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Building more social housing Contents

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3 Land

Land value capture

30.The Office for National Statistics found that land in the UK was valued at 51 per cent of the country’s net worth in 2016, compared to an average of 39 per cent in other G7 countries.68 The UK total was almost double that of Germany (26 per cent). Back in 1996, land accounted for one-third of the UK economy’s net worth; it now accounts for over half.69 This is not a new problem: between the end of the Second World War and the Global Financial Crisis in 2008, the price of land increased in real terms by fifteen times.70 The significant rise in the value of land in this country both in the last quarter of a century and beforehand is an important factor in explaining the decline in social housing.

31.As we described in Chapter 1, the Town and Country Planning Act 1947 enabled the state to compulsorily purchase land at levels close to existing land value. These powers, alongside substantial government grants, led to 1.8 million new social homes between the passing of the 1947 Act and the end of the 1950s. The Land Compensation Act 1961 introduced new compensation arrangements for landowners. It requires the payment of compensation to be the amount which the land might be expected to realise on the open market, including any justifiable prospect of planning permission being granted. This is sometimes referred to as ‘hope value’. Our predecessor Committee conducted an inquiry into land value capture and published its report in September 2018.71 It concluded that the Land Compensation Act 1961 required reform so local authorities could compulsorily purchase land at a fairer price, and that the present right of landowners to receive ‘hope value’ distorted land prices, encouraged land speculation, and reduced revenues for affordable housing. It recommended that compensation paid to landowners should reflect the costs of providing such housing, and the infrastructure and services that would make a development viable, as well as capturing a proportion of the profit the landowner will have made. This value would be established by an independent expert panel, with its decisions binding. Our predecessor Committee concluded that reform of the 1961 Act would provide a powerful tool for local authorities to build a second generation of New Towns, alongside significant developments within existing settlements.72

32.In response to the report on land value capture, the Government said it recognised there was “considerable interest” in reforming compulsory purchase compensation under the 1961 Act, and agreed that compensation needed to be fair.73 However, the Government said its reforms in the Housing and Planning Act 2016 and the Neighbourhood Planning Act 2017 made “extensive changes” to the 1961 Act. The Minister reiterated that he wanted to see the recent changes in the 2016 and 2017 Acts to “bed in”, and said “perpetual revolution is not necessarily the solution”, though he was keen to work with the Committee to see what else could be done.74 It has been nearly two years since the publication of the Land Value Capture report, and almost three years since the 2017 Act came into force. The Government consulted last year on the powers of New Town Development Corporations,75 which is a positive sign, but we agree with Shelter that there is nothing inherently advantageous in the design of development corporations in and of themselves: one of the reasons they were successful in the post-war period was their ability to purchase land at existing use value.76

How does the cost of land affect social housing supply?

33.Many social housing providers told us that the cost of land was one of the most significant barriers to delivering more social housing. The London Borough of Camden said that in their area, land values were among the highest in country, which diminished their ability to be interventionist and assemble underused or vacant sites.77 Shelter and the LGA research found that the “high cost of land is the single biggest barrier councils face in getting social housing built.”78 Clare Miller, chief executive of Clarion, the largest housing association in England, said that “land can be more than half the cost [of development] in London”.79 Midland Heart, a housing association, said high land values prevented them from accessing viable sites for development, and asked for “bolder, more comprehensive interventions to the land market.”80 Network Homes, in response to criticism that housing associations were not building enough social rent homes, published a report detailing development finances, concluding that with land value averaging well above inflation, the economics of building new social rent homes was extremely difficult.81 The housing association found that the actual costs of building homes had risen 15.3 per cent higher in real-terms, and that they were receiving on average a third of grant in 2018 compared to 2008–2011.82 On why local authorities were hesitant to use compulsory purchase order (CPO) powers, Councillor Richard Johnson of Cambridge City Council set out the problem:

At the minute, it is just too costly to take action. Sometimes it is deemed to be not worth it. If we actually had more teeth to pursue a CPO at an earlier stage of a process, we could actually utilise the assets in an easier and faster way.83

34.As much of our evidence set out, it is important that providers can access affordable land to build social housing. As we explain in Chapter 3, the Government will need to invest a significant amount into grant funding to meet social housing demand. However, if land could be obtained at cheaper prices, the cost of the entire programme could drop by almost 40 per cent, according to a study by Civitas in 2018.84 Civitas hypothecated a revised compensation framework, of existing use value plus 50 per cent, and found that the estimated overall cost of 100,000 social housebuilding programme would be reduced by £9 billion from £23.5 billion to £14.5 billion, with substantial savings in London and the South East.85 Greg Beales of Shelter told us this would “massively reduce the up-front investment required.”86 Unsurprisingly, we heard from many different quarters about how significant reform to land value capture could be. George Clarke, who grew up a social home in Washington, a New Town in the north-east of England, said the post-war approach was only viable due to different land value capture rules:

What made the entire development stack up for the Washington Development Corporation is that the land was put in at agricultural costs. That is what made it stand up. It is that simple. The Lambton family, who were big estate owners, put it in at agricultural costs for the Washington Development Corporation to build on, which meant that they could properly invest in long-term, sustainable homes in good communities.87

35.Reforming the Land Compensation Act 1961 has its critics. The Country Land and Business Association (CLA) represents 30,000 land and property owners who own around 10 million acres of land. The CLA quoted data from their own survey which suggested the public sector already receives an average of 57 per cent of uplift in the value of land.88 Our predecessor Committee estimated landowners currently retain around 50 per cent of the increase in land value arising from the granting of planning permission.89 The Committee said much of the captured value was needed for the public sector to be able to deliver social housing—Government statistics in 2015 found that, on average, agricultural land granted planning permission increased in value from £21,000 per hectare to £1.95 million per hectare.90 The CLA argued that landowners will not bring land forward if any changes go too far the other way, which was one of the main reasons the 1961 Act was brought in.91 We agree that it is important that any new system provides fairness to both parties.

36.Reform of the Land Compensation Act 1961 is well overdue. We reiterate the recommendations of our predecessor Committee. The Government should amend the Land Compensation Act 1961 so local authorities and development corporations have the power to compulsorily purchase land at a fairer price. The present right of landowners to receive ‘hope value’ reduces revenues and opportunities for social housing. Compensation paid by landowners should be determined by an independent expert panel, which we expect will deliver a fairer deal than the current model.

From public land disposal to public land assembly

37.As we have set out, private land will continue to be expensive to acquire through CPO unless our changes are implemented. The alternative option is developing on public land. Developing on public land is not ‘free’—as Kathleen Scanlon told us, it is another way of providing subsidy, as it comes with opportunity costs and it foregoes some capital receipts.92 But there is potential for significant savings: the New Economics Foundation estimated that using public land for social housing would reduce costs by around 62 per cent.93 It would also facilitate councils and housing associations, who have both identified availability of land as one of their biggest delivery constraints.94 Our predecessor Committee visited Germany and Netherlands and found that much of their development successes were because a substantial proportion of the land was already owned by the public sector. This allowed them “significant control” over the types of housing delivered on the land, including requiring certain proportions of social housing.95

38.Public land disposal has been a focus of successive governments since 2011, with the current Government calling it “a key part” of its housebuilding plans.96 The Government’s Public Land for Housing programme aims to sell assets where it believes they no longer have a public purpose, or could be used more efficiently by non-government actors, with two concurrent goals: delivering proceeds (a target of £5 billion between 2015 and 2020) and providing land for new homes (a target of 160,000 homes by 2020).97 The NAO found that the Government expected to only deliver 65,000 homes (41 per cent of the target) and does not expect to meet the 160,000 target until after 2025.98 The Public Accounts Committee’s (PAC) subsequent inquiry concluded that the Government had wasted a “once-in-a-generation opportunity to alleviate the nation’s housing crisis” by failing to take a strategic view on what housing was needed, including not aligning it with its affordable housing goals.99 PAC said it was “unacceptable” that the Government paid “so little attention” to how the surplus public land could be used to deliver affordable homes, especially social rent.100 Two separate studies on the amount of affordable housing expected found that only 15 per cent of homes on disposed public land would be affordable tenures, and only 2.6 per cent would be social rent.101

39.We heard that the reason why the Government had failed to meet its targets for housebuilding on surplus public land was because of the tension with the other target of generating proceeds for the Exchequer. The Government explained to the NAO that accounting officers had to operate within managing public money principles, alongside the land disposal principles, concluding that only “in some cases” might it be justifiable to choose an option that did not generate the highest receipt.102 New Economics Foundation told us the low percentages of social housing were due to the “reliance on private developers to develop public sites.”103 Canterbury City Council said that the Government needed to stop simply selling to the highest bidder, and encourage public sector landowners to sell land for social housing.104 George Clarke was critical of the current principles behind public land disposal:

For me, public land should be used for public housing. That is not the system at the moment. Public land is sold off to the highest bidder. As I say, I am not an economist, but you do not really have to be to understand that, if you have to get maximum value for a piece of land, it might affect the quality of the homes that are being built on that land, certainly for the profits that need to be made by the private house builders. Pressure is being put on the system all the time.105

40.The Royal Town Planning Institute said that 90 per cent of local authorities not engaging in housing delivery said it was due to lack of land, and that councils that were building primarily used their own sites.106 Councillor Lynnie Hinnigan of Liverpool City Council summarised the difficulties:

Land is an issue everywhere we go, particularly in Liverpool. We have just been told, “It’s great; you can build council houses.” That is massive, but where are we going to build them? We are restricted in terms of land.107

For housing associations, land availability is also a challenge. A survey of the sector by Savills in 2018 found that 78 per cent of housing associations cited availability of land as a “standout factor preventing the sector building more homes”.108

41.An alternative to the current model is to ring-fence public land for social housing and co-ordinate public land assembly for such a purpose. 56 per cent of councils who want to increase housebuilding say they would require help with land identification and assembly.109 G15, the group of large housing associations for Greater London, said it wanted Homes England to make more proactive use of its compulsory purchase powers to assemble land for housing development projects.110 Sage Housing agreed, recommending that Homes England be given additional funding to acquire, assemble and unlock land to facilitate long-term delivery. Midland Heart also voiced its support for an extension of Home England’s role in land assembly:

[We] would like to see bolder interventions into land assembly […] Land assembly can be a complex and time consuming process and a major obstacle to increasing build out rates. There is scope for the agency to grow its work in this area with housing associations, as well as commercial developers, to deliver strategic sites.111

42.There are several advantages to Homes England taking on a large land assembly role, especially with the changes to land value capture we recommend. Homes England already has a small direct delivery programme, as well as regional outposts and compulsory purchase powers.112 It already has established relationships with housing associations, through strategic partnerships.113 We received positive evidence about Homes England’s performance so far, which suggests a level of confidence from the sector in the central body. For example, Fiona Fletcher-Smith, group director of development and sales at L&Q, said Homes England was doing a “really tremendous job” at unlocking land.114 Philip Glanville, representing the LGA, said that what was really needed was “genuine partnership between national and local government in England” when public land became available.115 We see Homes England best placed to do that.

43.During the Prime Minister’s speech on rebuilding Britain on 30 June, he announced that the Government would “begin to look at how land owned by the Government can be managed more effectively”, including releasing it for more housebuilding.116

44.We agree with the Public Accounts Committee that the Government missed a crucial opportunity to alleviate the housing crisis through its disposal of public land. While we understand the constraints around managing public money, it is nonetheless short-sighted to sell public land to the highest bidder when social housing providers struggle with the cost of land. The programme has not addressed the housing shortage nor the social housing shortage.

45.The Government’s public land disposal strategy needs a wholesale re-design, not more of the same. We recommend the Government thinks less about disposal, and more about assembly. Homes England should take a central role in co-ordinating public land to be used for social housing, by being tasked with identifying suitable land, including a joined-up approach with land owned by local authorities, as well as purchasing private land suitable for social housing. With our suggested reforms to the Land Compensation Act 1961, this land would be easier to purchase and more affordable.

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