Give councils power to target land value to fund affordable housing, urges new report

14th Dec 2021

New briefing sets out how the Infrastructure Levy should be reformed to better capture the value of land in different areas and deliver more affordable housing and benefit to local communities

Local authorities should be able to set a new levy on infrastructure at different rates depending on the value of land it is built on, according to a new report.

The independent Joseph Rowntree Foundation (JRF) is urging ministers to use the consultation on the planning system to introduce zones which would enable councils to set a higher levy rate on more valuable land.

The value of land in the UK increased by 400% between 1995 and 2016, and now represents 51% of the UK’s net worth. This is largely due to the growth in house prices. JRF argues there is a strong moral and practical case for targeting unearned increases in land value to raise revenue to fund affordable housing and infrastructure.

The Infrastructure Levy put forward in the government’s current proposal does aim to do this, replacing existing mechanisms Section 106 and the Community Infrastructure Levy, which are widely recognized as not delivering homes or infrastructure on the scale that is needed.

But JRF warns that if the new levy is not set at a sufficiently ambitious rates by local authorities, it will not deliver councils the funds needed to deliver social housing on the scale required to tackle the housing crisis.

The report recommends that different zones are introduced to determine the level at which the levy is set in different areas. This would mean councils could vary the rate they charge within their boundaries, setting higher rates where potential uplifts in land value are greater, such as green field sites, and reduced rates where they are lower, such as brown field sites in need of remediation. This would both control and capture land values, making sure more money is kept in local communities for the development of local infrastructure and affordable housing.

JRF also argues that all land allocated in a local plan should have a fixed affordable housing requirement set up front and outside of any levy charge, meaning that the need to deliver social and affordable housing on a site is costed into the value of land and the new development is delivering mixed communities, responsive to local needs.

To ensure accountability and transparency in setting rates at different levels, a framework should be established which councils must reference when setting levy rates.

The report also highlights the risk that local set rates might mean that landowners may not bring land forward for development if they perceive that they can hold out and force councils to set lower rates. Councils lack the powers to prevent this, and so Compulsory Purchase Order (CPO) should be reformed so that councils can more effectively purchase land where it is being held back from development.

There is also a risk that current proposals risk damaging the Government’s levelling up agenda, as regions with lower land value will receive less money, entrenching existing regional inequalities. This needs to be recognized and resolved through capital expenditure in areas which will receive less revenues from levy receipts.

Darren Baxter, Policy & Partnerships Manager at JRF said:

“An effective planning system is one that delivers affordable housing and benefits local communities. We welcome the government’s plans to improve the existing system and better target land values - but it’s crucial to do so in a way that will benefit communities that need it most and without forcing councils into difficult decisions.

“By introducing zones and retaining upfront affordable housing targets, the government can help make sure more land value is kept in local economies. Doing so will help fund the affordable housing that’s desperately needed, as well as vital infrastructure like schools, low carbon transport improvements, and green spaces.

“Targeting unearned increases in land value is the right thing to do, and a practical solution to one of our greatest challenges.”