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Land reform could save ‘billions’ for councils building homes, says think tank

Words: Laura Edgar
Greenfield and green belt land / Shutterstock_192153302

Reform of the land market could reduce the upfront cost of an affordable housebuilding programme by more than a third, according to cross-party think tank Civitas.

The majority of the cost of housing development comes from the price of land, which is much higher when planning permission is granted for new homes, notes the think tank.

It contends that if councils had the power to acquire land at fairer prices, before planning permission is awarded, the cost of building 100,000 homes could fall by about £9 billion.

Calculations by Civitas suggest that a 100,000-housebuilding programme could cost £23.5 million under the existing framework, but if the framework was revised and landowners were only paid a 50 per cent premium on the current value of their land, this could drop to £14.5 billion.

According to Reform of the Land Compensation Rules: How Much Could It Save on the Cost of a Public Sector Housebuilding Programme? 10,000 homes could be built in inner London boroughs and 10,000 in outer London boroughs, with the remaining 80,000 spread out across England for this revised price.

Daniel Bentley, editorial director at Civitas, said: “It is clear that the only way to consistently build 300,000 homes a year is for the public sector to supplement market provision with a steady supply of new affordable homes. This would provide a much-needed alternative to the insecure private rented sector for low-income families, and by stepping up supply it would bear down on housing costs for everybody.

“Ministers have repeatedly suggested that council building needs to be part of the solution, but seem to be put off by the upfront costs. But these costs could be dramatically reduced if landowners were prevented from pocketing the unearned windfalls that arise when sites are designated for new housing.”

Official estimates note that residential land in England is worth an average of £2.1 million a hectare, but in agricultural use the land would be worth £21,000 a hectare. Brownfield land would be worth £514,000 a hectare.

The revised framework suggested by Civitas (existing use value plus 50 per cent) would see the cost of land in the South East fall from a residential land cost of £233,000 a unit to £123,000 a unit.

The residential value of the land reflects the market value of the homes that can be built on that land, minus construction costs and the developer’s margin. The landowner’s entitlement to that residential value is currently enshrined in case law and legislation dating back to the 1961 Land Compensation Act, therefore local authorities can’t buy the land for less than the residential value.

Reform of the Land Compensation Rules: How Much Could It Save on the Cost of a Public Sector Housebuilding Programme? can be found here on the Civitas website (pdf).

Image credit | Shutterstock