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The bold policy that could help Labour solve the housing crisis

New housebuilding and planning policies need to boost local economies, not just landowners and developers.

By Tom Wilson

Our planning system is broken. Britain has failed to build sufficient housing since the Second World War. This has led to growing inequalities between rich and poor, and an intergenerational crisis in which a property-owning, baby-boomer generation is pitted against millennial and Gen Zers who are struggling to get on the property ladder.

The solution seems simple: we need to build more homes. Yet this does not mean simply letting the free market loose, allowing developers free rein, and hoping that this leads to better conditions for social tenants and more affordable homes for the most vulnerable. Instead, Labour needs to harness the power of both the market and the state to ensure that we see the kind of development that allows whole communities to benefit. If Labour wants to bring the country along with it, and end the cycle of abandoned planning reform projects, it should adopt a new approach: community land auctions.

Nothing shows the failure of our planning system better than the shortage of homes. According to a recent report from the think tank Centre for Cities, if Britain merely wanted to match the amount of house-building that comparable European countries have managed since the Second World War then we would need another 4.3 million. To meet that requirement in the next ten years, 654,000 new homes would need to be built every year. The most homes the UK has managed to build in a single year since 1945 was 425,000 – less than 65 per cent of what we need annually to close that gap.

If we were making progress on this, that would be something. But we’re not. Housing permissions are down 10 per cent since 2017, and will only fall further due to the abandonment of housing targets, as well as further national planning policy framework changes that the Tories are forcing through at the behest of restless backbenchers worried about Nimby voters in their shire constituencies.

One of the principal causes of the housing shortage is the short supply of land with development permission – nothing can lawfully be developed until it has received sign-off from the state. High prices for scarce developable land feed directly into people’s cost-of-living woes: where housing costs take up more of people’s income they have less money left over for other necessary living expenses. Moreover, for the growing number of people renting, when they are faced with exploitative landlords and sky-high rents, it is harder to find alternative, affordable accommodation. This means they may have to put up with conditions worse than they are legally entitled to. Landlords can abuse their structural advantage – all because there are not enough available alternatives. 

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[See also: However the housing crisis ends, we will all lose]

This problem needs solving, but it needs to be solved in a way that doesn’t solely amount to legislating a developers charter – music to the ears of big building firms. This is where community land auctions come in. According to a 2018 government report, when agricultural land is given permission for development, its value can rocket from around £10,000 to approximately £1m per acre. That is, it becomes 100 times more valuable. This highlights both the shortage of developable space and the issue of economic rent distribution. Currently when land gets developed, almost all of the value is kept by landowners, developers and their armies of lawyers and consultants, with little to none of it being spread to the community. That is because planning obligations and community infrastructure levies, charged by the local council, generally only provide a small source of income compared with the overall financial burden of the development.

Labour has already recognised this. By planning to reform compulsory purchase orders so that authorities can acquire land more cheaply, the party plans to reduce the amount of money extracted by landowners and developers – the profit that makes the construction of social housing so prohibitively expensive for the state. This could work, and similar moves have delivered in the past. However, it will be divisive, since compulsory purchase powers do inevitably mean that the state uses legal force to seize land. 

Community land auctions solve this problem. The idea is simple: it begins with local landowners submitting sealed offers of land to the local authority, along with the price they are willing to accept for it. The council would then pick the site, or sites, that offered the best value and were best-suited for development. The authority would then decide how many homes and what type of homes could go there, before auctioning the land to developers and selecting the one which could best develop the land in line with its needs.

In this system, the landowners would have an incentive to offer the land at a low price – otherwise the council would choose somewhere else – and developers would have an incentive to offer higher prices, lest they be passed over for another builder. This maximises the income to the council, instead of the landowner, and ensures that communities get a fair share of that increase in value. The council can then use the income to fund vital public services, build social housing or help meet other local service delivery priorities. This works in a similar way to the popular street-votes idea, which would also incentivise local streets to support house-building consistent with their interests and allow them to receive a larger share of increases in value. Both schemes mean that local people benefit from saying yes to building the homes we so desperately need. 

This idea has not been tried before, which is why Labour should trial these schemes only in pilot areas that opt in. This way we can create a progressive scheme that works across the country. Community land auctions have been endorsed by progressive think tanks such as the Institute for Public Policy Research, the Resolution Foundation and former heads of the Royal Town Planning Institute and the Royal Institute of British Architects. It is also entirely consistent with Labour’s goal of encouraging more community-led development.

By giving local authorities a stake in the success of the development, we’ll see more areas saying yes to building. Labour knows that radical change on planning is required, and this scheme may just be the way to do it.

[See also: Housing crisis: A generation locked out]

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