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Soaring Land Value Prompts Tax Calls

Soaring Land Value Prompts Tax Calls

The value of land in the UK has grown more than fivefold since 1995, according to the Office for National Statistics.

Land is worth £5 trillion and accounts for more than half of Britain’s value, the ONS said in its annual report. The news that land is the country’s most valuable asset has prompted calls for the introduction of a new tax to put a dampener on a soaring housing market driven by rising land prices.

Toby Lloyd, head of policy at the housing charity Shelter, said:

“Pretty much all of the problems in our housing system can be tracked back to the land market and the fact that land prices are outrageously high . . . It’s making housing absolutely, appallingly unaffordable.”

He added: “The longer that this goes on, the stronger the case for introducing a land value tax to make sure that this scarce resource is used efficiently and fairly.”

In its 2017 general election manifesto, the Labour party called for the introduction of a tax on the value of land rather than property in a bid to tackle the UK’s housing crisis.

Former prime minister Tony Blair has also recently lent his support to Labour’s manifesto commitment, saying a new land value tax should replace business rates and council tax to help solve the housing crisis, which he said was “part of the underlying causes of political alienation and dissatisfaction with democracy.”

Is the housing crisis the legacy of 1960s legislation?

Think tank Civitas has published its own report which underscores the cost of land rather than the cost of houses as being the greatest challenge in the housing market.

The Civitas report The Land Question, subtitled ‘Fixing the dysfunction at the root of the housing crisis,’ suggests the current problem can be traced back to the introduction of the Land Compensation Act 1961. The act gave landowners the right to be reimbursed for any prospective use of the land, in the case of compulsory purchase by the state. The price paid is based on a prospective value post-development and will therefore be substantively higher than the value of the land based on its current status.

Daniel Bentley, the author of the report, says a revised Act would “reframe incentives in the land market by enabling public authorities to acquire development sites at prices closer to its existing use value.”

The ONS did nevertheless highlight in its report that the growth of land value slowed last year to a 5.9% increase. The value of land rose 15% in 2014 and 10% in 2015.

Housebuilders are driving construction growth

A closely-watched purchasing managers index compiled by data analytics firm IHS Markit suggests activity in the construction sector is increasing at its fastest pace in five months, although growth is being driven by residential work.

The construction index rose to a balance of 53.1 in November, up from 50.8 in October. Anything above 50 indicates expansion. However, commercial building work contracted from a balance of 49.3 to 48.4.

Howard Archer, chief economic advisor to the EY Item Club, observed: “Extended tepid economic activity and heightened economic, political and Brexit uncertainties are clearly hampering the construction sector. Clients are particularly cautious over committing to major construction projects.”

Housebuilders issue Brexit plea

The Home Builders’ Federation (HBF) has said one in six builders working in the UK is foreign-born, and has called for a permit system for skilled workers to help build more homes and ease the housing crisis.

The federation highlighted a survey of 37,000 housebuilding workers across Britain which shows that 17.7% are from the EU. More than half of those are from Romania, with 12% from Poland and almost 10% from Ireland.

The HBF said the survey underlines the extent of UK sites’ reliance on overseas workers. The federation added that the report showed that builders would need continued access to skilled EU workers following Brexit to deliver the UK government’s target of building 300,000 homes a year.

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