The value of land has risen at more than double the rate of house prices over the last two decades, with landowners pocketing the profits, and a think tank wants things to change.

A new report published by the Institute for Public Policy Research (IPPR) has highlighted the need for land speculation rules to be reformed in the UK, calling for the government to freeze the value of development land at its current use value so that it is sold at a fair price.

The findings from the IPPR show that while the value of land held by households has shot up by a massive 544% since 1995, the combined value of the property that sits on it has increased by just 219%. In 2016, the research also shows that 70% of the price paid for a home came from the cost of the land it sits on – proving that house price rises are driven by the value of land.

Harder for housebuilders

The rocketing land prices have had a detrimental effect on housebuilding, as it is more expensive and difficult to build homes at affordable prices, therefore reducing the rate at which new homes are being built. Meanwhile, landowners can sit on land while they wait for planning decisions, and once approval is granted can see the value of the land they own soar by as much as 100 or 200 times. For agricultural land, while the average plot is valued at £21,000 per hectare, the value rises to more than £6m per hectare once planning permission to build homes is granted.

The report says: “A major part of the reason that new homes are expensive is that landowners make significant gains when residential planning permission is granted. Because of the geographical monopoly which landowners possess as a consequence of their ownership of land they are able to decide when and where to release land for development and at what price.”

Freezing land prices still fair for landowners

Changing the current “speculative” nature of the market, the report argues, would help to alleviate the situation. It suggests that compulsory purchase laws should be reformed so that councils and public bodies can buy land at a fair value so that high quality developments can be delivered.

They should also give planning authorities the power to “zone” areas of land for development, and freeze the price, meaning that while landowners would still get a fair return, any “windfall” would accrue to the state to fund infrastructure and affordable housing for the local community.

The report concludes: “Our proposals will reduce speculation in land, lead to a decrease in wealth inequality, and allow for a greater focus on productive economic investment. They will also help to create a better-functioning housing market, capable of delivering the number of homes we need to meet demand, particularly genuinely affordable homes. Together, our proposals will make for a stronger, more just and prosperous economy.”