The Institute for Public Policy Research said speculation by landowners awaiting planning decisions that can trigger vast increases in the value of a plot, had the effect of exacerbating wealth inequality and was a “driving force behind the broken housing market” in Britain.
Luke Murphy, associate director at IPPR, said: “Conventional wisdom suggests that the UK has a problem with house prices, but the reality is that we have a problem with land.” Murphy said: “Wealth inequality, a poorly functioning housing market, an economy focused on unproductive investment and macroeconomic instability are all negative consequences of our current speculative land market.”
Using the example of a hectare of agricultural land in Oxfordshire that would typically be worth about £25,000, the IPPR said it could skyrocket in value by more than 200 times on approval for residential development to be worth about £5.6m. While the landowner stands to benefit from approval, the increase drives up the cost of building homes.
Two years ago on average the price of land had risen to more than 70% of the price paid for a house, which the IPPR said could rise to about 83% over the next two decades given current trends in the housing market.
About half of net wealth in Britain is tied in up in land, having risen by more than 500% in the past two decades to stand at £5tn. Although the value of property built on land across the country has also risen, it has increased at a much slower rate, of around 219%.
According to a 2010 report for Country Life, a third of Britain’s land still belongs to the aristocracy, while some of the oldest families in the country have held on to their land for several centuries. The IPPR said the top 10% own property wealth averaging £420,000 in value, compared with the bottom 30% who own no net property wealth at all.
While market intervention has often been associated with the left, increasingly radical ideas are also finding favour among Conservatives concerned that falling numbers of homeowners will subtract from their voter base.
Boris Johnson, the former foreign secretary, used a newspaper column earlier this month to attack construction companies reducing the supply of new homes by “land-banking,” where firms sit on land without building anything to protect new housing supply flooding the market all at once, thereby maintaining higher prices.