Compulsory purchase, as a Government consultation on reforming the process notes, is the power to acquire land and property without the consent of the owner. Out with capital punishment it is arguably the single most significant imposition upon an individual’s rights that a state can make. It is very legitimately not, therefore, a straightforward process.
As the current (at the time of writing) consultation material also notes, compulsory purchase is an important land assembly tool needed to help deliver social, environmental and economic change in the public interest. Given though that it is not a straightforward process, compulsory is the tool of last resort. It used infrequently because, also arguably, it should be used infrequently.
That is the broad context for the current consultation, but the narrow context, as the background material further notes, is that the Government committed in it's manifesto for the 2024 General Election to further reforming compulsory purchase compensation rules to improve land assembly, speed up site delivery and deliver housing, infrastructure, amenity, and transport benefits in the public interest.
The aim of streamlining the compulsory purchase process where it is deployed as a tool of last resort is an entirely laudable one and would be of benefit relative to the current position. The aim of deploying compulsory purchase more readily to speed up site delivery and deliver housing, infrastructure, amenity, and transport benefits in the public interest warrants further consideration, however, because relative to the current position it is very likely to have the opposite effect. Even with the proposed streamlining measures included within the consultation, compulsory purchase can take longer to execute than it can take a local authority to prepare a local plan. The time and cost and risk involved in deploying compulsory purchase more readily, as imagined by proponents of the case to remove hope value from compulsory purchase negotiations, relative to the extent that hope value plays in the delaying of sites coming forward, is, your correspondent humbly submits, in no way commensurate.
The housebuilding industry has, does and no doubt will always have to defend itself from two inter-related theories, nee myths, about land supply that simply refuse to be debunked. The first is that housebuilders hoard land and the second is that the abolition of hope value will speed up site delivery and deliver housing, infrastructure, amenity, and transport benefits in the public interest.
The report of the Competition & Markets Authority is the latest authoritative study into the former, the conclusions of which need not be reproduced here.
In terms of the latter, the lesson of history is that no landowner will enter into a commercial agreement with a promotion partner if, having secured a local plan allocation, there is any possibility that the land can be compulsorily purchased at a price below it’s market value. Similar initiatives have been attempted twice in the post-War period (the Development Land Tax and the Betterment Levy) and both were unsuccessful because of the impact on land supply.
Even were that not the case though, the underlying assumption that all landowners are unjustifiably banking value that could easily be captured for infrastructure, amenity, and transport benefits in the public interest if only the state could buy land without hope value does not stand up to scrutiny.
As Matthew Spry at Lichfields has noted, much of the debate about hope value seems informed by an analysis by the Centre for Progressive Policy in 2018 that found that planning permission inflated the price of agricultural land by 275 times, pushing it up from £22,520 per hectare to £6.2m per hectare.
Lichfields subsequently looked at the approach adopted by viability assessments prepared for local plans and on greenfield sites found that, of the 29 studies in which a premium was discernible, 52% sat within a range of 15 to 20 times EUV. The maximum level of premium observed was close to 40 times EUV and, at the other end, the premium tended not to be set any lower than 10 times EUV, which is well short of the 275 times estimated by CPP.
As was noted by Lichfields in response to the Benchmark Lane Value provisions included with the July 2024 NPPF consultation:
Land promotion is a necessary part of the planning system and it relies on the private sector investing in the lengthy and expensive process, spreading the risk across a portfolio of sites, reflecting that an implementable permission may or may not transpire, dependent on whether i) land is allocated in a plan (which may or may not be produced) and/or ii) a costly application is approved or refused by LPA. Taking into account the costs and risk, it is easy to see how land values may need to absorb costs of £100,000 or more per hectare before the landowner’s return and require BLVs that are 40 times EUV. An examination of why land promotion activity requires the rate of return it does, needs to look beyond simple planning approval rates at application or appeal, and consider the time it takes, and the extent to which much promotion activity does not even make it to the application stage.
Further, and whilst imperfect, it is important to recognise the benefits that current forms of land value capture are securing. Savills estimate that around 50% of land value uplift is captured via developer contributions, once the costs of site remediation and enabling works are taken into account. This is before a landowner even pays tax on any subsequent land transaction.
All of that being said, even if it were the case that landowners are unjustifiably banking value, in the face of the inevitable land strike the state would need to step in and compulsory purchase exponentially more land than is compulsorily purchased at present, which is simply not feasible.
Even if that were the case though, and if the acquisition was achieved sufficiently early in the planning process to secure land at a price closer to agricultural value, the land may never achieve an allocation. Not all land that is promoted gets allocated and whilst land promoters know and accept this risks it would be quite a shift for local authorities to take it on too (the broader implications of a power to acquire without hope value are explored in the first of the two afore-mentioned Lichfields blogs).
Proponents of the abolition hope value might say in response that in reality there would be a mixed supply of allocated land, with one or two sites compulsorily purchased without hope value and others sold on the open market with or without the benefit of an allocation and/or planning consent. Again though, why though would a landowner take on the cost and risk of securing an allocation if the end-result is that the land can be compulsorily purchased below it’s market value?
The consultation material states that the Government is concerned there is a significant amount of suitable land available for housing which is currently lying vacant or underutilised and not coming forward for development. The evidence for this assertion would be interesting to see because 47% of the HBF’s membership, for example, cite land availability as a barrier to the growth of their businesses . Whilst multiple ownerships and expectations of value can be a barrier to land coming forward, most in the development industry would likely state that technical or planning challenges represent much greater obstacles.
The consultation material also states that when vacant or underutilised land does come forward for development the provision of affordable housing offered on those sites is below the minimum ask of the local authority. Again, evidence for this assertion would be interesting to see. All planning applications should aspire to be policy-compliant, and LPAs can either refuse those that are not or approve those where non-policy compliant development would be more beneficial than not allowing the proposal in question.
Further, the consultation material states that the government is of the view those affected by compulsory purchase should be entitled to fair compensation for their interest rather than receiving elevated values for hope value where development is delivering benefits in the public interest. Hope value though very rarely features in compulsory purchase negotiations because such sites typically have a planning permission and, therefore, are valued at the market rate anyway.
Notwithstanding all of the above, there could be circumstances under which a general direction of the type proposed could expedite the compulsory purchase process when a genuinely recalcitrant owner has no interest in bringing forward a site with transformative development potential. The circumstances under which such a direction could be used, and the definition of 'public interest', will however need very careful consideration.
The benefits of such a direction will though need to be weighed against the significant risks of so doing, which includes undermining the plan-led system because promoters are disincentivised to pursue local plan allocations.
Fundamentally, there is a genuine risk that if the proposals as drafted are pursued compulsory purchase becomes more contentious not less, and that at the same time less land comes forward for development not more.
Fundamentally too, as Philip Barnes has observed, the optimum way to secure more and better land value is the timely preparation of local plans with justified and viable planning gain policies that make clear what must be provided by landowners and developers in association with new development. This in turn enables housebuilders to bid for land with clear advance knowledge of the required on-site and off-site development costs.
Mr Barnes highlights what the late Simon Ashworth said to the 2018 House of Commons Select Committee inquiry on Land Value Capture.
The effective use of existing planning policies – a well-defined local plan with clear objectives and requirements, and a more strategic use of CIL – could be an equally effective way to drive down land value to such an extent that there is precious little hope value left.
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