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Report: Broken land market cause of poor productivity in the UK

Words: Laura Edgar

The ‘dysfunctional’ land market is the root cause of an unproductive and unstable UK economy, according to think tank Institute for Public Policy Research (IPPR).

In The Invisible Land: The hidden force driving the UK’s unequal economy and broken housing market, IPPR highlight that the value of land held by households has “soared” over the past two decades and is now worth “more than double” the value of the house on top of it.

The “dysfunctional land market and soaring land values” have drive the growing wealth inequality; created the conditions for a broken land market and are the “root cause” of an unproductive and unstable economy, it concludes.

The Invisible Land states that the broken land market is the driving force behind the broken housing market in England, with the land value increasing up to 100 times when planning permission for housing is granted on agricultural land. IPPR cite south Oxfordshire as an example – a hectare of agricultural land here is worth around £25,000 but with planning permission for housing this rises to £5.6 million.

To reform the land market, IPPR suggests the government should change compulsory purchase laws so that local authorities and public bodies can buy land at a fair value that enable the delivery of high quality development.

“To achieve this the 1961 Land Compensation Act should be amended to remove speculative ‘hope’ value based on prospective future planning permissions. The landowner could still expect to receive a return on their investment, which provides them with an incentive to bring forward their land,” the report states.

Further, English planning authorities should be given the power to “zone” land for development and freeze its price close to its current value, like in Germany. “Landowners would still get a fair return, but any windfall would accrue to the state to pay for infrastructure and affordable housing to benefit the local community,” the report explains.

IPPR has also made a number of recommendations for reforming the housing market, such abolishing the local authority-borrowing cap; reforming land and property taxation; and regulating the finance sector.

Chris Procter, director at Caddick Land, said: "IPPR are correct to identify the price of land is a significant contributing factor to the cost of new homes but in reality the value of land with residential development planning consent reflects the cost and difficulty of securing planning permission. An artificial freeze prices could have unintended consequences to the supply of land through landowners taking the decision to hold on to assets rather than trade in the open market.

"The best way to bring down the price of new housing is to increase supply in the locations people want to live in most and that means reforming the planning system to make housing delivery easier and remove barriers to entry for SME developers that will help diversify housing provision."

The Invisible Land: The hidden force driving the UK’s unequal economy and broken housing market can be found here on the IPPR website.

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