06What needs to change
This report highlights the stark geographical differences in the potential for land value capture to fund public goods like transport infrastructure and social housing. Where the market value of developments is high, there is strong evidence that large-scale urban expansions can self-fund infrastructure and public amenities. Pursuit of effective land value capture would be a Treasury-friendly way of delivering these goods. In weaker local economies, economic development requires direct public investment and can’t rely on land value capture.
The report cannot speak to the particulars of individual projects and therefore does not provide recommendations regarding specific potential new town or urban extension locations. However, clear recommendations to the Government result:
Regarding new towns, to maximise potential land value capture and minimise risk to the public purse, the best locations are in the Greater South East. Projects around London and Cambridge especially can be developed with both high percentages of affordable housing and large additional surpluses to fund transport improvements and other public benefits. If the Government wants to pursue more ambitious public transport expansions in the Greater South East, it should be able to fund a significant proportion by pursuing residential developments in tandem.
Following this advice, the Government can be bold in what they expect a new generation of New Towns to achieve – their impact will be a direct function of how many new towns and urban extensions they designate. The more ‘new towns’ the Government designates the better.
Other places, near Edinburgh, Bristol, Bournemouth and Warwick also offer promising locations but will likely need additional support if accompanied by public transport improvements.
If locations are chosen where house prices are currently lowest, the projects are very unlikely to be self-financing and any additional benefits will need to be directly funded. In these locations, the Government should not fund urban extensions for the sake of it, but instead focus on infrastructure that will grow weaker economies, such as improving transport connectivity and urban densities within the existing city boundaries.
Realising the maximum potential land value capture will require the strategic redesignation of green belt land around cities with higher house prices. This does not mean building on all of the green belt – the land for potential urban extensions identified represents less than 5 per cent of current green belt land. But, most of the proposed projects, in sensible locations near public transport, are rendered impossible by current green belt boundaries. Affordable homes, new public parks, money for environmental improvements – could all be funded if projects with high potential land value capture were permitted and coordinated.
The Government should encourage and fund more widespread land assembly at close existing use values by public bodies, to maximise land value capture. It should invest in the capacity of planning authorities and development corporations to put together compulsory purchase cases in order to achieve this. This is commonplace in Europe and is currently being used to fund urban expansions everywhere from Paris to Copenhagen. By preparing plots and masterplanning growth areas, thereby reducing risks to developers, competition between housebuilders can also be shifted from land speculation to delivering housing quality and quantity.
Existing compulsory purchase powers currently make this possible, but circumstances in which development is considered in the ‘public interest’ should be clarified by the Secretary of State. This would benefit a range of project types – from fully public developments to circumstances in which local authorities simply prepare to buy developable land to ensure private developers secure it at a price they can deliver public benefits at.
A key issue for the Government will be turning these possibilities into realities. While there could be benefits to capturing windfalls in high value areas and using them to fund projects in lower-value areas, enabling local or mayoral authorities to retain the receipts from successful land value capture would likely improve the incentives to pursue urban extensions.