Is there ‘hope’ for more social housing in the government’s Compulsory Purchase reform proposals?

Part of the Levelling Up agenda is the aspiration to reform compulsory purchase order (CPO) powers so that land assembly for regeneration projects is easier and faster, and that local authorities are given strengthened and clarified powers to assemble sites. The Levelling Up and Regeneration Bill (LURB) which is now at committee stage, contains procedural amendments to the compulsory purchase regime (click here to read our written evidence submission to the LURB committee), and the consultation on compulsory purchase compensation reforms proposes further changes in how CPO compensation is assessed.

Any landowner whose land is compulsorily acquired is entitled to compensation for its loss. Many would agree that people whose land is acquired in this way should be left neither better nor worse off financially. However, one of the elements that make up the final sum due to a landowner is the open market value of the land to be acquired - this is currently the value taking account of any existing planning permissions, as well as the prospect of obtaining planning permission for the development of the land if the CPO did not apply. This is ‘hope value’ and is where things get trickier as it can hugely inflate compensation costs, affecting viability and causing significant land assembly delays. Click here for a handy short explainer video from Shelter about hope value and how it artificially inflates land values, making it extremely hard for councils to buy land to build social housing or get developers to deliver their fair share on private developments.

The argument for reform is simply that if land is acquired closer to existing use value, rather than the anticipated value from possible future development, more of the uplift in land value can be captured for public benefit. This is something we at CIH support. The preferred approach set out in the consultation is to cap payments for ‘hope value’ at existing use value or at a percentage above this in certain circumstances, following a request by a public sector acquiring authority for a direction from the Secretary of State. Directions would likely require evidence as to how the land value captured would be applied for the public benefit. An alternative approach also presented goes further to automatically limit the payment of hope value more generally or for specific types of schemes. In both cases, the consultation seeks views on whether these proposals are in the public interest, and in relation to the first, whether certain, deliverable public benefits could be identified in applications for directions and linked to the value captured. The consultation does not indicate what percentage cap is being suggested or give much detail about the types of CPO schemes the cap could apply to.

The world of compulsory purchase has long been confusing and balanced in favour of the landowner, and the wider policy aspiration to achieve greater land value capture in the public interest is not a new idea. Whilst the proposals do not represent a wholesale reform of the CPO system that many may feel is needed, they do feel like a step in the right direction. Whether this is a ‘whack a mole’ process to fix specific issues (whilst causing fresh problems instead by the law of intended consequences) is being hotly debated.

There are still clearly many issues to iron out, including whether the proposed changes are more complicated than they need to be. For example, why not simply say the existing use value is the norm and have a stiff test mechanism for exceptions? And why introduce the extra bureaucratic process of local authorities having to provide details on how they would use the surplus value? Whilst some say the proposals don’t go far enough, other critics have questioned if they will in fact give rise to more litigation and are unfair to landowners. Clearly, this is not going to be an easy nut to crack!

At CIH we welcome the government publicly stating its intention to reform hope value and make CPO easier to use when required. We are encouraged that these proposals could make the CPO process simpler, clearer, and fairer. The reforms proposed should help reduce the lengthy uncertainty, often stretching over many years, and should enable local authorities to bring forward regeneration projects faster, leading to the provision of much needed homes in their areas.