At the heart of the UK's housing problem is a six-decade-old piece of planning legislation, the Land Compensation Act 1961.
What is the Land Compensation Act 1961?
The Land Compensation Act 1961 sets a floor on the price of land based on the most profitable uses imaginable. That means a landowner whose land might be suitable for genuinely affordable housing for those on low incomes can always choose to hold it back from development in the sure knowledge of receiving a better price tomorrow for a standard new-housing-for-sale scheme.
There’s growing political support to dismantle this Act and replace it with a law requiring landowners and developers to share the profits of new housing developments with local authorities.
How does the Land Compensation Act impact social housing?
There is an urgent need for homes for social rent and a recommendation by Shelter of 150,000 such homes to be built a year for the next twenty years. However, Shelter has said that this could only take place after land reform has occurred given the problems financing such housing bound up with the problems of accessing the land on which to build it. Developers currently compete in a land market that’s incredibly competitive, designing schemes to maximize the profitability of each plot of land so they can offer the highest bid to landowners. Under the current system, councils and housing associations have to pay inflated prices for land to be used for such housing, especially in the volume called for by Shelter, which would therefore need large subsidies to help.
How could the Land Compensation Act be changed?
A potential way forward is for the government to introduce primary legislation requiring landowners and developers to share the planning uplift they get fifty-fifty with councils. Estimations suggest this could slash around 40% off the total development costs of new social housing. This would also allow funding for much-needed communal infrastructure such as schools, parks, medical centres, transport, and other services, which are essential to creating successful communities.
Tony Pidgely, boss of Berkeley Homes, strongly supports such reform, calling for landowners and developers to share profits of new housing developments with communities.
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Our Affordable Housing team have over 25 years’ experience in this sector, forming close working relationships with their housing clients. To find out more about the areas they advise on and their bespoke services please visit their hub page or contact a member of the team.
