Inflated land prices blocking government from building enough homes to hit targets and meet need

A price premium for landowners is artificially inflating land prices and blocking the government from building the social homes needed to ease the housing crisis and meet its own housebuilding targets, according to a report from the New Economic Foundation (NEF), published today [Tuesday 19 November].

The report finds that scrapping the rules which oblige local authorities to pay a price premium when buying land (known as ​“hope value”) and strengthening developers’ contributions would reduce the cost to government of building 90,000 new English social homes a year by £4.5bn, slashing the cost by a quarter (23%).

While this would reduce the cost of land across England, the bulk of savings would be in English regions with the longest social housing waiting lists and the highest rates of homelessness (London and the south-east). If these savings were then reinvested, they could build an extra 27,000 social homes a year.

Alex Diner, senior researcher at the New Economics Foundation (NEF), said:

“With record levels of homelessness, rising private rents, and increasing housing insecurity, this country desperately needs a new generation of social homes.

“The government has rightly declared tackling the housing crisis as a ​‘moral mission’, but their plans are being blocked by unfair land rules. These rules should be reformed so that the country can build the homes we need while giving landowners fair and reasonable prices for their land.

“Further reforming the ​‘hope value’ rule is vital to ensure the government hit their housing targets, build the homes we need, and tackle the housing crisis.”

The new Labour government has promised to back ​“the builders, not the blockers” and build 300,000 new homes a year. Analysts agree that to meet housing need, this must include 90,000 new social homes each year. But today’s research shows how a land rule from the 1960s is blocking this government from building enough new social homes to ease the housing crisis and meet its own targets.

Since the 1960s, local authorities have been required to pay an inflated price of land when making compulsory purchase orders. Known as ​“hope value”, this obliges local authorities to pay the value of what land could be worth if it obtains planning permission at any point in the future – even if the landowner has no plans to do this. The Centre for Progressive Policy found that, on average, this can increase the price of a plot of land by 275 times.

The 2023 Levelling Up and Regeneration Act 2023 allowed the secretary of state to scrap the application of ​“hope value” on a case-by-case basis. The new Labour government plans to go further, with the party’s manifesto promising further reform of hope value.

Notes

The New Economics Foundation is a charitable think tank. We are independent of political parties and committed to being transparent about how we are funded.

The report, Building hope, can be found at www​.newe​co​nom​ics​.org from 00.01 Tuesday 19 November 2024.

Policy modelling is paying existing use value plus 50% and strengthened enforcement of section 106 across England in accordance with regional need, bedroom need, and available types of land.

Centre for Progressive Policy report showing difference in price between agricultural land and land with planning permission can be found at https://​www​.pro​gres​sive​-pol​i​cy​.net/​d​o​w​n​l​o​a​d​s​/​f​i​l​e​s​/​L​V​C​-​R​e​p​o​r​t​-​S​e​p​-​2​0​1​8.pdf