Reforming the land market to deliver affordable homes

A recent Civitas publication suggests that reform of the land market could increase the number of affordable houses being built. Sally Jackson explains.

Some councils should be designated ‘special housing zones’ in order to flood the market with new homes for sub-market sale or rent, according to a new report.

The cost of land is thought to be one of the factors for why not enough homes are being built.

The Civitas publication – ‘In the Land Question: Fixing the Dysfunction at the Root of the Housing Crisis’ – advocates that the highest-demand areas should be designated as special housing zones.
This would see local authorities or mayors assume the ability to acquire land at below its residential value, “saving of pounds per hectare” in land acquisition costs. As a result, “thousands” of council homes could be built within any given funding belt, and could be used to increase social housing stock as well as be sold to first-time buyers at more affordable prices.

Doing this would overcome landowners’ ability to “drip-feed land” for new developments at prices that lead to slow build rates and squeeze out affordable housing, according to Civitas.

Report author and editorial director at Civitas, Daniel Bentley, notes that often wealthier people buy new-builds, limiting the pace at which developers can build. He said that when it comes to large sites – up to 1,000 homes – 50 to 60 units are built a year. “That new homes must be priced at this level is the result of landowners holding out for the highest-value schemes for their sites.”

The impact of this is greatest in high-price areas. The report states that 80 per cent of London’s new-builds are affordable only to 8 per cent of households. Additionally, affordable housing contributions from developers have fallen by 37 per cent since 2009 in the capital.

Reforming the 1961 Land Compensation Act

Recommendations in the report include removing landowners’ entitlement to residential values for sites that have not yet been granted planning permission, laid out in the 1961 Land Compensation Act.

This, says the report, prevents public authorities from purchasing land for new housing for less than its potential residential value, even if the land doesn’t have planning permission, which could be 100 times as much as its agriculture value.

For Bentley, the pursuit of such profits by private landowners “should not be allowed to undermine public policy objectives in housing”.

He recommends the 1961 act be reformed so that there is no assumption that landowners are entitled to future residential values and local authorities are able to strike deals for land at prices closer to its existing use value.

Benefits of this are listed as:

• Landowners’ incentive (especially in high-demand areas) to sit on land waiting for higher prices or higher-value developments would be removed.
• It would be easier for private developers to get hold of land at prices compatible with planning obligations, including the provision of more affordable housing units as well as quicker build rates for market-sale homes.
• It would make it much easier and much cheaper for the government to embark on a new generation of council housebuilding and/or a new programme of new towns and garden villages.

Bentley said a public sector building programme that would to add to the output of private developers is “becoming increasingly essential”.

“This should comprise council housebuilding in existing towns and cities but – given that space is limited in many of those places – it also requires the development of strategically planned new towns and garden villages in new locations.

“Ministers seem reluctant to fund such a scheme in the current fiscal environment. But the upfront costs of development could be very much reduced by reforming the land compensation rules and allowing public authorities to buy land at prices closer to their existing use value.”

He added that in high-demand areas this could save the taxpayer millions of pounds per hectare.
Martin Tett, the Local Government Association’s housing spokesperson, said: “An effective land market is critical to delivering more genuinely affordable homes with the infrastructure and services that communities need.

“Councils have long called for the powers to purchase land at a price which is close to its existing use, and to be able to capture increases in land value in order to fund further delivery of affordable homes and infrastructure, and for greater transparency on land ownership.

“It is crucial that the chancellor uses the Autumn Budget to trigger a renaissance in council housebuilding by enabling councils to borrow to build once more.”