CPO AND AFFORDABLE HOUSING Consideration of the government’s proposals to strengthen local authorities’ CPO powers to deliver affordable housing

Robert Smith  Paul Astbury

Robert leads the National Strategic Land Team at Carter Jonas and has over 30 years’ experience as a developer and consultant advising private, corporate and public sector bodies on how to extract value from strategic property assets. He has worked throughout the UK delivering strategic property advice on several urban extensions, new settlements, residential, commercial and transport/ infrastructure-based projects. Paul is Head of Compulsory Purchase & Compensation at Carter Jonas. With over 25 years of experience, Paul has dealt extensively with the promotion of compulsory purchase schemes, as well as with the negotiation of compensation once powers have been obtained. Working with landowners and occupiers, Paul has successfully defended land from proposed compulsory purchase and, where powers are already in place, provided strategic advice to protect clients’ interests and negotiated compensation on the best basis available under the law.

Robert and Paul outline the proposed legislative changes to remove some of the uncertainty for local authorities to obtain compulsory purchase approval. But the authors question whether this is the answer and believe there are better mechanisms to secure increased affordable housing through collaboration. 

The publication of the government’s much anticipated Planning and Infrastructure Bill contains within it a change to the law surrounding compulsory purchase orders (CPOs). This change would, theoretically, give local authorities considerable power to compulsorily acquire land at a lower cost than might be achieved on the open market. 

In April 2024, an element of the Levelling Up and Regeneration Act came into force, giving local authorities new powers to buy land for development through CPO, free of the costs of ‘hope value’ which otherwise benefits the landowner. 

The government has promised that its Planning and Infrastructure Bill will take this further – as part of an aspiration to ‘Deliver the biggest increase in social and affordable housebuilding in a generation,’ and it has pledged to ‘Further reform compulsory purchase compensation rules to improve land assembly, speed up site delivery, and deliver housing, infrastructure, amenity, and transport benefits in the public interest’. 

While the existing rules require a council to apply to the Secretary of State to demonstrate that the removal of hope value is in the public interest, Labour intends to legislate so that public bodies can add this provision to an application for CPO powers to acquire land without the need for individual approval by the Secretary of State, effectively removing the considerable uncertainty which currently prevents councils from going down this route. 

The impact of the Levelling Up and Regeneration Act 

The tone of Labour’s policy announcement pre-election was relatively cautious – perhaps because traditional Tory voters (landowners and development industry professionals among them) were necessary to secure a landslide victory. But since that landslide was secured, the language has become more adversarial. MPs frequently refer to the forced sale of land for affordable housing as ‘replacing greed with need’ - intentionally or otherwise, driving a wedge between communities and developers. 

Any suggestion that landowners should be punished for their wealth is too simplistic a message. While many might agree that land should not be sold for obscene profits, the reality is that this is rarely the case. Furthermore, land sales are only a part of development costs. And importantly, the development industry is vital to the economic success of the country – so encouraging land sales should be a priority of the current government. 

And it’s not just the wrong message, but the wrong approach to achieve the intended outcome of speed, deliverability and affordability. 

CPO powers are best used (usually as a last resort) in enabling the development and provision of necessary infrastructure on large sites, or where ownership is fragmented. For most sites, and for strategic greenfield housing land specifically, CPO is rarely required. It feels like a knee-jerk reaction. It might give the impression that governments (of both political colours) have responded to the affordable housing need, but it’s the wrong way of going about it. 

Benchmark land values (BLV), which prevent developers from using inflated land purchase prices in viability calculations, could be a more effective approach. Whereas CPO is relatively rarely used in land assembly, planning permission is required for every housing development. Therefore, you are addressing the issue at source and not requiring a huge step change in the use of onerous CPO powers. If developers cannot pass on inflated land costs in their planning viability arguments, it should limit what they are prepared to pay for land and correct any perceived or real notion that inflated pricing is an issue. 

An alternative approach could be making housing allocations more available to remove the scarcity factor from market pricing. 

Geographic discrepancies in land value 

Geographic discrepancies are just the first of the problems with putting this rule in place – how do you apply the benchmark value approach across different parts of the country? BLVs must still have a geographical nuance and where that nuance is fixed would be the subject of considerable debate. 

In parts of the UK, for example, Oxfordshire or Cambridgeshire, land with planning consent for development could achieve a considerable uplift in value relative to undeveloped, agricultural land. Therefore, the hope value (i.e., the potential loss to the landowner) could be considerable. Comparatively, in other parts of the country, hope value might be much lower. This is just one inherent unfairness in a ‘one size fits all’ approach to BLV that will need to be addressed. 

The importance of fair market value in CPO 

Returning to the issue of messaging, the tone and messaging of compulsory purchase can undermine CPO, which is fundamentally based on paying a fair market value, equivalent to what a seller could realistically achieve in a voluntary sale. Furthermore, CPO is never the first port of call to increase housing land – it’s there to fix a problem which cannot be fixed otherwise. In any CPO inquiry, you need to demonstrate that you have sought to resolve the need through negotiation. Perhaps most importantly, the law around CPO is clear that it should only be used in the public interest. 

The complexity of affordable housing development 

Our view is that lack of land for affordable housing is multi-faceted and extremely complex. It follows decades of tinkering with planning reform, which failed comprehensively to reform the need for council, social or affordable housing: it’s far too prosaic to say the issue lies with greedy landowners. 

This policy proposal is using the wrong tool for the wrong problem. If the problem is affordability and deliverability, the causes lie in the broader economic context (including the mortgage markets) and factors such as the speed with which planning consents are granted – which is impacted by substantial under-resourcing. 

CPO can be expensive and time consuming. In planning we talk in terms of five-year land supply which feels like a long time, but CPO takes many years – we’d see little change during this parliamentary term by the time legislation was in force. Creating a more efficient planning system, with more certainty, investment and less risk would have a much more immediate impact. 

The role of collaboration in large-scale developments 

In terms of large-scale developments (another target for the government), many successful schemes have resulted from landowners forming joint ventures with, for example, housebuilders and master developers. There are many different and more collaborative approaches to the creation and realisation of value by developing comprehensive and holistic schemes/methods of delivery – those which combine public and private, commercial and residential - owned and rented homes. 

The days of the 1970s council housing estate are gone and genuinely mixed communities offer an infinitely better alternative. While the benefits and realities of the ’15-minute neighbourhood’ are debatable, there’s no doubt that well-functioning communities need a school, shop and community infrastructure. Providing these different functions comes from partnerships - between councils and private sector, and often, bodies such as Homes England. 

The suggestion that landowners are holding the process up is disingenuous. Rather than resorting to the blunt tool of CPO, the government should think carefully about the role landowners take in these successful schemes and not seek to discourage them from promoting and releasing land for much needed growth. 

The future of affordable housing and CPO 

The change to the Levelling Up and Regeneration Act in April has caught people’s attention for all the wrong reasons. The increased delivery of affordable housing requires going back to first principles: determining exactly what needs to be achieved and finding the appropriate tool. I believe this already exists, in a collaborative approach to planning and delivery.