Another step towards land market reform

Another step towards land market reform

Two weeks ago, an unlikely coalition of around 20 organisations including charities, think tanks, and trade bodies came together to sign a joint letter calling on the government to address one of the biggest issues in housing: the urgent need to reform the 1961 Land Compensation Act.

On the face of it this may seem like a pretty dry issue, but as any avid reader of this blog in recent years will know, it is one that sits at the heart of our campaigning for high-quality, genuinely affordable housing. And, as the recent joint letter demonstrated, we aren’t alone in this belief. In fact, the need for reform of our land market has support that goes well beyond this joint letter, including support that spans the political divide.

Now, another powerful voice joined the land reform chorus as well, with the Commons Housing, Communities and Local Government (HCLG) Select Committee releasing its much-anticipated report into its inquiry on land value capture. The headline:

“We believe that the Land Compensation Act 1961 requires reform so that local authorities have the power to compulsorily purchase land at a fairer price”.

For those of us who have been campaigning to change this outdated piece of legislation, this recommendation is a huge step forward. Adding as it does to the cross-party political support for reform, the report turns up the heat on government to introduce new legislation in next year’s Queen’s Speech.

Why reform the 1961 Land Compensation Act

This outdated piece of legislation may seem minor – and quite dull – but it is actually hugely important and reforming it is key to fixing our broken housing market.

The problem? The Act enshrines in law something called ‘hope value’ and ensures that this is paid to a landowner should their land be subject to a Compulsory Purchase Order (CPO).

‘Hope value’ is the value that land would have if, at some point in the future, it might receive a planning permission it does not currently have. In other words, a landowner can hold back their land from development and show no intention to use it for housing, but still be paid as if they were going to use it for housing. The HCLG Committee put this quite nicely when they call it ‘a value reflective of speculative future planning permissions’.

The Committee also hits the nail on the head straight afterwards as well, when it says that this ‘hope value’ ‘serves to distort land prices, encourage land speculation, and reduce revenues for affordable housing, infrastructure and local services.’

Basically – because hope value exists we have no choice but to value CPO’d land at ludicrously high values.

This is, obviously, bad enough but unfortunately it isn’t even the whole problem. The fact that CPO operates like this then has an additional impact on the wider land market. Essentially, because the ’61 Act ensures we value CPO’d land based on the most profitable scheme that could possibly be built on it, it pushes up prices across the whole of the land market – including that which is not CPO’d.

This is why land has risen in value more than 500% in 20 years. It’s why the need to bring down land values is at the heart of Shelter’s vision for how we build our way out of our housing crisis – because you can’t build affordable homes on ridiculously expensive land.  And it’s why organisations as varied as Onward, Civitas, the Centre for Progressive Policy, Policy Exchange, Adam Smith Institute, the Institute for Public Policy Research and the New Economics Foundation have joined the call for reform.

The solution is simple. Reform the 1961 Land Compensation Act to remove ‘hope value’ from the equation. Which is essentially what the HCLG Committee are saying as well:

‘Compensation paid to landowners should, therefore, reflect the costs of providing the affordable housing, infrastructure and services that would make a development viable, as well as capturing a proportion of the profit the landowner will have made.’

This is the right approach. It isn’t about taking land away unfairly. It isn’t about paying ‘existing use value’. It’s about ensuring that the price paid for land reflects the scheme that is needed and that is going to be delivered, rather than undermining it.

What would the impact be?

Reforming the 1961 Act would mean land comes into development at lower values. Again, this may sound simple, but it is a really big deal. Lower land prices would mean:

  • more community benefits like schools, parks and hospitals could be delivered as part of new housing developments;
  • the main barrier faced by SME builders is reduced or removed meaning that that Britain’s small builders can start to reverse the decline they’ve faced since the financial crash;
  • a new generation of new towns and garden cities could be unlocked thanks to local authorities and development corporations assembling the land needed for these at a price that enables it;
  • self and custom building in England could be unlocked at scale thanks to the ability to assemble land, parcel it up and sell it on at reasonable values.

And this doesn’t even include the big one for Shelter: a revolution in genuinely affordable housebuilding could be unlocked to end homelessness and bad housing for good.

If we want to end the housing crisis and solve the problems that we see every day in our services around the country, then we simply must build more genuinely affordable homes. Unfortunately, when land prices are sky high it’s affordable housing that feels it hardest. If land is priced as though it will be used for luxury developments, we shouldn’t be surprised when we don’t even get close to meeting housing need.

So, the reforms we advocate on land – and that the HCLG committee have also recommended today – are vital.

What next?

 The ball is very much in the government’s court. And it is time for them to act.

The need for reform of CPO was mentioned in both Conservative and Labour manifestos last year, it is supported by left and right leaning think tanks, it’s supported by the country’s biggest housing charities, it’s supported by MPs across the political divide and by a cross-party committee.

That’s a coalition of voices worth listening to.

Sign up to the Onward joint letter calling for land reform and add your voice to this important campaign.