Landowners made £13bn pre-tax profits in 2016/17 on planning permission value rises, report claims

Private landowners across England made pre-tax windfall profits of £13 billion in 2016/17 as a result of land being granted planning permission, according to a report that calls for public authorities to be allowed to capture more of this money for affordable homes and infrastructure.

Land: report calls for tougher rules to capture value rises resulting from planning consent
Land: report calls for tougher rules to capture value rises resulting from planning consent

Gathering the windfall: how changing land law can unlock England’s housing supply potential, by the Centre for Progressive Policy think-tank, claims that landowners saw pre-tax profits of £13.4 billion in 2016/17 generated as a result of land being granted planning permission.

According to the document, the research is based on recent Ministry of Housing, Communities and Local Government (MHCLG) figures.

It says that post-tax windfall profit for landowners and other stakeholders as a result of land being granted planning permission was £10.7 billion for the period.

The report says that the awarding of planning permission "dramatically increased average agricultural land values from £22,520 per hectare to £6.2 million per hectare for average residential values for new builds in 2016/17 across England; an increase of more than 275 times".

The document says that, if public bodies were granted more powers to capture this uplift, an additional £214 billion would be available to spend on infrastructure investment and affordable housing over the next 20 years.

Current section 106 and Community Infrastructure Levy (CIL) contributions, it says, are "insufficient to help fund large scale projects".

A failure of CIL is that "payments are contingent on sites that actually get built out", the document goes on to say.

"As noted in a recent report, between 30-40 per cent of planning permissions lapse and between 10-20 per cent of planning permissions never materialise into a start, while a further 15-20 per cent are recycled into a further application", the report says. 

A key recommendation it makes is for the removal of prospective "hope value" from existing compensation arrangements set out in the 1961 Land Compensation Act.

This echoes a call made last week by the Housing, Communities and Local Government Committee. 

If hope value was disregarded in such a way, the report says, "land speculators would be taking huge risks by buying land including hope value, given that the land might appear in a large-scale development plan and thus would be subject to these new rules".

"These proposed reforms would reduce market values much closer to use value, which has been the case for other interventions in the land market", it adds.

The document recommends that, once such changes have been made, public authorities should "lead the land assembly process in partnership with developers and other key stakeholders to put in the necessary infrastructure before releasing serviced plots to housebuilders and individuals for self-builds".

It says that "the ability to capture the uplift from selling serviced plots would improve the viability of large scale developments given that it would provide significantly larger funding streams to pay for both infrastructure and affordable housing".

But the Country Land and Business Association (CLA), which represents landowners, farmers and rural businesess has challenged the report’s findings.

CLA director of policy and advice Christopher Price said: "These figures do not present an accurate view of the price land is sold for, nor do they accurately reflect the extent to which the state already captures the increased value of residential land compared to agricultural land.

"Government data on land values that underpin the assumptions in the report itself states the figures ‘may be significantly higher than could reasonably be obtained for land in the actual market’ and strongly recommends the figures are used only for policy appraisal.

"While there is an uplift in the value of the land, the current system already captures a high proportion of this value to fund affordable housing, GP surgeries, schools and other infrastructure. These planning obligations are a prerequisite to any development going ahead and exist to mitigate the impact of development."

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