Maybe a Conservative government is going to scrap hope value? At least for development schemes that provide high public benefit, examples being affordable housing proposals and new education and health facilities. If they do, for the developers, planners and their armies of consultants, it will be ‘D’ day. Or as history suggests is more likely, will it simply be another false dawn?
As a former private sector development agent bruised by decades of power of land owners to bring potential building land forward, or to hold the land back for years., I am acutely aware of how wisely they play the time card. Land owners and their intermediaries – consultants, lawyers, option holders, and developers – far-sightly manipulate delivery timetables to suit their own commercial priorities. Why not? This is where the easy money is made. To take an extreme, when compulsory purchase prices reflect policies they dislike appear many of them go into hibernation, if necessary for decades. After all, there is a very good probability they have owned the land for years, often for generations..Simply waiting another five or ten years is rarely a problem. Why wait? Because they know policies change. In this case they may believe the proposed confiscation policy as it will be seen by land owners, will change again. This is what usually happens in our system of building land supply policy flip-flops at elections. It is unlikely the realistic policies needed will be introduced in the near future,
Let us not forget, In equity land owners have a powerful case to block public authorities from buying their land at values based on the current use,, if the open market value of their land with planning consent for new homes is hundreds, yes hundreds of times higher. What will be their response? The availability of their land will in effect become frozen. Their reasonable expectations have been ignored. This behaviour by the state is unfair. So they will not co-operate with local councils , and their leverage is powerful.
There is an obvious response. . If the Conservatives are serious and intend to adopt this contentious policy shortly before a general election, it makes the possibility of long term policy consistency as Labour may commit to do the same and more in their election manifesto, far more likely. You might ask where is the problem? Despite this rare moment of apparent of good fortune, land owners caught up in these requisition based policies will fight, and fight and fight. The result will be delay, delay, and more delay. They have deep pockets and clever advisers. Experience acting for ,and owners, and for developers buying sites, in popular growth areas gives me a high level of confidence this will happen.
But it is possible to buy the building land at open market value, before hope value is created. To do so is all about timing. Land value capture means the council must plan its spatial policies at least ten, and probably twenty years ahead. And stick to them. Land owners know the present value of such land, regardless of the local planning policies which are in place will be the same as, or very similar to the open market value for the land in its existing use. In technical terms, the present value, or open market value will reflect the unknowns of the policy change and market changes in the next ten or twenty years. Hope value will not barely appear in an open market assessment of value this far ahead. . Most of the hope value is created late in the day, when the prospect of critical changes happening are small.. Significantly the land owners argument they are entitled to be paid hope value will not be endorsed by the market.
To exploit this window, local councils must take on a new mercantile role. It becomes their responsibility to devise their local spatial strategies. The haphazard call for sites system will cease. To do this there must be a regional spatial strategy and a delivery vehicle. You cannot conduct long term spatial planning without a long term spatial context. This requirement in turn demands a national spatial plan which identifies where building can and cannot go for two generations ahead. Which in turn needs a long term growth policy endorsed by the main political parties in Westminster, and endorsed locally across parties. Without these steps, shrewd land owners who want full hope value for their land will wait until local claims of spatial consensus planning collapse. And they will unless the government, with the support of the opposition parties has looked and planned this far ahead. If not land owners will sell at the time that suits them best and pocket all the hope value.
I applaud the government’s intentions. But without these root changes which reflect market reality they will fail, as they have failed since the 1960’s. The housing market stasis will remain. Prices and rents will not become affordable. Economic growth will remain sluggish. Hopefully I will be wrong in this prediction. Sadly will be the same if Labour is elected but the market rifts may emerge faster as the development land market freezes.
Ian Campbell
29 February 2024
