Up to a third of young people face living in private rented accommodation all their lives, according to a report by the Resolution Foundation. The think tank, which aims to improve the standard of living of low and middle-income families said 40% of “millennials” – those born between 1980 and 1996 – were living in rented housing at the age of 30. That was twice as many as “generation X” – those born between 1965 and 1980.
How did we get here? Put simply, housing supply has failed to keep up with demand. However, this is more accurately a symptom of the problem and as every politician likes to remind us there are no silver bullets that will solve the housing crisis.
Co-ordinated action is needed at each stage of the development process to fix the way that housing is provided. But, to get to grips with our housing crisis, politicians need to tackle the root cause – our dysfunctional land market.
Land is the primary input into house building and the driving force behind rising house prices. The principal consequence of the scarcity and permanence of land as an investment – which is exacerbated by our planning system and heightened by our financial system – is that land value rises over time.
Who should capture the uplift in land value?
The question of who should capture this uplift in land value has been at the centre of the land reform debate for decades. In many other countries (for example in France) the planning system enables the uplift generated by planning and infrastructure development to be captured by the state. Thereby allowing the costs of making and sustaining places – transport, schools, hospitals and open space – to be recouped.
There is a strong moral case for this, with the primary benefiters of an uplift in the value of land not the government or community, but the landowner. Indeed, Adam Smith (an inspiration to many on the libertarian-wing of the Conservative Party) considered returns from the ownership of land to be unjust and inefficient.
So why when it seems, on face value, to be such an obvious issue to tackle has the government not changed the system? They could, for example, amend the Land Compensation Act of 1961 (to enable land to be purchased at existing use value) and reform Compulsory Purchase Powers (to give local authorities a more credible threat and enable them to benefit from the resulting uplift in land value). Or albeit the most controversial option, introduce a Land Value Tax (a charge levied on the value of land itself).
The answer is that whilst it meets all decent economic principles it annoys all the right people. The Scottish Government is currently putting this theory to the test, with the Scottish Land Commission. Formed in April 2017 to drive forward land reform (including examining Land Value Capture) it has already hit rocky waters following the publication of a discussion paper, which was attacked in an editorial published by The Times earlier this year
Setting out the paper’s position on the land reform agenda in Scotland, it described the discussion paper as a “disturbing document” which “blithely ignores the rights of private owners and the laws that protect them”.
And as for a Land Value Tax, it faces one huge hurdle. Everyone would have to pay for it, including the government. That includes the value of the land in Whitehall and the value of the acres of land that government departments put to little use.
So, where do we go from here?
Well, we need to make addressing Land Value Capture a political priority for the UK government and all political parties. In fairness, this is already starting to happen.
The Labour Party and Conservative Party committed to reforming CPO powers in their 2017 General Election manifestos. The Conservative manifesto, for example, stated: ‘We will reform Compulsory Purchase Orders to make them easier and less expensive for councils to use and to make it easier to determine the true market value of sites.’ And since the election the Labour Party and Liberal Democrat Party have both endorsed the idea of creating an “English Sovereign Land Trust” with powers to compulsorily purchase land for housing at prices which exclude the planning approval uplift value from the compensation.
The Communities and Local Government Committee have also launched an Inquiry into Land Value Capture which is looking at the methods currently used to capture the uplift in the value of the land associated with the granting of planning permission or resulting from improvements to nearby infrastructure. It is also examining whether there is a need for new ways to capture this uplift.
This is an issue on which all parties can agree action is needed. All we need now is for the government to act. Easy right? Well, perhaps not when the journey places you between the a-typical voter and the God of house prices.
And, before anyone says there are votes to be won in tackling the housing crisis, the supply-side reforms that are required will take years to take effect and are unlikely to generate votes for the government of the day. To deliver an immediate impact at the polls you also need further demand-side reform. An entirely different political minefield and one that I will leave alone for now!
Beyond the helicopter review of the need for fundamental change, there are many local authorities genuinely interested in delivering micro-adjustments, making their own difference to their communities. Not only are they dealing with the political sensitivities of timely consents, but also, type and tenure. If you’d like to know more about those councils and councillors who are ready to roll their sleeves up – get in touch.