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Sir Keir Starmer’s government is on Wednesday expected to give more details on its plan to lift the annual supply of new homes in England above 300,000 by the end of this parliament — a level of housebuilding last seen 50 years ago.
A key part of the plan, to be set out in the King’s Speech, is the “land value capture” that helped enable large-scale new towns in the postwar period.
Intervention to drive down land prices and free up more money for affordable housing and infrastructure could become one of the most contentious elements of Labour’s push to overhaul the planning system.
What is land value capture?
Councils’ decisions to grant planning permission for development on land hugely increases the value of that land.
A report by Thomas Aubrey for the Centre for Progressive Policy think-tank in 2018 found that planning permissions on average increased the value of agricultural land from £22,520 to £6.2mn per hectare in 2016-17 across England — a rise of more than 275 times.
Land value capture (LVC) is designed so the uplift in value does not solely enrich landowners but is spent on public goods such as social housing, schools and doctors’ surgeries needed to underpin development.
At present, there are two main policies to enforce LVC. Section 106 agreements between developers and local authorities make builders contribute to the cost of infrastructure.
Separately, the community infrastructure levy is a fixed-rate charge paid by developers per square metre of new housing to support infrastructure creation.
What are the origins of land value capture policy?
Planning experts often cite the New Towns programme of the 1950s as an example of the state “capturing” the land value uplift of new developments such as Milton Keynes, which was financed with government-backed bonds.
But both Labour and the Conservatives have since 2016 toyed with LVC policies.
In their 2017 election manifesto, the Tories promised to work “with private and public sector housebuilders to capture the increase in land value created when they build to reinvest in local infrastructure”.
One year later, a review of housebuilding by former Conservative minister Sir Oliver Letwin called for a land value capture policy.
The government rejected Letwin’s recommendations that councils should be empowered to insist on levels of social housing that would in effect cap the value of land earmarked for large developments “at around 10 times their existing use value”.
He said this would capture more of the uplift for investment in public goods, such as social housing. Labour is now exploring how to implement a version of the Letwin proposals, according to Whitehall officials.
What else is Labour planning?
On big developments Labour will give new powers to public bodies such as Homes England, local development corporations or councils to use compulsory purchase orders (CPOs) to acquire land without authorisation from a cabinet minister.
Housing minister Matthew Pennycook said last month those new powers would be used “only in limited instances where development is required in an area, but individual landowners refuse to sell land at a fair price”.
The last Conservative government legislated to allow councils to buy land through CPO for social housing or educational or health infrastructure without paying “hope value” — an increased value based on the prospect of future development.
But under the Levelling-up and Regeneration Act 2023, those authorities could only do this where they had express permission from the communities secretary.
Labour will use primary legislation to delegate the ability to use a CPO without hope value to public authorities, where no authorisation will be required from above.
How big could the benefits be?
Experts say predicting the consequences of a new LVC policy is difficult because it could mean less land is put forward for development.
Aubrey, now a visiting fellow at the London School of Economics, estimated the policy, based on 2016-17 data, could generate an extra £10.7bn a year to help fund infrastructure and affordable housing.
“It’s not a silver bullet on its own, but it is potentially very transformative,” he said.
Tony Crook, emeritus professor of town and regional planning at Sheffield university, said his research estimated that squeezing the hope value out of land transactions would capture “about 30 per cent” of the value for investment that might otherwise have gone directly to the landowner.
Some believe the potential has been overestimated. Charles Dugdale, partner at property advisory company Knight Frank, said the high cost of basic infrastructure including sewers and road connections meant there would not be “a pot of gold” of extra value to finance additional infrastructure.
Still, the postwar history of the policy has inspired confidence in others. Clive Betts, Labour chair of the House of Commons housing committee in the last parliament, said 1950s New Towns would never have been built if the increase in land value had all gone to landowners.
“If the new government goes for several new towns or existing town extensions they have to use land value capture,” he said.
