A think tank wants price premiums for landowners selling for residential development to be scrapped.

The current price premium is artificially inflating land prices and blocking the government from building the social homes needed to ease the housing crisis and meet its own housebuilding targets, according to the New Economic Foundation. 

It says scrapping the rules which oblige local authorities to pay a price premium when buying land (known as “hope value”) and strengthening developers’ contributions would reduce the cost to government of building 90,000 new English social homes a year by £4.5 billions, slashing the cost by almost a quarter.

While this would reduce the cost of land across England, the bulk of savings would be in English regions with the longest social housing waiting lists and the highest rates of homelessness (London and the south-east). If these savings were then reinvested, they could build an extra 27,000 social homes a year, the foundation claims.

Since the 1960s, local authorities have been required to pay an inflated price of land when making compulsory purchase orders. Known as “hope value”, this obliges local authorities to pay the value of what land could be worth if it obtains planning permission at any point in the future – even if the landowner has no plans to do this. The Centre for Progressive Policy found that, on average, this can increase the price of a plot of land by 275 times.

The 2023 Levelling Up and Regeneration Act 2023 – passed by the former Conservative government – allowed the Housing Secretary to scrap the application of “hope value” on a case-by-case basis. 

A foundation spokesperson says: “With record levels of homelessness, rising private rents, and increasing housing insecurity, this country desperately needs a new generation of social homes.

“The government has rightly declared tackling the housing crisis as a ‘moral mission’, but their plans are being blocked by unfair land rules. These rules should be reformed so that the country can build the homes we need while giving landowners fair and reasonable prices for their land. 

“Further reforming the ‘hope value’ rule is vital to ensure the government hit their housing targets, build the homes we need, and tackle the housing crisis.”

Labour has promised to back “the builders, not the blockers” and build 300,000 new homes a year. Charities like Shelter say this should include 90,000 new social homes each year.