What do Shelter, the Campaign to Protect Rural England, the National Landlords Association, the New Economics Foundation and centre-right think tank Onward all agree on? Not much, admittedly. The world is round. Homelessness is bad. And we must fix the UK’s broken land laws to get a grip on the housing crisis.
Yesterday, this unlikely coalition published an open letter to James Brokenshire, the housing secretary. In it, we state a simple truth: ‘The root of England’s housing crisis lies in how we buy and sell land.’ Think of a problem with the way we build homes – or don’t build homes – and in the end it comes back to our broken land market.
Why is the market broken?
In our housebuilding system, landowners face a choice:
- I can sell my land now based on current prices
- I can wait and almost certainly get more for my land later
A landowner can always choose to hold their land back from development in the hope of a better price tomorrow. And because, in the end, house prices (and so land prices) always rise, holding out for a brighter tomorrow is often the most rational choice. If a piece of land is to be developed, the offer made to a landowner has to be attractive enough to overcome this hurdle. And so, the value of each individual parcel of land is maximised so that it is as profitable as possible for the landowner.
So land traders imagine a scheme with the highest house prices and the least social housing possible, skimping on size standards, quality and investment in transport and other infrastructure. The objective is to minimise costs and maximise anticipated sales values. That allows land traders to pay more for land, so they win bids.
Once these assumptions have been used to drive up the cost of land, the scheme dreamt up by the land traders is the only one which can be built. A developer who bought this land and tried to build affordable housing on it would find themselves with significant losses. If all this means the scheme will need to build out at a snail’s pace, waiting for buyers looking for homes at the top of the market to come forward, so be it. This isn’t just Shelter’s view. The recent draft analysis of Oliver Letwin’s independent review of build out rates for government also found that the way land is valued pre-determines what can be built, at what price and at what pace.
This is why newly-built homes in England cost on average £60,000 more than existing homes. It’s why the luxury market in London has been oversupplied to breaking point, with 1.6 luxury starts for every 1 sale between 2015 and 2016. And, of course, it is why the market for homes which are affordable to ordinary people on ordinary incomes is desperately undersupplied.
It is really about control. Under the current system, landowners, land traders and volume developers exercise an enormous amount of control over what gets built, at what price, for whom. As a result, housing supply has not been meeting people’s needs.
This is not a functioning market. It needs disrupting, not protecting.
An unlikely coalition
None of this is the fault of landowners, who are playing by the rules the law has set for them. It is the fault of successive governments, who have watched as the UK’s broken land laws have distorted the housing market, deepening the crisis in the affordability and availability of homes.
This is what has brought together right- and left-wing think tanks, private and social landlords and housing campaign groups big and small. Our aim is to give communities more control over development so that it better meets their needs. When good quality, genuinely affordable homes come with the transport and services needed to sustain them, communities welcome development.
Our solution is reform of 1961 Land Compensation Act to allow councils (and other bodies with planning powers, such as city mayors) to compulsorily purchase land at fair market value. Currently, a landowner whose land is compulsorily purchased (CPO’d) is compensated as if the land had planning permission for that ultra-profitable scheme dreamt up by the land traders – even if no such planning permission exists. The landowner’s choices are:
- I can sell my land now based on current prices for the most profitable scheme
- I can wait and almost certainly get more for my land later – and if my land is CPO’d, I will still be paid for the most profitable scheme
But we know we can’t build our way out of our housing crisis through luxury schemes alone. So why should our legal system lock in levels of landowner profit which we know make it impossible to build the homes people need and want? We need to create some room in the system for affordable schemes. The only way of doing that is to change landowners’ incentives.
Shelter doesn’t envisage a world in which land is being CPO’d en masse for next to no compensation. We envisage a world in which councils, mayors and development corporations are working with communities to design schemes to meet housing need – i.e. with very high proportions of affordable housing, exemplary design and great transport links and services – and inviting landowners to invest their land into these schemes as equity. The landowner keeps their land, but allows it to be used to meet housing need. In return, the landowner gets a long-term profit through rental income, instead of the massive up-front windfall returns at the heart of the current housing crisis.
If the landowner doesn’t wish to invest their land as equity, they should be compensated for their land fairly, based on the value of the housing scheme that is needed – not the one imagined by land traders. In this world, the landowner’s choices are:
- I can participate in the affordable scheme, putting my land in as equity for a long-term return
- I can refuse and risk having my land CPO’d based on the value of the affordable scheme
It is only by removing landowners’ ability to hold their land back for the highest possible price that we can build our way out of this housing crisis. Everyone has the right to a fair price for their land. A fair price must reflect the use to which land will actually be put, in the national interest – not the fantasies of land traders.
- Will you back our call to fix the broken land market? Add your name to Onward’s letter here.