The flaw that will torpedo the government’s housebuilding ambitions

17 March 2019

By CPP

Following the government’s Spring Statement, the Centre for Progressive Policy, Civitas and Shelter have published a joint response to the Ministerial Statement made by James Brokenshire on the Letwin Review.

The UK’s housing market is in crisis. High property prices, driven by, among other factors, high land prices and a lack of housing supply particularly for social housing, are a barrier to inclusive growth and has resulted in a generation of young people struggling to get onto the property ladder.

Sir Oliver Letwin’s review has correctly identified the failure of the market to build sufficient numbers of houses quickly enough, and Brokenshire’s agreement to increase the diversity of homes on large development sites to speed up building rates is welcome. However, both the Letwin Review and Brokenshire’s statement fall short of the changes required to make properties affordable again.

A major obstacle to solve the housing crisis is the Land Compensation Act 1961 which defines the market value of the land not in line with the scheme that has been proposed but in line with the use to which it might have been put if there had been no compulsory purchase. In other words, the awarding of planning permission dramatically increases the value of the land for the benefit of the landowner, promoter and developer. Our recent analysis has shown that pre-tax profits resulting from the increase in land values in 2016/17 was 10.7bn - money which we argue should instead be used to help fund infrastructure and affordable housing.

The barriers posed by the 1961 Act have been widely acknowledged across the political divide, which includes the backing of the House of Commons Select Committee on housing and local government for reform. Although the Letwin Review and Brokenshire’s response are a step in the right direction, they fall short in addressing the issue at the heart of the housing crisis.

Read the joint response here.