Continuing our critique of the IPPR report ‘The Invisible land’ we look at their proposals for land reform which consist of extending the use of compulsory purchase and zoning land for developement and freezing the price.
In essence the aim is that most of the increased value of land arising from development is captured by the state and used to provide infrastructure and affordable housing.
What are the problems?
Well as we have said previously it is incorrect to attribute all the increase in land value to the community in terms of public investment. Land prices reflect the location of the land and demand for it. Land in central London is worth far more than in a town in the north of England simply because of the demand for land in the former arising from economic forces (financial sector in London for example), and because lots of people want to live there.
Lets think of the extra value as the cost obtaining a commodity in short supply. Taking away most of the extra value and giving it to the state does not mean the value disappears, it is transferred from one owner to another. Which means that land and therefore housing is not necessarily cheaper.
Giving the state such powers would provide a powerful incentive for local government to encourage development (shades of Cornwall Council), on the grounds they would make money out of development. This raises a whole range of concerns over sustainability for a start.
As we have said the value of the land would not disappear, there would still be demand for development whether housing or other forms of development. As soon as the land was sold on someone would capture any difference in value that arose. If luxury housing was built then the owners would gain the extra value.
And there is the question of what happens to other land? Owners of existing land could still operate in a private market. Would the land value for a Tesco store be frozen? Probably not.
The IPPR assumes that development land is required by the (local) community, but in Cornwall for example that is often not the case. Most housing, and by implication, development to support that housing is needed for people moving to Cornwall – perhaps they should pay for the cost of providing infrastructure?
The IPPR talks of the local authority haveing the power over what would be built on the land – but surely this is the case now? It is not necessary to own the land to determine it use.
Compulsory purchase laws should be reformed to allow local authorities and public bodies in England to buy land at a fair value that enables the delivery of high quality development. We propose the reform of compulsory purchase laws, by amending the 1961 Land Compensation Act, which has been recommended by a number of organisations including Shelter (Jeffreys et al 2017), the Royal Town Planning Institute (RTPI 2018) and the Centre for Progressive Capitalism (Aubrey 2017). This is the approach already taken in a number of countries, including Germany and the Netherlands and that was in operation in the UK prior to 1961. In practice, the expectation would be that compulsory purchase would be used sparingly (though it must be a credible threat), but this change would reduce price expectations and allow the cost of land to fall. The landowner could still expect to receive a return on their investment which provides them with an incentive to bring forward their land.
Planning authorities in England should be given the powers to ‘zone’ areas of land for development and freeze its price close to its current use value, as happens in Germany and argued for by Falk (2018). Landowners would still get a fair return, but any windfall would accrue to the state to pay for infrastructure and affordable housing to benefit the local community. Authorities would have the power to determine what would be built on the land, ensuring that these new developments deliver high quality and sustainable communities. Areas designated through these zones would generally be areas of strategic importance or where the land was underutilised.