A fairer system of land development

A guest post from Peter Taylor-Gooby, Emeritus Professor at the University of Kent

This guest post is written by Peter Taylor-Gooby, Emeritus Research Professor of Social Policy at the University of Kent.

Housing is one of the most immediate and important dimensions of fairness in people’s lives. Yet across Britain - and especially in the south-east and in areas close to major cities – the shortage of housing has grown increasingly acute. For most people, owning a home at market prices is only possible if they already possess property or can rely on financial help from family. Those without such backing are effectively locked out, reinforcing a cycle in which wealth and opportunity are inherited rather than earned. Soaring house prices also feed into the cost of rent, tightening the squeeze on those at the bottom.

The dominant political response has been to rely on market incentives: to release more land and planning permission to private developers and hope that increasing the supply of homes will bring prices down. But this logic fails to confront the core problem. Developers have a vested interest in keeping prices high. They control when and how new homes are released onto the market, and can withhold supply to maintain margins. In practice, the current model reinforces the very unfairness it is supposed to resolve.

If we are serious about tackling this injustice, the state must take a more active role - particularly in making land available at a price that enables the construction of affordable homes for both rent and purchase. In many parts of the country, especially the south-east, between two-thirds and four-fifths of the cost of a new home is simply the price of the land beneath it. This is not a neutral cost. It is a product of policy and planning decisions that allow land designated for agriculture or other low-value use to be reclassified for residential development. When that change happens, the value of the land skyrockets. During the mid-2010s, the average price of agricultural land rose from £21,000 to £1.95 million per hectare when planning permission was granted. And this doesn’t include the further uplift in value created by new infrastructure. The opening of the Elizabeth Line, for example, is estimated to have added £13 billion to surrounding residential land values and hundreds of millions more to commercial property.

This increase in value is not created by the landowners. It is created by society – by collective decisions about infrastructure, by planning policy, and by the demands of a growing population. In that light, it is only fair that the community, rather than a lucky few landowners, should benefit from this windfall. There are two main ways to ensure that happens: through taxation of land value increases, or through compulsory purchase of land at its existing use value before planning permission is granted.

Britain has experimented with land value taxation before – most notably through the Development Charge in the late 1940s, the Betterment Levy of the late 1960s, and the Development Land Tax in the 1970s and early 1980s. Each of these efforts was short-lived, often undone by political opposition or administrative complexity. The current approach, based on negotiated contributions through Section 106 agreements or the Community Infrastructure Levy, has proven patchy and ineffective. Developers are often able to negotiate payments down once projects are underway. Local authorities, under pressure to attract development or avoid political backlash from residents, frequently set low rates. In practice, the public often sees little benefit from the gains that development generates.

There is a stronger and fairer alternative: give local authorities the power to acquire land at its current use value, before planning permission inflates the price. This would allow the public sector to direct development towards affordable housing, rather than relying on the priorities of private developers. It would also allow public bodies to capture the uplift in land value for reinvestment in local services and infrastructure, not just in the area being developed, but across communities in need.

There is also a wider economic case for land value taxation. Land is not like other assets. It is not produced by labour or innovation. It is a fixed natural resource whose value comes from its location, its use, and the investment of public money around it. As the Financial Times columnist Martin Wolf has argued, taxing land is economically efficient, relatively straightforward to administer, and could help shift capital away from passive speculation and towards more productive investment. At a time when governments face rising fiscal pressures, a land value tax offers a stable and progressive revenue stream.

Any serious conversation about fairness in land and housing must also reckon with the outdated and regressive nature of council tax. Based on property valuations from the early 1990s, and capped in a way that disproportionately benefits the wealthy, the current system entrenches inequality. Reform is long overdue. At the very least, revaluation and the creation of new bands are needed.

None of this is easy. Landowners, developers, and political actors have powerful incentives to maintain the status quo. But fairness demands more than simply hoping the market will fix what it has helped to break. The price of land reflects decisions made in the public interest. It is time the public saw a fair return.

This guest post is written by Peter Taylor-Gooby, Emeritus Research Professor of Social Policy at the University of Kent.