Land banking is a practice where developers buy land and hold it for future development, often without planning permission, in order to profit from rising land values. This reduces the supply of land available for housing and drives up prices, making it harder for local authorities and social housing providers to build affordable homes for the people who need them.
Labour has proposed a radical reform of the planning system that would give local authorities new powers to buy land cheaply and develop affordable homes if it wins power at the next election. The reform would overhaul how land is valued under the compulsory purchase order (CPO) process, as part of efforts to tackle the UK’s housing crisis.
How would Labour’s reform work?
Labour’s reform would change the way land is valued for CPO purposes, by removing the “hope value” that is currently factored in. Hope value is the potential increase in land value that could be achieved if it was granted planning permission for development. This means that landowners can demand high prices for their land, even if it has no planning permission or is designated as green belt.
Labour would instead value land based on its current use, such as agricultural or industrial, which would be much lower than the hope value. This would enable local authorities to buy land at a fair price and use it for public benefit, such as building affordable homes, schools, hospitals, or parks.
Labour claims that this reform would reduce the cost of land for public development by up to 50 per cent, and free up more land for housing. It would also discourage land banking, as developers would have less incentive to hoard land and wait for its value to increase.
What are the benefits of Labour’s reform?
Labour’s reform would have several benefits for the UK’s housing sector and the wider economy. Some of the benefits are:
- It would increase the supply of land for housing, which is one of the main constraints on house-building in the UK. According to a recent report from the think tank Centre for Cities, if Britain merely wanted to match the amount of house-building that comparable European countries have managed since the Second World War then we would need another 4.3 million homes. To meet that requirement in the next ten years, 654,000 new homes would need to be built every year. Labour’s reform would make more land available for housing and help meet this target.
- It would make housing more affordable for the people who need it most, such as key workers, young people, and low-income families. High land prices are a major factor in the high cost of housing in the UK, which has led to growing inequalities between rich and poor, and an intergenerational crisis in which a property-owning, baby-boomer generation is pitted against millennial and Gen Zers who are struggling to get on the property ladder. Labour’s reform would lower the cost of land and enable more affordable homes to be built, both for rent and for sale.
- It would boost the local economy and create jobs, by stimulating more investment and activity in the construction sector, which is one of the largest employers in the UK. Labour’s reform would also ensure that the benefits of development are shared more fairly among the local community, rather than being captured by landowners and developers. Labour would require that at least 50 per cent of the homes built on public land are genuinely affordable, and that local people have a say in how the land is used.
What are the challenges of Labour’s reform?
Labour’s reform is not without challenges and risks. Some of the challenges are:
- It would face legal and political opposition from landowners and developers, who would lose out from the reduced value of their land and the increased competition for development. Labour would have to overcome the lobbying power and influence of these groups, who have a vested interest in maintaining the status quo.
- It would require a significant increase in the capacity and resources of local authorities, who would have to take on more responsibility and risk for land acquisition and development. Labour would have to ensure that local authorities have the skills, funding, and support they need to carry out their new role effectively and efficiently.
- It would have to balance the need for more housing with the need for environmental protection and social cohesion. Labour would have to ensure that the land it acquires and develops is suitable for housing, and that it does not compromise the quality of life, health, and well-being of the existing and future residents. Labour would also have to ensure that the housing it builds is diverse, inclusive, and integrated, and that it does not create or exacerbate social segregation or exclusion.
Labour’s plan to end land banking and boost affordable housing is a bold and ambitious policy that could help solve the UK’s housing crisis. It would increase the supply of land for housing, make housing more affordable, and create jobs and economic growth. It would also challenge the power and privilege of landowners and developers, and redistribute the benefits of development to the public and the local community.
However, Labour’s plan is not without challenges and risks. It would face legal and political opposition from landowners and developers, require more capacity and resources for local authorities, and have to balance the need for more housing with the need for environmental and social sustainability. Labour would have to overcome these challenges and risks, and convince the public and the stakeholders that its plan is feasible and desirable, if it wants to bring the country along with it, and end the cycle of abandoned planning reform projects.
