Land value taxation has been talked about for well over a century but all attempts to introduce it have been short-lived. That could finally be about to change, says Julia Park
“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist… …contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.”
That was Winston Churchill in 1909. And he wasn’t the first to highlight the profit that accrues to landowners when their land is earmarked for development. In the middle of the 19th century, John Stuart Mill said much the same:
“Landlords grow rich in their sleep without working, risking or economising. The increase in the value of the land, arising as it does from the efforts of the entire community, should belong to the community and not to the individual who might hold the title.”
Since then, hundreds of experts – Kate Barker, Richard Blythe (RTPI), Joshua Vincent Duncan Bowie, Shelter, TCPA (the list goes on and on) have all had their say. In 2015, Tom Copley, an energetic Labour Member of the London Assembly and author of Right to Buy: Wrong for London, was commissioned to write a report for the GLA. He noted that land values in the UK have risen by a staggering 544% since 1995 and that Crossrail had already led to an 82% uplift in land values near to the planned stations. Imagine what that figure will be when it’s finally finished.
Like others, Copley cited examples of various forms of land value capture in use across Europe, and elsewhere. His recommendation was to replace the three existing basic property taxes (council tax, business rates and stamp duty) with an annual land value levy, for a trial period in London.
The 2018 Housing, Communities and Local Government Select Committee inquiry into land value capture favoured a different approach, and that’s part of the problem: housing experts and politicians agree that something should be done but can’t agree on how. Notwithstanding Churchill’s political allegiance, it’s fair to say that Labour’s appetite to pursue this has generally been greater than that of the Conservatives (I recounted some of its failed attempts in a previous BD column), but it has recently shot up the agenda of both political parties.
Under the 1961 Land Compensation Act, councils are not permitted to buy agricultural land at its current value; instead they must pay a speculative “hope value”, based on the value of the land with permission to develop the site. That can easily make land more than 100 times more expensive than its actual worth. In his review of build-out rates (the report about the problem of land-banking that concluded that land-banking wasn’t a problem…), Oliver Letwin suggested that the residual land value of large sites should be capped at about 10 times their existing use value. Clearly better than paying 100 times the value – but does it go far enough?
Labour doesn’t think so. In Housing for the Many, a Green Paper published in April 2018, it mooted the idea of a sovereign land trust to make “more land available more cheaply”. A year on, having commissioned a report from Nicholas Falk of the Urbed Trust, John Healey, shadow housing secretary, has just pledged that Labour would follow through on this idea. The sovereign land trust would change the 1961 Act to allow public bodies to buy land at “near current use value”.
Details are sketchy. The initiative seems to be more about speeding up development by dramatically reducing the cost of land to make housing cheaper than it is about extracting value, though there is scope for both. It’s not yet clear whether developers and/or housing associations would be able to join the trust and acquire the land as cheaply as councils, or whether the trust would only comprise public bodies who could either develop themselves or sell it on at a modestly higher price and use the difference to fund community benefits.
>> Also read: Don’t bank on the budget to fix the housing market
Healey has suggested that the trust might begin as a branch of Homes England and become a separate entity over time; possibly fulfilling some of the functions currently carried out by the European Investment Bank. Compulsory purchase powers would be strengthened, CIL and Section 106 obligations reviewed, and quality improved.
However it is intended to work, cross-party consensus will be vital. As Healey and Falk will know, Labour’s historic attempts all failed because landowners simply sat on their land until the government changed. Sure enough, as soon as the Conservatives regained power, their patience was rewarded and the policy reversed.
It feels a bit different now. A number of commentators have noted that both parties have been looking closely at land value capture. Nick Boles (a former planning minister) seems to have convinced a number of MPs of the merits, and Sajid Javid (former Secretary of State for Housing and Local Government) indicated last month that he would also like to change the system. “I think it’s right that the state takes a portion of that uplift to support local infrastructure and development,” he said.
Added to that, there is some hope that the general frustration with the lack of cross-party cooperation over Brexit, exemplified by the recent council election results, will lead to more attempts to gain political consensus on key issues. Whether it’s housing, education, health or social care, it’s never been clearer that’s what needs to happen.
Julia Park is head of housing research at Levitt Bernstein