If like me you’re a huge fan of both Tory infighting and planning reform, then last Friday was a pretty big day. In the morning, Liz Truss, the chief secretary to the Treasury, tweeted that Labour was planning to force landowners to sell sites at knockdown rates in an effort to cut the cost of new council housing. Portentously, she added the words: “This is deeply sinister.”
“No it’s not,” replied her fellow Tory – and former planning minister – Nick Boles. “Why should a few landowners receive all of the windfall profit from planning permission when the taxpayer bears the cost of infrastructure?” OK, it was hardly Ali and Frazier, but in planning you take whatever excitement you can get.
Far be it from me to take sides in a Tory civil war – as in the film Alien vs Predator, it would be better for the rest of us, I feel, were they to destroy each other – but Boles was very definitely in the right, and Truss was very definitely in the wrong. Our current system, in which “planning gain” flows entirely to landowners, is defensible from neither a common-good perspective nor a free-market one. As with so many aspects of the British housing market, it basically amounts to free money for the already rich.
This is deeply sinister. First the utility companies, then the landowners. Who next? #freedomerosion #confiscation https://t.co/V1EI4MWO8U
— Elizabeth Truss (@trussliz) February 2, 2018
Here’s how it works. The price of land tends to skyrocket when planning permission is granted. This makes intuitive sense: you will make a lot more money from a field where all you do is graze cows if you can stick half a dozen semis on it. In between these two values, though, there’s a third, which stems from the prospect that your field might plausibly get planning permission at some point in the future: perhaps it’s on the edge of a village, or next to a station. The extra value such possibilities create is called “hope value” – and under current rules, government has to include it when compensating landowners for any land it wants to compulsorily purchase.
In other words, the state is paying not just for the land and any planning permissions it currently holds, but also any permissions it might conceivably hold in the near future. If the state buys up land to build housing, then in effect it has to pay a higher rate – even if no planning permission has yet been granted.
A couple of things about this state of affairs have always smelt a bit whiffy to me – and both are about getting money for nothing. First, landowners are being compensated for something that doesn’t actually exist yet. Second, if landowners themselves get planning permission to build, the state has to pick up the tab for the extra infrastructure that new homes or offices require – the landowner gets a bonus, while all the taxpayer gets is a bill.
This is the system that Labour’s housing spokesman, John Healey, has set out to reform. He’s proposed creating a new English Sovereign Land Trust, empowered to compulsorily acquire sites at prices much closer to those without planning permission. Such a move is likely to prove controversial with the small number of people who benefit from the current rules. The property consultancy Savills has predicted that owners will launch legal challenges, on the grounds that their property rights are under attack. Investment funds that buy up land may lose out too, possibly affecting pensions (though I fear that telling millennials a policy will endanger their pensions will be about as effective as telling them house prices could suffer.)
On the flipside, however, enabling the state to acquire land at cheaper rates would cut the cost of building new housing by over a third. The cost of building 100,000 new council homes a year, Healey’s analysis suggests, would fall from nearly £26bn to £16bn. That is a big saving: to put it another way, for your original £26bn, you could now get an extra 60,000 homes.
It’s no surprise that Truss should have laid into this policy: frantic warnings that Labour will nationalise your grandmother given half a chance are one of the few moves this exhausted government has left. But in doing so, she’s defending the interests of a wealthy rentier class, while opposing the sort of radical action we need if we’re to make a dent in this country’s housing crisis. This is, to borrow a phrase, deeply sinister.
• Jonn Elledge is editor of the New Statesman’s cities site, CityMetric
