. This type of influence is similar to what I experienced with the fledging milk quota market in the 1980s until things “settled out” after a few years and the overall market became more efficient and transparent.