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Oxfordshire: Freeze land prices to end windfall gains, says think-tank

29 August 2018
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Finance

The Government should limit the windfall gains of landowners by freezing the price of land newly designated for housing, under proposals from the IPPR - a UK think-tank.

Instead of landowners pocketing the extra value generated by planning decisions, most would instead accrue to the state – national and local government - to pay for local infrastructure and to build affordable housing.

Under the present system, such landowners can expect the price it would be worth if it had planning permission, and was used for a large property development, for example. Where agricultural land is granted planning permission for housing, the typical increase in its value is up to 100 times.

A hectare of agricultural land in Oxfordshire is typically worth £25,000 but with residential planning permission the value would typically rise to £5.6 million (South Oxfordshire) - 224 times higher.

The IPPR paper recommends that planning authorities should be able to zone land for development and freeze its price. It would be selected because of its strategic importance for housing, or because it is deemed to be underutilised. Councils would either buy the land at the price with reasonable compensation for the landowner and sell it on to developers at the higher price, or would enter into a partnership with the landowner to share the proceeds of the sale.

The high cost of land means fewer homes are being built at affordable prices, as land is the most significant cost in house building. On average in 2016, the price of land had risen to more than 70% of the price paid for a house, and new IPPR projections suggest that on current trends this will rise to 83% over the next 20 years.

Under the new proposals from IPPR, planning authorities would could also determine exactly what would be built on the land, ensuring that new developments would match what the community needs.

IPPR’s call comes as part of a wider plan to overhaul public policy on land - including reforming the planning and tax systems to reduce wealth inequality, tackle the housing shortage and build more affordable homes – published as a discussion paper.

The paper argues that the current state of the speculative land market exacerbates wealth inequality and is a driving force behind the broken housing market. It says this is a key factor in the poor productivity of the UK economy and feeds macroeconomic instability.

Half of the UK’s net wealth (51%) is tied in up in land. The total value of UK land, £5 trillion, is greater than the value of all the UK’s homes, commercial property, machinery and equipment and other non-financial assets combined. Since 1995, the value of land held by households has risen by 544%, while the combined value of the property built upon it has only increased by 219%.


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