The ascension of the Labour Party to government has been met with optimism across the property and construction sectors, fuelled by Labour's mandate to tackle the pressing issues of housing shortage and stalled infrastructure development. Investors and developers are hopeful that the Government's stance will create a more pro-development environment and streamline processes currently holding back delivery.
However, there is considerable concern amongst landowners and promoters surrounding the Ministry of Housing, Communities and Local Government representative's comment that: “We will reform the outdated compulsory purchase process to remove inflated values of land and ensure compensation paid to landowners is fair but not excessive".
The Times has subsequently reported that Labour plans to use “benchmark” values to cap the amount of profit that landowners can make from the sale of land in the green belt, to prevent owners benefiting from an increase in values for land newly eligible for development – the Government say unjustly.
How the uplift in the value of land is equitably shared between the owner and wider society, particularly when that increase in the land's value may be in no way attributable to the action of the owner themselves, has long been a thorny issue. Labour's proposed reforms mean green belt land, which has previously had low or no development value, could now be allocated for residential development, increasing its value exponentially.
Currently the principle of 'equivalence' is at the heart of compulsory purchase order (CPO) compensation. This means affected landowners are entitled to compensation for their property under a CPO, so they are not financially disadvantaged. At the moment, this compensation is calculated by reference to the land's value and any planning permissions – plus, crucially, "hope value". This means the CPO price currently includes the extra value likely to result from the future development of the land.
Labour's comments suggest that landowners will be denied the benefit of that uplift and the CPO compensation regime stacked in favour of the State as acquiring authority.
Compulsory purchase already has a complex interface with the European Convention on Human Rights. Article 1 of the First Protocol requires any interference with private property rights to be justified in the public interest. A “fair balance” must be struck between the public reason for acquisition and private property rights being extinguished. The leading case of James v. UK (1986) covers this point succinctly in stating:
"the taking of property without payment of an amount reasonably related to its value would normally constitute a disproportionate interference which could not be considered justifiable under Article 1. Article 1 does not, however, guarantee a right to full compensation in all circumstances. legitimate objectives of "public interest", such as pursued in measures of economic reform or measures designed to achieve greater social justice, may call for less than reimbursement of the full market value. Furthermore, the Court's power of review is limited to ascertaining whether the choice of compensation terms falls outside the State's wide margin of appreciation in this…”
A number of issues over the lawfulness of these proposed changes have already been reported but raising the following issues:
- The pricing of land would become a two-tier system, depressing the value of property if sold under compulsory purchase or the threat of compulsory purchase with higher prices for market sales.
- The Government has already ruled out a major house-building project of its own. If private developers are to be delivering homes on CPO'd land, who then profits from acquiring the land at less than market value? If the developers, it is hardly equitable to enrich developers with cheap land at the expense of the landowner.
- If the acquiring authority sells the land to the developer for "best consideration" (i.e., market value as required under current legislation), then it is not clear how this will induce developers to build or reduce the cost to purchasers.
- It is currently unclear how these reforms would comply with the European Convention on Human Rights, specifically Articles 6, 8, and Article 1 of the First Protocol.
Landowners and promotors are likely to feel deprived by these changes. Should they be enacted, then a legal challenge as to the "State's wide margin of appreciation" when it comes to compensation due to affected landowners seems highly likely.