Real Estate

Housebuilders: Labour hope value curb is a castle made of sand

An Englishman’s home is his castle, they say. But too few Britons can afford a dwelling that would even rank as a sentry box. The opposition Labour party, which leads in opinion polls, therefore wants to cut the prices at which landowners are forced to sell sites to local authorities. It should think again.

Councils issue the requisitions when land is deemed essential to build homes or infrastructure. Councils currently have to adjust prices to reflect the value created by prospective planning permission. This is known as “hope value”. 

Labour has housebuilders such as Persimmon, Barratt and Taylor Wimpey in its sights. Local authorities accuse developers of hoarding land to benefit from rising prices, which they deny. Land with planning permission can be valued 275 times higher than farm land, according to the Centre for Progressive Policy think-tank.

Curbing property rights would be a bad look for the UK, which needs to attract foreign investment. Labour’s plan smacks of the radical nationalisation programme that helped lose it the 2019 general election. The ruling Conservatives have sensibly steered away from the blanket abolition of hope value, preferring scheme-by-scheme assessment.

Labour has been trying to persuade investors that Britain would be “open for business” if it wins the next election. The proposal to abolish hope value paints a different picture.

Investors are treating the Labour plan as no more than kite-flying for the moment. For years, housebuilders reaped hefty profits from the UK’s misguided help to buy subsidies scheme. Their shares have underperformed the wider FTSE 100 in the past 12 months owing to its closure,

Stocks have rallied lately, however. Shares in Persimmon and Taylor Wimpey are trading on forward earnings ratios of 14 times and 13 times respectively, above their five-year averages. But they remain sensitive to higher rates.

The debate over the real motives of housebuilders may never be resolved without fundamental tax reform. There is a good argument for taxing land held by developers to nudge them into building dwellings on it.

This might deter speculative investment. But it would avoid any element of uncompensated expropriation. And if the real business of housebuilders is building houses, as they claim, they would happily adapt to the new regime.

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