Reform of land value capture ‘can cover cost of new homes’

Key Commons committee recommends raising additional revenue from “wide-ranging” reform to boost housebuilding.


A key Commons committee recommends wide-ranging reform in the capture of land value to cover the cost of new affordable homes.

The Housing, Communities, and Local Government Committee (HCLGC) sees scope for raising additional revenue from such reform to existing taxes and charges, the way councils can compulsory purchase land and consideration of new mechanisms for land value capture.

But the Country Landowners Association (CLA) has already outlined concern that any such reform would removed so-called ‘hope’ value – a consideration in valuing land being compulsorily acquired as to its future potential to receive planning permission.

In a report released today (Sept 13), the Committee cites the success of the first generations of New Towns, which acquired land at, or near to, existing use value, and captured uplifts in land value to invest in new infrastructure.

Reform of such powers – through amendment of the Land Compensation Act 1961 – would lead to a “much-needed” boost to housebuilding, the report says.

Among the report’s main recommendations are:

  • Reform of the Land Compensation Act 1961, to give local authorities the power to purchase land at a fairer price
  • Further simplification of the Compulsory Purchase process, to make it faster and less expensive for councils whilst not losing safeguards for those affected
  • Reform of the Community Infrastructure Levy (CIL) to remove complexity and the extensive range of exemptions currently criticised as limiting its effectiveness
  • More resources for council to ensure they are able to negotiate robustly with developers to secure the appropriate level of planning obligations
  • Securing the maximum value for new infrastructure and public services from public land put forward from residential development – akin to Germany and the Netherlands

With growing political support, such a reform is tipped as a “powerful tool” for councils to build a new generation of New Towns, as well as extensions to, or significant developments within, existing settlements.

The government’s own statistics show that agricultural land, which is granted planning permission for residential use, would, on average, increase in value from £21,000 per hectare to £1.95m per hectare.

HCLGC launched an inquiry into how councils and central government could capture a “significant proportion” of this uplift in value to invest in new infrastructure and public services.

Committee chair Clive Betts said land value capture was fundamentally about fairness and necessity.

“Fairness, because the current system allows landowners, through no effort of their own, to make multi-million pound profits from the substantial increases in land value that arise from public policy decisions, such as the granting of planning permission.

“As these increases are significantly created by the actions of the State, it is right that a significant proportion of this should be shared with the local community.

“Necessity, because if the Government is to meet the challenge of providing enough new homes over the coming years, then they will also need to find the funds for improving the surrounding infrastructure,” said Betts.

“Our proposed package of reforms to taxes and charges will ensure a fair proportion of the increase in value arising from public policy decisions can be used by national and local government to invest in new infrastructure and public services,” he said.

The report acknowledges a growing consensus that the Land Compensation Act 1961 requires reform with the present right of landowners to receive “hope value” is distorting land prices, encouraging land speculation and reducing revenues that could be used for affordable housing, infrastructure and local services.

“Ensuring local authorities have the power to compulsorily purchase land at a fairer price will provide a powerful incentive to build a new generation of New Towns and the extra homes that we so desperately need,” said Betts.

In evidence, housing minister Kit Malthouse said he saw “no shortage” of available building land, telling the committee housing associations found access to land “difficult” because they were up against the private sector.

The CLA sees proposed reform as removing the incentive for landowners to bring land forward for development, arguing that landowners and the development sector already contribute significant sums of money to local communities that pay for affordable housing and social infrastructure.

Christopher Price, CLA Director of Policy and Advice, said the current system of capturing the increase in land values already provided a range of benefits.

“In 2016/17, £6bn was raised via planning obligations like the Community Infrastructure Levy and Section 106. This money was raised by capturing the change in the value of land when planning permission is granted,” said Price.

“History shows us that increasing these obligations too far stops landowners bringing land forward and stalls development.

“We are frustrated that the committee has recommended the removal of hope value.

“The principles of fair compensation are that any price should reflect the value of the land if it was to be sold on the open market.

“It is iniquitous to ignore the fact that the price paid for land with development potential should be higher than land with no development value whatsoever,” he said.

Victoria Hills MRTPI, Chief Executive of the Royal Town Planning Institute, said: “This is the clearest signal so far from politicians that the current system of ensuring that land value uplift is shared fairly is not working for the public good and needs wide ranging reform. Its unequivocal stance on the need for change is very welcome.

“The country’s over reliance on developer contributions has put the planning system under immense strain and fuelled public resentment against developments when obligations are watered down or unfulfilled. What started out as a means of mitigation has become a replacement for mainstream public investment, and this must change.

“But we think changes need to go further to ensure that uplift from all land, not just those land released for development, is shared fairly.”

Local Government Association’s Housing spokesman, Cllr Martin Tett, said he was “pleased” to see the report. 

“Rising land prices is one of the most influential contributors to our housing crisis – it means less homes are built, they are less affordable, they are built more slowly, there can be compromises on quality, and there is not enough funding left over for vital local infrastructure and services that communities need to back development,” he said.

Cllr Tett added: “There are therefore huge gains for communities, economies and public services in allowing councils being able to capture potentially billions of pounds worth of land value increases to invest in the very infrastructure and services that generate those increasing values.

“We are also pleased the Committee recommends that government provides extra support to councils, through the LGA, to help give local authorities a strong hand in negotiations with developers.

“Government action on these recommendations would have a significant impact in building more homes with the right infrastructures and places that people want to live and work.”

Labour’s London Assembly Housing Spokesperson, Tom Copley AM, who has campaigned to trial a Land Value Tax in the capital the HCLGC recommendations could also see land brought forward for development at a much quicker pace – discouraging land banking.

“If the Government is receptive to allowing local authorities to trial new ways of capturing land value, this could trigger a monumental shift in how we incentivise house building in this country,” said Copley.

“This isn’t a push for additional taxation, but to replace existing property taxes like council tax, business rates and stamp duty with a fairer system that captures unearned wealth,” he said.

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