IPPR: the broken land market has a key role in driving wealth inequality in the UK.
A new IPPR report argues that the reform of the dysfunctional land market is essential if the UK is to be a more equal, more productive and stable economy. It is also vital to creating a better-functioning housing market that delivers the affordable and quality homes the country needs.
Land is an essential factor in all economic activity but, if it is not properly managed and regulated, it can play a destabilising role in the housing market and the wider economy. The UK's dysfunctional land market and soaring land values have helped drive growing wealth inequality, create the conditions for a broken housing market, and are a root cause of an unproductive and unstable economy. Reform of the land market must therefore be focused on reducing the financial speculation that occurs in land and sharing the benefits of increases in land values for the benefit of the public good.
The IPPR conclusion is based on five key arguments:
- The broken land market has a key role in driving wealth inequality in the UK.
- The broken land market is the driving force behind our broken housing market.
- The broken land market has played a key role in the financialisation of the UK economy and is a cause of the UK's poor productivity.
- The broken land market and high house prices are feeding macroeconomic instability.
- The UK's systems for regulating and taxing land do not seek to target or fail to adequately capture the 'economic rents' that arise from land.
To tackle these issues, the report sets out proposals to:
- Reform compulsory purchase laws to allow local authorities and public bodies to buy land at a fair value that enables the delivery of high quality development . To achieve this the 1961 Land Compensation Act should be amended to remove speculative 'hope' value based on prospective future planning permissions.
- Give planning authorities in England the powers to 'zone' areas of land for development and freeze its price close to its current use value, as happens in Germany. Landowners would still get a fair return, but any windfall would accrue to the state to pay for infrastructure and affordable housing to benefit the local community.
- Reform the taxation of land, arguing that business rates should be abolished and replaced with a land value tax. The report sets out how the current system not only fails to capture the uplift in land values due to the exemption of undeveloped land, but also penalises productive investment in property-intensive businesses.
- For the government to consider introducing an annual property tax to replace council tax and eventually stamp duty. Such a tax would be far more progressive than council tax, and would effectively capture increases in land values and house prices in a way in the current system does not.