It is the classic tragedy. A sincere, well meaning policy based on assumptions of integrity that will fall flat. The government has set out proposals to confiscate land needed for housing at far below market value. They call removal of a need to pay hope value to land owners a reform. It is not. It is a policy mistake. Of course the current system gratuitously rewards land owners with ridiculous lottery style windfall profits. Of course it is intensely annoying that these landowners wins are created by community investment, not by landowner investment. But these mad outcomes are the result of a system government after government has created or endorsed for decades. Yet it is totally unfair and not equitable to arbitrarily confiscate these profits, if they would be payable to the owner in the open market. Landowners and their skilled advisers are gearing up now to undermine the new government policy, whatever their spokesmen may publicly say to the contrary.
The answer is time. The government must think and act 10+ years ahead. The growth of hope value can be prevented by local councils who announce, and deliver their own spatial policies, taking effect ten to twenty years ahead. Present value, which is the seed corn of hope value growth is heavily reliant on two variables, both in the gift of far sighted local councils. One is timing. The other is location. If timing of land releases is uncertain, and if spatial policies are delivered by local councils which cloud the precise locations in uncertainty the call for site system will collapse and the hope values will slowly evaporate.
The decision is a major error by this government. It will slow down, and even stop change as landowners revert to tried and tested delay tactics. Unless the government can obtain an unambiguous commitment of support from the Conservatives, the Liberal Democrats and even the Reform Party not to reverse this policy in. 2029, their house building targets will fail for this reason too. Landowners are veterans of decades of clever exploitation of the legislation. Why on earth does this government think they have suddenly found the answer? No other government has for fifty years.
Critics of this approach will say the the supply of new homes will dry up in the short term. This fear is natural but wrong. Provided there is a clear cross party consensus which extends well beyond the general election cycle landowners will see that their happy days of land speculation and exploitation will come to an end, meaning the hope value of their existing land stocks will start falling. What better incentive for the private sector to build out fast on their existing land stocks as the threat of new premium supply based on master plans and infrastructure in the gift of the local community set a new and far higher bar in the years ahead. Land supply sentiment will be reversed and the market will re-value potential building land on new and different assumptions.
Ian Campbell
24 December 2024
