Jeremy's Blog 2nd June 2023: Valuation for Compulsory Purchase

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 1st June 2023

On Tuesday, the press carried the story that the Labour Party is proposing a change to the basis of valuation for compulsory purchase, removing hope value. Only reported in outline form, the proposal appears to be that compensation in England would be on existing use value, not market value, at least for local authorities purchasing land for house building.

This comes after Keir Starmer’s speech arguing for more house building (and onshore wind), including some in the Green Belt, and restoring the housing targets now abandoned by the Government. With polls showing the country equally split between those wanting houses built and those resisting development, he is moving to speak for the former while the latter have several choices of party.

The declared object is to take control of the uplift in value from permission, seen here to go simply to landowners – apparently disregarding the substantial share of that which already goes to housing, sustainable drainage, s.106 commitments and CIL (with nutrient neutrality and then Biodiversity Net Gain to come). The briefing has cited a hectare of farmland worth £22,520 moving to £6.2 million with planning permission, saying:

“We want local areas to capture and benefit from a lot more of the uplift than they current do when development occurs. We want to tilt the balance of power. It feels like the scales are tilted towards … landowners; we want to re-tilt it towards the communities that want to see more houses built.”

It is asserted that this would be akin to the approach in Germany, France and Holland.

This approach follows opinion among think tanks, common for some years, that the market value provisions of the Land Compensation Act 1961 (actually introduced in 1959) should be reversed to remove hope value. The assumption always seems to be that the compulsory purchase would be for housing and that hope value only lies in housing. How far that actually captures value depends on what then happens.

With the lack of detail offered, some comments could suggest that the proposal might really prove to be a version of “existing use value plus” – with other current talk of five or ten times agricultural value – so leaving an incentive for some landowners to continue to bring land forward for development. Without some incentive, development could only be expected through compulsory purchase with the impossible strains of such an approach on Councils with planning departments failing.

It has been suggested that such a power might be little used but its existence could serve to temper development land values more generally, hoping that might lower the cost of new houses – though not capture value. In reality, that could point towards a two-tier market where large sites under the shadow of compulsory purchase might be more influenced than small sites remaining solely in the market.

Over and above potential restrictions of value under recent statutory changes to the “no scheme” principle, the Levelling Up and Regeneration Bill is already amended to provide a more constrained version of this approach whereby public sector bodies using compulsory purchase for affordable housing, education and health uses could apply to the Secretary of State for a direction enabling them to buy land at existing use value.

As one indicator, the 2018 Letwin Report into the slow building out of large housing sites (over 1,500 houses) pointed towards local authority-led models, including one for compulsory purchase at existing use value plus with the authority then being the master planner, putting in the infrastructure and letting building contracts.

The warning is that, as with some other current policy proposals, we risk revisiting past mistakes. The planning system was imposed in 1947 (when one minister had written that “the gentleman in Whitehall really does know better”) on a very depressed post-War development market. Much had to be learnt as development activity recovered in the 1950s and values responded. Local authorities and new towns were then active in compulsory purchase. The statement of market value in 1959 appears to have been a necessary answer when the shadow of compulsory purchase meant developers would not commit to buying land without planning permission, so defeating land use planning and creating a two tier land market impeding house building.

Ultimately, the principles of market value make it the fair basis of value – indeed the minimum for unwilling sellers. Again, proposals tackle symptoms, not causes. With the need to house our people, Starmer’s proposals for the planning system only seem to reverse policy by a year – not tackle its distortion of markets, increasing for decades. If the proposal is to dispossess landowners at an undervalue, the resulting resistance would only pour more grit into a failing machine.