Reforming the land market can help deliver 300,000 homes per year

Housing in London. Image: Getty.

The government’s new housebuilding target of 300,000 net additional homes per year for England will require new build completions to rise from around 184,000 to somewhere close to 280,000 units a year. To achieve this, the government needs to tackle three key issues related to the current dysfunctional land market.

Firstly, the requirement to bid for land parcels makes it prohibitively expensive for smaller scale builders and housing associations, as well as cash-strapped local authorities, to acquire land. Second, too many planning permissions are held by non-house builders due to their ability to profit from rising land values. Thirdly, lower levels of infrastructure investment have meant that fewer large scale sites are opened up, and the ability to claw back only a quarter of the uplift in land values means there are insufficient funds to invest in new infrastructure.

The land market is disproportionately impacted by the compensation rules set out by Parliament. When the compensation rules assume that land will be awarded planning permission in the future, then land will trade at levels close to residential value.

But if the rules do not award compensation for prospective planning permission, as in the Netherlands, then market values will trade at levels close to agricultural or industrial land values. This is why the Netherlands has been able to build two thirds more housing units than Britain since the mid-1970s.

One approach to reforming the land market is to amend the 1961 Land Compensation Act and remove “prospective planning permission” from the compensation arrangements. This would have a direct impact on land prices, causing market values to fall much closer to use value: there would no longer be an incentive to hoard and speculate on land. This market-based solution would improve the efficiency of the land market and reduce the need for wasteful government intervention, such as spending nearly 10 times more on housing benefit than Germany as a percentage of GDP.

This reform would enable private sector housebuilders to expand capacity: they would no longer have to manage the risk of the value of land through time. Small housebuilders would no longer be at a disadvantage, and self-build units could dramatically increase as long as local plans allocated sufficient plots.


Such a reform of the land market would also enable the rise in land values to fund large scale investment across the country, increasing investment by as much as £9.3bn per year across England alone. This rise in land values would permit groups of local authorities to borrow from the capital market to invest in new infrastructure, with the revenue streams from the uplift in land values paying back the bond holders.

Data collected and analysed by the Centre for Progressive Policy during its in-depth analysis of the Oxford to Cambridge corridor suggests that the level of housebuilding can be raised by 8,200 units per annum, based on annual investments of £790m excluding land costs. This analysis can be used to help assess how many incremental units might be built given an additional £9.3bn of investment. Although land values differ across the country, the Centre found that the Birmingham and Leeds city regions generate similar levels of land value capture to the Oxford to Cambridge corridor.  

Using this analysis, the Centre estimates that the incremental revenues unlocked through land reform could pay for the necessary infrastructure for an additional 96,500 units per annum, a quarter of which would be in the Core Cities.

This would come very close to meeting the government’s new target of 300,000 units per year. Moreover, 36 per cent of these units would be affordable and fully paid for through this mechanism, which amounts to an additional 35,000 units per year.

Far from being a leap into the unknown, these reforms would actually be a return to how Britain used to build houses. The popular garden cities, new towns and infrastructure projects built in the first half of the 20th century were possible because they used the uplift in land values to fund the projects.

The housing white paper and the Conservative Party’s 2017 general election manifesto recognised the importance of land value capture to boost housebuilding. The government now needs to act and introduce market forces to an opaque and inefficient land market, which remains the major obstacle to building the houses the country so desperately needs.

Thomas Aubrey is the author of a recent report on housing and the land market for the Centre for Progressive Policy.

 
 
 
 

Older people need better homes – but then, so does everybody else

Colne, Lancashire. Image: Getty.

Towards the end of last year, I started as an associate director at the Centre for Ageing Better, working particularly on our goal around safe and accessible homes. Before I arrived, Ageing Better had established some ambitious goals for this work: by 2030, we want the number of homes classed as decent to increase by a million, and by the same date to ensure that at least half of all new homes are built to be fully accessible.

We’ve all heard the statistics about the huge growth in the number of households headed by someone over 65, and the exponential growth in the number of households of people over 85. Frustratingly, this is often presented as a problem to be solved rather than a major success story of post war social and health policy. Older people, like everyone else, have ambitions for the future, opportunities to make a full contribution to their communities and to continue to work in fulfilling jobs.

It is also essential that older people, again like everyone else, should live in decent and accessible homes. In the last 50 years we have made real progress in improving the quality of our homes, but we still have a lot to do. Our new research shows that over 4 million homes across England fail to meet the government’s basic standards of decency. And a higher proportion of older people live in these homes than the population more generally, with over a million people over the age of 55 living in conditions that pose a risk to their health or safety.

It shouldn’t be too difficult to ensure all our homes meet a decent standard. A small number of homes require major and expensive remedial work, but the overwhelming majority need less than £3,000 to hit the mark. We know how to do it. We now need the political will to make it a priority. Apart from the benefits to the people living in the homes, investment of this kind is great for the economy, especially when so many of our skilled tradespeople are older. Imagine if they were part of training young people to learn these skills.


At a recent staff away day, we explored where we would ideally want to live in our later lives. This was not a stretch for me, although for some of our younger colleagues it is a long way into the future.

The point at which the conversation really took off for me was when we moved away from government definitions of decency and accessibility and began to explore the principles of what great homes for older people would be like. We agreed they needed light and space (by which we meant real space – our national obsession with number of bedrooms as opposed to space has led to us building the smallest new homes in Europe).

We agreed, too, that they needed to be as flexible as possible so that the space could be used differently as our needs change. We thought access to safe outdoor space was essential and that the homes should be digitally connected and in places that maximise the potential for social connection.

Of course, it took us just a few seconds to realise that this is true for virtually everyone. As a nation we have been dismal at moving away from three-bed boxes to thinking differently about what our homes should look like. In a world of technology and factory building, and as we build the new generation of homes we desperately need, we have a real chance to be bold.

Great, flexible homes with light and space, in the places where people want to live. Surely it’s not too much to ask?

David Orr is associate director – homes at the Centre for Ageing Better.