William Eichler 28 August 2018

Freeze price of land to deliver affordable housing, think tank says

The Government should limit the ‘windfall gains’ of landowners by freezing the price of land newly designated for housing, a progressive think tank says.

Landowners are able to purchase land cheaply before selling it off with planning permission at a greatly inflated price. A hectare of agricultural land in Oxfordshire, for example, is worth about £25,000 but with residential planning permission the value would typically rise to £5.6m.

The high cost of land means fewer homes are being built at affordable prices, as land is the most significant cost in house building. In 2016, on average, the price of land had risen to more than 70% of the price paid for a house.

The Institute for Public Policy Research (IPPR) recommends that planning authorities be allowed to zone land for development and freeze its price.

The land, the think tank’s study proposes, would be selected because of its strategic importance for housing or because it is deemed to be under-utilised.

Councils would either buy the land with reasonable compensation for the landowner and sell it on to developers at the higher price or would enter into a partnership with the landowner to share the proceeds of the sale.

This would mean that the extra value added by planning permission would accrue to national and local government rather than private developers.

‘Conventional wisdom suggests that the UK has a problem with house prices, but the reality is that we have a problem with land,’ said Luke Murphy, associate director at IPPR.

‘The speculative land market is the hidden force driving the UK's unequal economy and broken housing market.’

‘Wealth inequality, a poorly functioning housing market, an economy focused on unproductive investment and macroeconomic instability are all negative consequences of our current speculative land market.

‘The sweeping reforms we propose for regulating our land and housing market, and for a more progressive taxation system focused on land, will reduce wealth inequality and allow for a greater focus on productive economic investment.

‘It will also create a better-functioning housing market, capable of delivering the genuinely affordable homes the country needs.’

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