Increases in land value should be shared with local communities, say MPs

Government statistics show that agricultural land, which is granted planning permission for residential use, would, on average, increase in value from £21,000 per hectare to £1.95 million per hectare. The report published today on land value capture makes the case for local authorities and central government to capture a ‘significant proportion’ of this uplift in value to invest in new infrastructure and public services.

The Committee argues that there is scope for raising additional revenue from reforms to existing taxes and charges, consideration of new mechanisms for land value capture, and reform of the way local authorities can compulsory purchase land. 

The Committee also highlights the success of the first generations of New Towns, which acquired land at, or near to, existing use value, and captured uplifts in land value to invest in new infrastructure. It calls for reform of such powers – through amendment of the Land Compensation Act 1961 – which would lead to a ‘much-needed’ boost to housebuilding

Among the main recommendations are:

• Reform of the Land Compensation Act 1961, to give local authorities the power to purchase land at a fairer price. This reform – which has growing political support – would provide a powerful tool for local authorities to build a new generation of New Towns, as well as extensions to, or significant developments within, existing settlements.
• Further simplification of the CPO process, to make it faster and less expensive for local authorities, whilst not losing safeguards for those affected.

• Reform of the Community Infrastructure Levy (CIL) to remove complexity and the extensive range of exemptions that currently limit its effectiveness.
• More resources for local authorities to ensure they are able to negotiate robustly with developers to secure the appropriate level of planning obligations.
• Securing the maximum value for new infrastructure and public services from public land put forward from residential development, with much to be learned from Germany and the Netherlands in this respect.

Clive Betts MP, Chair of the Housing, Communities and Local Government Committee, said: “Land value capture is fundamentally about fairness and necessity. 

Fairness, because the current system allows landowners, through no effort of their own, to make multi-million pound profits from the substantial increases in land value that arise from public policy decisions, such as the granting of planning permission. As these increases are significantly created by the actions of the State, it is right that a significant proportion of this should be shared with the local community.

Necessity, because if the Government is to meet the challenge of providing enough new homes over the coming years, then they will also need to find the funds for improving the surrounding infrastructure. 

Our proposed package of reforms to taxes and charges will ensure a fair proportion of the increase in value arising from public policy decisions can be used by national and local government to invest in new infrastructure and public services.

In particular, there is a growing consensus that the Land Compensation Act 1961 requires reform. The present right of landowners to receive ‘hope value’ is distorting land prices, encouraging land speculation and reducing revenues that could be used for affordable housing, infrastructure and local services.

Ensuring local authorities have the power to compulsorily purchase land at a fairer price will provide a powerful incentive to build a new generation of New Towns and the extra homes that we so desperately need.”