Government must scrap landowner 'price premium' to tackle housing crisis

A "price premium" paid to landowners must be scrapped if the Government is to deliver on its "moral mission" to tackle the housing crisis, according to research.

But the proposed move to significantly reduce the price paid for land often owned by farmers would likely further anger those who attended a large protest over controversial changes to inheritance tax on Tuesday.

A new study found that ending an obligation on local authorities to pay extra for land based on its worth if planning permission were granted in the future, known as "hope value", would significantly lower the cost of delivering 90,000 social homes a year.

Modelling by the New Economics Foundation (NEF) showed that scrapping the premium alongside strengthening financial contributions developers make through Section 106 agreements could cut the annual cost of the social housebuilding programme by 4.5 billion, a reduction of 25%.

The analysis also showed the bulk of the savings would be in London and the South East, the regions with longest social housing waiting lists, while 27,000 extra social homes could be delivered if the money saved was reinvested.

The Government has pledged to build 1.5 million homes in five years, with experts saying this must include 90,000 new social homes annually to meet housing needs.

The hope value rule, introduced in the 1961, applies when councils acquire land through a compulsory purchase order and is applicable even if the landowner has no intention of applying for planning permission.

Land with planning permission is worth on average 275 times its agricultural value, according to the Centre for Progressive Policy.

The Levelling Up and Regeneration Act 2023 allowed the secretary of state to remove the application of "hope value" on a case-by-case basis.

But the report states: "Obtaining approval from Whitehall adds an additional level of bureaucracy to the process that has the potential to block up the system while leaving councils exposed to another stage at which it could face judicial review."

Labour said it plans to go further than the Act, with the party's manifesto promising further changes to hope value.

Reforms recently proposed as part of the consultation on the National Planning Policy Framework include the removal of hope value in the event of a compulsory purchase order being issued to unlock land in the public interest.

However, the proposals have proved controversial among landowners. The Country Land and Business Association, which represents English and Welsh landowners, has described proposals to broaden land reforms as "forcing hard-pressed farmers to sell their land for a fraction of its potential value".

The NEF said the proposals will also likely face legal challenge on the suggested basis that such steps could interfere with landowners' rights under the first additional protocol to the European Convention on Human Rights regarding the protection of private property.

But Alex Diner, senior researcher at NEF, insisted that the housing crisis can be tackled in a way that is fair to landowners.

He said: "With record levels of homelessness, rising private rents, and increasing housing insecurity, this country desperately needs a new generation of social homes."

"The government has rightly declared tackling the housing crisis as a 'moral mission', but their plans are being blocked by unfair land rules."

"These rules should be reformed so that the country can build the homes we need while giving landowners fair and reasonable prices for their land."

"Further reforming the 'hope value' rule is vital to ensure the government hit their housing targets, build the homes we need, and tackle the housing crisis."

Data from the Office for National Statistics shows a long-term trend of rising land prices making up a growing portion of the value of homes.

The total value of homes in the UK was about half of the total value of the country's land in 1995.

But by 2022, the total value of land outstripped the value of homes by almost 3.5 times, helping to push up prices and rents and increasing the cost and risk of building new homes, the report said.

Farmers have reacted with anger and dismay to the inheritance tax changes for farming businesses, which limit the existing 100% relief for farms to only the first £1 million of combined agricultural and business property.