Labour is considering forcing landowners to give up sites for a fraction of their current price in an effort to slash the cost of council house building.
The proposal has been drawn up by John Healey, the shadow housing secretary, and would see a Jeremy Corbyn-led government change the law so landowners would have to sell sites to the state at knockdown prices.
Landowners currently sell at a price that factors in the dramatic increase in value when planning consent is granted. It means a hectare of agricultural land worth around £20,000 can sell for closer to £2m if it is zoned for housing.
Labour believes this is slowing down housebuilding by dramatically increasing costs. It is planning a new English Sovereign Land Trust with powers to buy sites at closer to the lower price.
This would be enabled by a change in the 1961 Land Compensation Act so the state could compulsorily purchase land at a price that excluded the potential for future planning consent.
Healey’s analysis suggests that it would cut the cost of building 100,000 council houses a year by almost £10bn to around £16bn.
With the “hope value” removed from the price of land, the cost of building a two-bed flat in Wandsworth, south-west London, would be cut from £380,000 to £250,000, in Chelmsford it would fall from £210,000 to £130,000 and in Tamworth in the West Midlands, where land values are lower, it would drop from £150,000 to £130,000.
“Rather than letting private landowners benefit from this windfall gain – and making everyone else pay for it – enabling public acquisition of land at nearer pre-planning-permission value would mean cheaper land which could help fund cheaper housing,” said Healey.
The proposal is expected to face strong opposition from landowners, including many pension fund investors, who would risk losing considerable sums on what they expected to receive. Savills, the property consultancy, warned that owners might launch legal challenges claiming the move infringed their property rights.
Companies known as strategic landowners make money for investors by buying agricultural land that may be needed for future housing at low prices, securing planning consent and selling it on for significant profits. They include Legal & General, which boasts “a strategic land portfolio of 3,550 acres stretching from Luton to Cardiff”.
Sites with potential for 800,000 homes are at the preplanning stage, according to Savills. A third are owned by land promoters who often seek planning consent for agricultural land in order to generate a return for institutional investors. Another third are owned by developers and housebuilders and the rest by other parts of the private sector, the state and social landlords.
Labour’s proposal comes amid signs of growing cross-party consensus that radical steps are needed to boost housebuilding, with the communities secretary, Sajid Javid, warning this week that he wants to take a more “muscular” approach to tackling land hoarding by developers.
A similar policy has been advocated by some leading Conservatives, including the former planning minister Nick Boles. In a sign of growing political consensus, he said the huge windfalls gained by some landowners were inequitable and that the current system of capturing the uplift in land value through section 106 agreements was “incredibly inefficient”, because private developers could afford to outwit planners with expensive lawyers and consultants.
“There will be mass opposition, but there aren’t that many landowners and they are not a huge voting block,” Boles said. “Not all Conservatives would naturally feel comfortable with this but I have been struck by the positive reaction.”
Speaking earlier this week Javid indicated he would like to change the system. He said: “I think it’s right that the state takes a portion of that uplift to support local infrastructure and development.”
Healey said: “The principle behind this idea is simple: the additional value of land publicly created by the granting of planning permission should flow to the local community rather than just as windfall profit to big developers, landowners and land agents.”
It comes as council leaders warn that council homes are being sold off so fast under the right-to-buy system it has become a “fire sale”. Since 2013, more than 55,000 council homes have been sold to private buyers with discounts set by central government averaging £60,000. Only 11,357 replacements have been started. Councils keep only a third of sale receipts, with the rest going to central government. They are arguing they should keep 100%.
“This loss of social rented housing risks pushing more families into the private rented sector, driving up housing benefit spending and rents and exacerbating our homelessness crisis,” said Judith Blake, housing spokesperson for the Local Government Association. “This is particularly concerning as many of the homes sold through the scheme ended up being rented out privately at more expensive rates.”
