The increase in the value of land that has, or just might get, consent for housing verges on the incredible. This is not any old increase in value. It’s way beyond the increase in the value of your one-bedroom flat, even back in the day when it earned more in a week than you did. No, farmland with planning permission goes up at least a hundredfold, and in chosen parts of southern England – Oxfordshire, say, or Hampshire – the value of the land might go from £12,000 an acre to £2m or more, once it’s been signed off by the planners.
The Institute for Public Policy Research (IPPR) thinktank has been worrying about housing more and for a longer period than almost any other thinktank. So its recommendations carry weight. Today it’s calling for new powers for local authorities to designate land for development and then freeze the price, in an attempt to eliminate the windfall gains landowners make when they get planning permission to build houses on an acre of two of their plot. But reformers should beware. They think they will get more land more cheaply so that new houses cost less. It’s been tried before and it didn’t work then, and it would take a highly controversial increase in local authority powers to have a chance of working now.
The IPPR proposal does avoid some of the perils of earlier attempts at taxing windfalls such as the betterment tax that Labour pledged as an alternative to land nationalisation in 1945. The trouble with this kind of tax is that it immediately opens up a new political battleground and gets reversed as soon as the Tories are back in power. That’s what happened to the betterment tax Labour introduced in 1947 and the version they tried again with in 1967 and again in 1976. Knowing that it won’t last forever, landowners sit on land they might otherwise have sought planning permission for.
But this crisis is bigger than a single tax. The state of the market in land is a symptom of the crisis in housing. Even if new compulsory purchase powers for local authorities and zoning development enabled some more houses to be built, the market would not necessarily provide the right kind of houses, or houses at the right price.
Companies that build a greater volume of houses, which have been reduced by the 2008 crash down to a mere handful, share a business model. They build pricey homes which they trickle out on to the market, being careful at all times to sell at a price that’s in line with the local housing market. Far from the economics of supply and demand working to cut prices, the builders deliberately flout them to keep prices up. If more really equalled cheaper who would pay those Persimmon-style bonuses?
Recent history shows how feeble the single weapon approach is: every bung by successive chancellors to try to get more, cheaper homes built has been pocketed by the builders without making much impact on the affordability of the homes themselves. The cannier approach of trying to demand some planning gain that would benefit the local community – new schools, a proportion of affordable homes, new roads – has been undermined by the introduction of a viability test. That means builders just have to say they won’t be able to afford to build any new homes at all if they are made to meet the terms they agreed to when they first won permission to develop. One bound and they are free.
The generation who won the lottery of home ownership really did get the golden goose. The economy of the 21st century is defined by consumer spending that’s fuelled by borrowing against the rising value of the place where we live. Rock-bottom interest rates just enhance the significance of house values and their importance to the wider economy. There’s an important debate to be had about better land taxes. There is an even more desperate need for new social housing and a way of funding it that doesn’t depend on constructing 10 times as many high-end apartments first. The IPPR is right about the urgent need for reform. But it will take more than a tweak of the mechanics of land supply to drive a stake through the heart of the housing crisis.
• Anne Perkins a former deputy political editor of the Guardian
