Fingers Crossed For Hope Values As Labour And Conservative Fight Over Land Rights
Geeky nonissue or a serious challenge to real estate as an asset class? The latest policy developments in the obscure world of compulsory land purchase powers could rapidly turn from the former to the latter, property industry bosses have warned.
Hope value could get wiped out of compulsory purchase land valuation if Labour wins power in the next general election. The move comes as the current Conservative government also tinkers with the rules. Both have set alarm bells ringing in the property industry, despite just a few dozen annual large-scale compulsory purchase orders.
The issue turns on the Land Compensation Acts passed in 1961 and 1973 and subsequent case law, and is intended to make it easier for local authorities to acquire land for housebuilding.
Section 14 of the 1961 Act says that when deciding the price the buyer must take account of actual or prospective planning permission in assessing the open market value, or 'hope value' and created a system of certificates of appropriate alternative development. This gave landlords and landowners a trump card in pricing decisions.
The difficulty, as a government paper noted, is that determining open market value necessarily requires an element of judgment, or maybe just guesswork, and it is hard to find comparables. The system of certificates tends to assume landlords are more or less guaranteed to have got planning permission for a higher value use like residential, when in fact the likelihood may be just slightly over 50:50.
“This artificially inflates compensation because a transaction in normal market conditions would reflect the actual risk associated with the likelihood of planning permission being granted,” the government consultation last year said.
Inspired by the idea of building on green belt farm land, the Labour Party is now considering an approach that abandons hope value altogether, The Guardian reported. Labour is adopting a call made earlier this year by the Local Government Association, which represents English local councils, where Labour is now the largest party.
Responding to the recent UK government consultation, the West Midlands Combined Authority said that if it could disregard hope value from open market valuation it would provide the authority with an additional £7B of funding for infrastructure and affordable housing over a 20-year period (£350M a year). Transport for the North said for them it would mean an additional £1B over 20 years (£50M a year).
The proposal comes amid claims that hope value has helped inflate land value by a factor of more than 27,500%, based on thinktank research from 2016-17. “The awarding of planning permission dramatically increased average agricultural land values from £22,520 per hectare to £6.2M per hectare for average residential values for new builds in 2016/17 across England; an increase of more than 275 times,” the Centre for Progressive Policy said in 2018.
The extraordinary number may be unreliable if it depends on a very small sample: In the period of the thinktank study the number of CPOs was small. There were just 40 large-scale applications in 2016, down from 57 in 2015. The lowest level was 36, recorded in 2013 and the lowest since 2003, a law firm calculated.
The Conservative government wants to ensure that the deadline for using CPO powers, once granted, is extended to three years.
In the meantime, the government announced in April plans to take powers to decide whether hope value is relevant on a case-by-case basis.
Critics have warned the compromise could leave the government vulnerable to legal action by aggrieved landowners, and leave the system itself unstable and unworkable. Industry leaders said the proposal “opened a can of worms.”
The British Property Federation warned that neither the Conservative nor Labour plans would yield much new housing, but the Labour plan would endanger the principle of property ownership.
“The CPO process does have a place within the property industry when used sparingly in helping to unlock sites," British Property Federation Director of Policy Ian Fletcher said.
"However, proposals to enable land to be acquired at or closer to existing use value places homeowners, businesses and farmers with the statutory equivalent of pot-luck. Proposals to scrap hope value within the CPO process is likely to lead to protracted legal challenges and increase the risk of regeneration schemes being delayed or not progressing. For any incoming government therefore, such a policy is unlikely to deliver much new housing in its first five years. There is also a knock-on consequence of diluting property rights. The more they are eroded the more private investment that is likely to be dissuaded from investing in property."
The UK Law Commission begins a long-awaited review of compulsory purchase legislation this year, with the aim of reporting on potential changes in 2024.
