A provocative new report claims that private developers’ hold on the land market is raising prices and making it harder than ever to buy land for new social housing. However, landowners claim they are already heavily taxed and any reform to Land Value Capture will hamper new investment.
A new report by left-leaning thinktank the Centre for Progressive Policy and the National Housing Federation claims that landowners’ total profits are more than the global profits of Amazon, McDonald’s and Coca Cola combined.
At the same time, the National Housing Federation has found that organisations trying to build social housing are increasingly outbid on land by private developers.
Both organisations are urgently calling for a radical overhaul in land sales so this profit is captured, and put to use funding much-needed new affordable housing and infrastructure, like roads.
Today’s new report reveals that agricultural land now becomes 275 times more expensive once it receives planning permission, even before a single home is built. Two years ago, planning permission increased the value of farmland by around 100 times.
If more of this “uplift” in land price was captured, the analysis said that the government could use it to build as many as 100,000 affordable homes every year, as well as vital infrastructure.
Meanwhile, housing associations across the country are increasingly struggling to afford land for much-needed new social homes. Private developers often build fewer affordable homes, allowing them to sell more homes for high prices and so pay more expensive prices for land. This practice is pricing housing associations out of the market for land.
Will Gardner, Director of Development at Home Group in the North East said, “We have actually had to stop bidding for sites across the country over the past couple of years, because we could only make offers that fell far below the prices sellers expect. It’s a really serious situation. Undoubtedly, there are fewer affordable homes being built as a result.”
Jigsaw Homes Group, which operates in the North West and East Midlands, have also had issues with the high price of land. “We’ve lost out on four sites in the North West in just the last two or three months,” Garnet Fazackerley, the Operations Director for Development, explains. “Bidding is highly competitive and finding enough land is getting harder. We find it difficult to compete with private developers, and so we do miss out on a regular basis.”
The National Housing Federation and the Centre for Progressive Policy are urgently calling on the government to radically reform the way that land is bought and sold to help tackle the housing crisis.
They say that ministers should change the law to allow public bodies to capture the increase in the value of land that comes when it is granted planning permission. This money can then be used to fund much-needed infrastructure and social housing.
This would only involve change to one law, the 1961 Land Compensation Act. It would also not be unprecedented in Britain – this policy is how the government built new towns like Stevenage after the Second World War.
David Orr, Chief Executive of the National Housing Federation, said, “This research shows the astronomical sums that landowners have been able to pocket, before they even build a single new home. At the same time, the numbers of people in desperate need of social housing is sky rocketing – we have to build 90,000 new homes for social rent every year to meet this need.
“In the face of a disastrous housing crisis, it is clear that the broken housing market is simply not delivering. What’s more, the way we buy and sell land is the key cause. Now, we need a fundamental rethink to tackle this fundamental problem.
“Our proposal would be a significant step, which would show that the Government is truly determined to tackle the housing crisis. There are also other steps that that the Government can take straight away, such as ensuring at least 50% of homes built on disused public land are affordable to people on the lowest incomes.”
However, the CLA has challenged the research, claiming that it distorts the view of how the value of land is captured.
CLA Director of Policy and Advice Christopher Price said, “These figures do not present an accurate view of the price land is sold for, nor do they accurately reflect the extent to which the state already captures the increased value of residential land compared to agricultural land.
“Government data on land values that underpin the assumptions in the report itself states the figures ‘may be significantly higher than could reasonably be obtained for land in the actual market’ and strongly recommends the figures are used only for policy appraisal.
“It is clear that we need to build more houses. We are keen to be part of the debate to help solve the housing crisis but it requires looking at a range of measures rather than a quick fix.
“While there is an uplift in the value of the land, the current system already captures a high proportion of this value to fund affordable housing, GP surgeries, schools and other infrastructure. These planning obligations are a pre-requisite to any development going ahead and exist to mitigate the impact of development. The government has recently taken steps to ensure developers contribute fully to these obligations.
“The current system achieves an equilibrium which ensures landowners are incentivised to sell land, that developers build and social infrastructure like affordable homes and schools are catered for.
“We are concerned that using these misleading figures as the basis to extract further value will break this equilibrium and stall land coming on to the market, holding back the delivery of all types of homes.”
The British Property Foundation has urged a cautious approach Land Value Capture reform could have unintended consequences on investment into communities and new housing delivery across the UK.
Ian Fletcher, Director of Real Estate Policy, British Property Federation said, “Land values vary significantly across the country and there will be many locations across the midlands and the North, and on brownfield land, where there is no value to capture. Crudely applied reform imposed in these locations will deter much-needed private sector investment into housing delivery and our town and city centres.
“Where there is significant land value uplift, there is substantial private sector investment available for new public infrastructure. The real estate sector is now more heavily taxed in the UK than any other country in the Organisation for Economic Co-operation and Development.
“At a time when the UK must be building more homes, finding land is critical to success. However, if landowners don’t get the uplift in value from change of use, fewer landowners will come forward with land. This will exacerbate the housing crisis.”