00Executive summary

The Government understands that it can increase housebuilding rates by expanding cities and towns. The New Towns Taskforce is planning for large urban extensions, and proposed changes to the National Planning Policy Framework set new parameters for green belt release and higher housebuilding targets for suburban local planning authorities.

But questions remain about how to fund the transport infrastructure, environmental improvements, affordable homes, and other public assets, needed for these developments.

One tool could be land value capture – a mechanism which allows the public sector to capture the value uplift on land that is created when it is developed. This report asks – is this possible, where is it possible, and what are the trade-offs involved?

This report identifies possible locations for large-scale urban extensions around 15 major cities across the UK and models the potential land value capture in these locations. It finds that across viable sites, the total potential land value capture is £193 billion, or £6.4 billion a year assuming a 30-year development period. To illustrate what this means, dedicating half of this to cross-subsidising social housing would deliver half a million social homes, or approximately 18,500 per year. Half is also equivalent to funding at least 50 miles of tram network, every year.

But this potential is distributed very unevenly across the country. The model finds that nearly 80 per cent of potential land value capture is on sites around London. Land around cities where house prices are lower generate far lower potential, and some sites would generate deficits. It is possible that those areas that generate a surplus are used to cross subsidise the sites that would make a loss. This though would undermine a strength of the tool – to provide infrastructure in the place where development happens.

These estimates are underpinned by the price paid for the land. Moving from paying five times agricultural value to 40 times makes one-fifth of locations unviable and eats into the money generated on other sites. For example, around London, it results in £29 billion of lost land value capture, equivalent to cross-subsidising 166,000 social homes.

These estimates are also impacted by the green belt. The report identifies space for 5 million homes within commuting distance of 15 major cities. But nearly two-thirds of the land is in the green belt. Around London, it is 88 per cent. Developing these urban expansions would have little impact on the green belt though – building on all the land identified would result in total English and Scottish green belt shrinking by less than 5 per cent. Failing to release some of the green belt would prevent public goods being realised through land value capture.

Given this, Centre for Cities recommends that the Government should:

• Pursue development, including new towns, in southern England, where potential land value capture is greatest.
• Encourage and fund more widespread land assembly by public bodies, including development corporations, to maximise land value capture.
• Clarify the conditions in which compulsory purchase at existing use value is allowable in the ‘public interest’ and simplify the compulsory purchase process.
• Invest in the capacity of planning authorities to put together compulsory purchase cases.
• Designate green belt land that has good existing or future public transport links for development, with measures in place to maximise land value capture on that land.