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Theresa May’s land compensation reform is bold, yet the ambition for housebuilding seems weak

Daniel Bentley, 18 May 2017

There has been an intriguing change of tone in the government’s housing policy since the publication of the white paper in February. That document focused strongly on the progress of private-sector housebuilding, with measures designed to free up more land for developers, and to encourage those developers to then build homes faster. The role of councils was relegated to the hinterlands of the third chapter, not hard to miss among a blizzard of initiatives to ‘diversify the market’ by promoting SME builders, adopting modern construction techniques, and various other things largely market-focused.

The Conservative general election manifesto published today repeats the white paper’s goals but then places a strong, new emphasis on local authority building. Its main housing slogan: ‘Homes for all, including a new generation of fixed-term council housing linked to a new Right to Buy.’ This proposal is accompanied by what looks like a clear reversal of several decades of Thatcherite, market-led housing policy: ‘We will never achieve the numbers of new houses we require without the active participation of social and municipal housing providers.’ This, on the face of it, is quite an admission and tantamount to saying that the private builders not going to solve this on its own, something we at Civitas have been saying for some time.

What is more, the government is promising to reform Compulsory Purchase Orders so that councils can purchase land more easily and at lower prices to support this building programme. This is a tremendously bold step which, as briefed to the media last weekend, would enable certain councils to buy land at less than its market value with planning permission for new homes. This will mean councils can build more homes with the resources they have, and should – in those areas where it is used – encourage more efficient use of land by the private sector. It will be opposed by landowning interests, and those who feed off them, and will likely face a rough ride through parliament.

But it overturns more than half a century of land policy which has protected the rights of landowners to extract maximum profit at the expense of the rest of the community. Those looking for historical reference points in framing today’s manifesto might consider that this will be to undo the work of Harold Macmillan’s government in first preventing councils buying land at existing use value in 1959, and then nailing down landowners’ right to the ‘hope value’ in the Land Compensation Act of 1961. Land values soared thereafter, rendering council building vastly more expensive and gradually choking private sector output (for reasons set out here).

The weekend briefing set this reform in the context of council building alone, but the manifesto also talks about working with private builders to ‘capture the increase in land value… to reinvest in local infrastructure, essential services and further housing’. This is potentially very radical indeed and could pave the way for the kind of framework that the Centre for Progressive Capitalism has advocated. We are yet to see how extensively these reforms are implemented in practice, but even by entertaining the principle of this Mrs May is breaking important new ground.

For all that though, there is a timidness to the Tories’ ambition. The aim is merely ‘to slow the rise in housing costs’ – not reverse them. There is no new money for the new council building, which ministers say will be in the ‘thousands’; hardly the ‘revolution’ presaged by The Sunday Times front page at the weekend then. And in terms of overall supply targets, they are still only aiming for one million homes between 2015 and 2020, equivalent to 200,000 a  year. The manifesto promises another 500,000 by 2022, or 250,000 a  year. None of this is enough though. We have needed in the region of 250,000 homes for more than a decade now and various estimates now suggest that the current building target should be in the region of 300,000.

Politically, given how tough a nut this has proven for successive governments, setting the bar low is probably wise. But if they really want to crack it this time, they need to start with a realistic assessment of the challenge.

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