Why we need to reform the UK’s land market

The following is an open letter sent by Tony Vickers (West Berkshire Council’s Executive Member for Planning) to Laura Farris MP on 8 January 2024. 

I’ve spent most of my working life involved in the development industry. From 1969 to 1975 I worked for a national home builder but then belatedly joined the Army and most of the next 20 years was a Royal Engineers (Military Survey) officer. I was lucky enough to serve in Australia (on exchange) and in Hong Kong – both having jurisdictions where 15-40% of public revenue comes not from taxation of earnings but from “the unearned increment”.

Hence since 1998 I’ve studied how “Land Value Capture” for public benefit might improve our UK economy and sustainability. Some of that research was funded by a Conservative Government – but I’ve worked with MPs of all parties.

A Local Plan is not, as you seem to say in your column in NWN (5 January 2024) the key to ensuring families have the homes they need in sustainable communities. It is not as simple as “have a Local Plan”.

Having a Local Plan doesn’t build a single home. There little wrong with the current planning system that wouldn’t be solved by reform of the land market. We don’t have a fair housing market while landowners can make eyewatering unearned gains from the value that allocating their land and then granting planning permission for housing gives them.

As Winston Churchill famously said: “Roads are made, streets are made, services are improved, … [yet] all the while the landlord sits still. Every one of those improvements is affected by the labour and cost of other people and the taxpayers. To not one of these improvements does the land monopolist contribute, and yet, by every one of them the value of his land is enhanced.”

A monopoly is the opposite of a functioning market. As Mark Twain said: “Buy land. They don’t make it any more“. So major home builders don’t make their profits from building but from contracting to buy “options” (not featured in the Land Registry at the time) to build on farmland, long before the Local Planning Authority allocates that land for housing. Following the global financial crisis of 2008/9, major homebuilders’ profits did not fall significantly and indeed the period saw a collapse of the SME in the development industry because they couldn’t compete with the larger ones that had cornered the land market. Even David Wilson Homes (formerly Trencherwood here) were taken over by Barratts.

The land market is “the mother of all monopolies” – again as Churchill observed – when he was a Liberal. The same applies to any ‘market’ in a finite commodity: typically anything ‘natural’, not manmade.

When Labour introduced the first Planning Act in 1947, land value was only about 20% of the market value of a house. Today in Berkshire it is about 75%. All of that increase in land value has been created by countless decisions and actions that private individuals, companies – and yes councils and Government agencies – have made; not decisions by landowners as landowners.

Instead of taxing the profits of companies, or earnings of working people, or families when they move house to be near where their jobs are (Stamp Duty Land Tax) – all of which depress economic activity – we ought to take the value of land out of the so-called market altogether, by taxing this “unearned increment” at source. There is no morality or economic sense in taxing productive activity while failing to restore land value to the community that creates it.

That is why the Lib Dem campaign group that I helped found in 1998 worked with other groups cross-party, in the Coalition for Economic Justice, to help establish the All Party Parliamentary Group (APPG) on Land Value Capture (LVC) in 2018. Lib Dem Leader Sir Vince Cable was its first Chair. The APPG believes the first thing that needs reform is the 1961 Land Compensation Act, which guarantees landowners the market price for their land when public bodies wish to exercise their theoretical right of compulsory purchase of land in the public interest.

In most other countries the law limits the amount of LVC that a landowner can gain from selling an interest in its land to 2-300% of its “current use” value, such as for farming. We set no such limit. For example, the land value of Sandleford Park rose by about a hundredfold – not 100% but 10,000% – when the previous (2012) Local Plan allocated it for housing!

I don’t blame landowners, or developers from acting in a rational way to maximise their income. I blame legislators like you Laura for not tackling this immoral state of affairs before now.

We should stop blaming the shortage of new homes on cash starved councils for failing to produce Local Plans. Even Keir Starmer is playing this game of blaming the planning system! I don’t blame developers for ‘gaming the system’ and not providing the necessary infrastructure: they take the risk and deserve to make a decent profit. But the real profits don’t come from building but from land speculation – irrespective of whether their sites were selected by the LPA for the Local Plan or not. They control the flow of homes onto the market and have all the clout with Governments at every level because they can afford the best lawyers, PR firms and planning consultants.

Instead fix the land market, by making beneficial ownership more transparent, taxing those owners and allowing councils to buy land for infrastructure at a fair price. Some of this is in the Levelling Up & Regeneration Act (LURA) at very generalised ‘enabling’ level with almost no detail so I hope the next Government will take these ideas forward. But taken as a whole, LURA has many internal contradictions and is a very disappointing outcome from three years of wrangling within your party.

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