London housing association calls for new development tax as part of major reforms to land market

Leading housing association Network Homes has released a new report calling for major reforms of the land market, including a flat affordable housing tax for developers to replace the existing system of developer contributions and build more affordable homes.

Making land deliver argues that unaffordable developable land is at the heart of the housing crisis and proposes three recommendations to make land deliver more homes, so more people can live where they want, and the affordability crisis can over time be reversed:

  • Allow Homes England, the Greater London Authority, and local councils to compulsorily purchase land at existing use value rather than the much higher “hope” value
  • Put public land to the best possible use by considering social value as well as market value when selling it
  • Reform the system of developer contributions to affordable housing to make it simple, predictable, and ungameable.

The report argues that we need to break the vicious cycle whereby the lack of supply has increased gains for those who can get planning permission, which in turn leads to high land prices, and encourages developers to seek higher returns at the expense of quality and quantity.

The flat housing tax is an original proposal by Network Homes. It would replace the affordable housing component of section 106, meaning that instead of contributing to affordable housing directly, developers pay a flat rate of tax on the gross development value to the local council, who could use those funds (combined with other funding if they choose) to buy as many homes in the development as they like for affordable housing.

This would provide developers with greater certainty on their costs, which would be of huge benefit to smaller builders. It would improve build out rates, delivering more homes and ultimately reducing house prices and rents.

The idea was also featured in a recent essay collection published by Policy Exchange, which brought together radical ideas to improve the planning system. The Policy Exchange publication has been commended by government.

Compulsory land purchases at existing use value would allow public bodies to buy land more cheaply, with greenfield sites purchased at around a hundredth of the cost and brownfield sites around a quarter (depending on the location). And then, if they don’t wish to build on it themselves, they can sell it to the developers who can provide the most affordable housing. Taken together these two proposals will see more land brought forward, and land prices fall.

Jamie Ratcliff, Executive Director of Business Performance and Partnerships at Network Homes, said: “Homes that are truly affordable aren’t only a good thing in and of themselves – they are also crucial to accelerating the pace of overall housing supply. If we’re serious about fixing the housing crisis, we need the land market to be aligned to maximising affordable homes. Our three steps would enable this through streamlined compulsory purchase, faster public land release and greater certainty through the planning system.”