CPO for affordable housing

The publication of the government’s much anticipated Planning and Infrastructure Bill is imminent, and within it, a change to the law surrounding compulsory purchase orders (CPOs). This would, theoretically, give local authorities considerable power to compulsorily acquire land at a lower cost than might be achieved on the open market.

To discuss its potential impact on the planning and development sector, Planning and Development InSite spoke to Robert Smith who heads up Carter Jonas’ National Strategic Land team and Paul Astbury, Carter Jonas’s Head of CPO.

Paul explained the background to the potential change: “In April this year, an element of the Levelling Up and Regeneration Act came into force, giving local authorities new powers to buy land for development through CPO, free of the costs of ‘hope value’ which otherwise benefits the landowner.

“The current government has promised that its Planning and Infrastructure Bill will take this further – as part of an aspiration to, ‘Deliver the biggest increase in social and affordable housebuilding in a generation’, it has pledged to, ‘Further reform compulsory purchase compensation rules to improve land assembly, speed up site delivery, and deliver housing, infrastructure, amenity, and transport benefits in the public interest’.

“While the existing rules require a council to apply to the Secretary of State to demonstrate that the removal of hope value is in the public interest, Labour intends to legislate so that public bodies can add this provision to an application for CPO powers to acquire land without the need for individual approval by a Secretary of State, effectively removing the considerable uncertainty which currently prevents councils from going down this route.”

The impact of the levelling up and regeneration act

The tone of Labour’s policy announcement pre-election was relatively cautious – perhaps because traditional Tory voters (landowners and development industry professional among them) were necessary to secure a landslide victory. But since that landslide was secured, the language has become more adversarial. MPs frequently refer to the forced sale of land for affordable housing as ‘replacing greed with need’ - intentionally or otherwise, driving a wedge between communities and developers.

As Robert reflects, “Any suggestion that landowners should be punished for their wealth is too simplistic a response/message. While many might agree that land should not be sold for obscene profits, the reality is that this is rarely the case. Landowners are only a part of the development process. And importantly, the development industry is vital to the economic success of the country.”

And it’s not just the wrong message, but the wrong approach to achieve the intended outcome of speed, deliverability and affordability.

Paul explains: “CPO powers are best used (usually as a last resort) in enabling the development and provision of necessary infrastructure on large sites, or where ownership is fragmented. For most sites, and for strategic greenfield housing land specifically, CPO is rarely required if you take the housing land market as a whole. It feels like a knee-jerk reaction. It might give the impression that governments (of both political colours) have responded to the affordable housing need, but it’s the wrong way of going about it.

“Benchmark land values (BLV), which prevent developers from using inflated land purchase prices in viability calculations, could be a more effective approach to land value as part of the planning process. Whereas CPO is relatively rarely used in land assembly, planning permission is required for every housing development. Therefore, you are addressing the issue at source and not requiring a huge step change in the use of onerous CPO powers. If developers cannot pass on inflated land costs in their planning viability arguments, it should limit what they are prepared to pay for land and correct any perceived or real notion that inflated pricing is an issue. The other part of that is making housing allocations more available to remove the scarcity factor from market pricing.”

Geographic discrepancies in land value

Geographic discrepancies are just the first of the problems with putting this rule in place. As Robert says, “How do you apply the benchmark value approach across different parts of the country? BLVs must still have a geographical nuance and where that nuance is fixed would be the subject of considerable debate.”

In parts of the UK, for example, Oxfordshire or Cambridgeshire, land with planning consent for development could achieve a considerable uplift in value relative to undeveloped, agricultural land values. Therefore, the hope value (and therefore the potential loss to the landowner) could be considerable. Comparatively, in other parts of the country, hope value might be much lower. This is just one inherent unfairness in a ‘one size fits all’ CPO system which will need to be addressed.

The importance of fair market value in CPO

Returning to the issue of messaging, Paul comments that the tone and messaging undermine CPO, which is fundamentally based on paying a fair market value, equivalent to what a seller could realistically achieve in a voluntary sale. Furthermore, “CPO is never your first port of call to increase housing land – it’s there to fix a problem which cannot be fixed otherwise. In any CPO inquiry you need to demonstrate that you have sought to resolve the need through negotiation. Perhaps most importantly, the law around CPO is clear that it should only be used in the public interest.”

The complexity of affordable housing development

Robert’s view is that the lack of land for affordable housing is multi-faceted and extremely complex, following decades of ‘tinkering’ with planning reform which failed to comprehensively reform the need for council, social or affordable housing: “It’s far too prosaic to say the issue lies with greedy landowners.

“This policy proposal is using the wrong tool for the wrong problem. If the problem is affordability and deliverability, the causes lie in the broader economic context (including the mortgage markets) and factors such as the speed with which planning consents are granted – which is impacted by substantial under-resourcing.

“CPO can be expensive and time consuming. In planning we talk in terms of five year land supply which feels like a long time, but CPO typically takes around two years – we’d see little change during this parliamentary term by the time legislation was in force.

“Creating a more efficient planning system, with more certainty, investment and less risk would have a much more immediate impact.

The role of collaboration in large-scale developments

“In terms of large-scale developments (another target for the new government), many of what might be considered successful schemes have resulted from landowners forming joint ventures with developers, master developers and others. In many cases taking a different and more collaborative approach to the creation and realisation of value is best suited to developing comprehensive and holistic schemes – those which combine public and private, residential and commercial, owned and rented.

“The days of the 1970s council housing estate are gone and genuinely mixed communities offer an infinitely better alternative. While the benefits and realities of the ‘15 minute neighbourhood’ are debatable, there’s no doubt that well-functioning communities need a school, shop and community infrastructure.

“Providing these different functions comes from partnerships - between councils and private sector, and bodies such as Homes England in many circumstances.

“The suggestion that landowners are holding the process up is disingenuous. Rather than resorting to the blunt tool of CPO, the government should think carefully about the role landowners take in these successful schemes and not seek to discourage them from promoting and releasing land for much needed growth.”

The future of affordable housing and CPO

Bearing in mind Paul and his team’s considerable expertise in delivering compulsory purchase, it was interesting to ask him whether the change to the Levelling Up and Regeneration Act in April removing hope value had an impact. “We had some enquiries,” he says, “But it’s caught people’s attention for all the wrong reasons. When we advise clients on what’s feasible they opt not to use it.”

Paul and Robert agree that the increased delivery of affordable housing requires going back to first principles: determining exactly what needs to be achieved and finding the appropriate tool – which, as Robert has demonstrated, already exists in a collaborative approach to masterplanning and development.