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Reform land compensation rules to speed up new housing delivery

  • The government’s housing white paper will not increase housebuilding to the levels needed
  • New residential land is drip-fed by the market at a rate that keeps prices high
  • Local authorities need stronger powers over build rates and the ability to compulsorily-purchase land at lower prices

The ability of landowners to profit from the slow release of land for housing development should be removed to enable speedier construction of new homes at lower sales prices, a new Civitas report argues.

It proposes the introduction of contractual obligations governing the pace of delivery by developers, backed up by stronger compulsory purchase powers for local authorities where landowners insist on holding out for higher prices.

This would pave the way for schemes in which homes are built much more quickly than at present, with sales prices lower than the going rate in the second-hand market so that they are more affordable to the local community.

If the market failed to cater to local housing need,  the council would be in a position to build the difference on land purchased at much-reduced prices.

The proposal builds on the measures in the recent housing white paper, which identifies the delivery rate of new homes, once planning permission has been granted, as ‘too slow’ and a ‘major problem’.

In the report, author Daniel Bentley argues that the white paper fails to address the fundamental barrier to faster delivery: that market homes can only be built as quickly as there are buyers willing and able to purchase them at current prices.

This is because developers have no choice but to buy land at values that assume new-build homes will be sold in line with existing prices. This then requires a conservative build rate, with sites of up to 2,000 homes built at less than 100 a year.

The report’s proposal would disrupt this arrangement, enabling developers to purchase land at lower prices to build homes that they can build and sell at lower prices, and therefore more quickly.

Daniel Bentley, editorial director at Civitas, said: ‘The current market-led housebuilding model is failing to deliver. Despite a growing crisis of affordability, homes are only usually built at a rate that will not depress current prices. This restricts output and keeps prices high.

‘If the government wants to ease the housing crisis, it needs to find a way of delivering homes much more quickly and in a way that bears down on current prices, restoring affordability for the hundreds of thousands of young people who are being priced out of the market each year.’

The report proposes that the government goes further than the plans set out in the white paper by:

  • Introducing contractual obligations, alongside planning permission, governing build rate, start dates, or completion dates, as deemed appropriate by the local authority.
  • Encouraging the use of compulsory purchase powers, or fines, where those contracts are breached.
  • Enabling local authorities to purchase land at below its residential use value, and encourage them to do so if there is insufficient land brought forward for development. This will require reform of the Land Compensation Act 1961.

These reforms would give local authorities the power to stipulate that certain sites, or parts of those sites, must be built at speed and sold at a price that would facilitate their absorption by the market. The lower price would be fed back by the developer into a lower bid for the land. These faster-built homes could be marketed as discounted new-builds for first-time buyers or key workers who need to live in high-demand areas.

The changes would also give local authorities greater scope to build their own housing, possibly in partnership with housing associations or developers, because it would give them access to land at very much lower prices than at present.

‘The current housing framework benefits anybody with a stake in the land, because it means land values – and house prices – are not undermined by new housing supply. But it also means that new supply does not generally improve the affordability of housing for those wishing to buy a home,’ Daniel Bentley said.

‘What is required is a new land and planning framework that enables developers to sell homes more cheaply, and so build them more quickly, by purchasing the land at lower prices. For this to be feasible, the landowners’ right to sit on land indefinitely needs to be removed.

‘This could be achieved by overhauling the land compensation rules and introducing the principle that sites needed for new homes but not brought forward for development will be compulsorily-purchased at a price which does not incorporate the value of the prospective planning consent.’

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