Compulsory purchase reform - mortar to fix the broken housing market?

Following changes to CPO legislation being included in two recent Bills, the Housing White Paper "Fixing Our Broken Housing Market", released on 7 February[1], suggests further reform to CPO may be in the offing. For those that have campaigned for fundamental reform for well over a decade, this appetite for continuing incremental change is welcome - and perhaps surprising.

But what of the detail? Is CPO law in need of further repair? If so, does the White Paper show how this will be delivered? And is CPO at least one of the answers to mending the broken housing market?

Land assembly, including CPO and title cleansing powers are key levers for giving force to the process of housing delivery. There is a long, and somewhat overlooked and discredited track record of CPO supporting significant housing growth through the public sector, from the post-war years until the 1970s.  Bodies such as the London County Council, tasked with housing provision for Londoners in the 1950s, would probably look at this White Paper as being half-hearted and cautious rather than a comprehensive way of tackling housing shortage. Skills and processes once familiar to all planners, LPAs and agents are now invested in a small number of Core City LPAs and consultants. Where is it not well understood, CPO is seen as a slow, cumbersome, last resort – more treacle than mortar.

The call for consultation on further reform of CPO and compensation law in the White Paper is welcome. The lack of detail, not so.  Whilst some of the proposals sound radical, they are more likely to be re-working of existing principles. Further, some of the White Paper suggests limited understanding in parts of Government as to how CPO compensation works in practice.

Infrastructure and housing

The emphasis of linking infrastructure and housing has been an emerging theme for some time. The Government's direction of travel for tying transport infrastructure and delivery of housing is already clear from some of the more radical legislative proposals in the soon-to-be-enacted Neighbourhood Planning Bill[2]. 

Whilst many will not agree with that Bill's proposed impacts on suppressing market value where land has risen in value due to a previous transport scheme, it is widely accepted that the link between infrastructure and housing must be cemented if the repairs to the housing market heralded by the White Paper are to succeed. Appropriate and sustainable housing development is best achieved by better integrating planning processes with an improved land assembly process that speeds the timetable for delivery of new infrastructure. Co-ordination of housing and infrastructure planning must be re-discovered after many years of being fragmented – and the policy given time to be properly implemented.

The White Paper suggests this can in part be achieved by the Government calling for local planning authorities (LPAs) to identify development opportunities arising from strategic infrastructure when the funding for those schemes is committed, and to maximise the potential unlocked. This is clearly sensible, but some LPAs might find it hard to achieve in practice. Much will depend on the co-ordination and flow of information between (where relevant) the funding Departments, infrastructure providers and local transport authorities. The role of LEPs could be integral in this co-ordination - but the White Paper makes no mention of them.

The reforms to compensation law in the current Neighbourhood Planning Bill, in tying transport-related infrastructure to later schemes, will make a strategic approach even more attractive for LPAs considering using their CPO powers. It is to be hoped that the new ability to limit compensation values as a result of new infrastructure is not exploited by acquiring authorities so as to discredit the Compensation Code.

Local Authority powers

The White Paper's call for LPAs to consider the economic and social benefits of estate regeneration is both obvious and welcome. Given the turbulent recent past for some schemes the Government must now take action to support and encourage essential estate renewal by the issue of clear Guidance on what is expected of LPAs in terms of proper compensation and consideration of their Equalities Act duties. As the Aylesbury decision[3], makes its way through the judicial process we are aware of other schemes being reviewed in light of the uncertain outcome, so clear guidance is critical. The Secretary of State who made the decision on Aylesbury is also responsible for the White Paper, so the ramifications of the Aylesbury Estate decision, if supported by the High Court, could impact significantly on the White Paper's success in tacking Estate Renewal.

Consultation is proposed on removing the bar on LPAs disposing of land held for planning purposes for less than best consideration without the Secretary of State's consent. Whether this is a significant bar on development is open to question. The change could just lead to LPAs being pressured to accept sub-optimum consideration for their land. If an undervalue is genuinely needed the Secretary of State's consent is usually forthcoming, so this relaxation may actually just take away one of the LPA's stronger bargaining chips when negotiating development agreements. Perhaps a limited de minimis threshold for an undervalue may be appropriate, but the implication that the LPA need not have a proper share in development value should not be accepted without proper questioning of its full impacts on the finances and bargaining powers of LPAs. It is no doubt something that local government finance chiefs will be looking at with interest. The current process has not been immune from challenge as we saw West Berkshire successfully defend a challenge on these grounds last year[4]. 

Consultation is also proposed on additional powers for "all authorities" to dispose of land with the benefit of additional powers to prevent "'ransom strips' delaying or preventing development". This follows the widening of the availability of powers to "cleanse" public sector-held land of historic interests on title such as restrictive covenants, an area which has been legislated on several times in recent years.

Further detail is given in the Annex to the White Paper, which suggests the proposal is in fact to investigate "land pooling" powers, by reference to German examples. This suggests limited understanding by the White Paper's authors of how the Compensation Code works. The no scheme world principles enshrined in the Code mean that a "last man standing" is not treated as having a true ransom value - at least not beyond the practical consideration of paying someone over market value to speed up the process, thereby removing risk and saving the cost of a CPO inquiry. Land pooling is already possible by way of agreement and there is no reason why a local authority could not support a planning permission using its CPO powers to assemble land for a scheme where not all landowners fall in to line. The Government's intention would be better achieved by stronger Guidance and a speeded up CPO process, where the threat of cost caused by delay is diminished.

The White Paper asks for an indication of what might be the inherent barriers. Limited knowledge of how CPO compensation law is applied is one that possibly already exists, at all levels. A wider understanding of what CPOs can already do, and how compensation is assessed, would remove many of the uncertainties and fear of using CPO powers.                                                       

If the intention is to allow authorities to remove inherent ransom strips, this will be a radical and controversial step forward, significantly impacting on the basic market value principles of compulsory purchase compensation law.

Use it or lose it

The Government has picked up on the policy adopted by Birmingham City Council to threaten to exercise CPO powers on stalled development sites. It seeks to consult on this concept, including consideration of the acquired site being subject to an auction process to establish the market value to the dispossessed owner.  

A site, having passed through the statutory authority's ownership, will benefit from a statutory process of "cleansing" title issues. This is likely to give a site a higher value than when it was taken, so this approach would seem to cost more than just adopting a policy, (already seen in the City of London for tall building proposals) to simply pass the site through the local planning authority before handing it back to the previous owner with the previous rights capable of being breached - and compensated for on a Code basis.

If a landowner is unwilling to develop for other reasons, it seems odd that it could in effect benefit from its recalcitrance through an auction process, when the value at the time of auction is compared to the compensation position that would currently apply at the point of compulsory acquisition. Would the auction required the scheme to then be built out using an existing permission (which could well be close to lapsing) or can a new owner re-apply? If so should overage apply for a more valuable permission?

Compensation would also be due to the beneficiaries of the extinguished rights, which could well fall to be paid by the LPA by way of a statutory indemnity if not deducted from the sale proceeds. The value of the cleansed rights might not be known until long after the auction process. For instance a right of way could be either built over and lost forever - or left in situ and re-granted by the new scheme. Each would give rise to very different compensation values. The risk of such compensation payments needs to be allocated and covered in full in any legislation on this proposed process. 

All in all, the auction concept is probably a non-starter because it is less well suited to encouraging timely development than the current CPO system. Instead, improved guidance for LPAs to use their existing powers on dormant sites should be advanced. For instance a wider regeneration power not requiring a LPA to demonstrate a fully worked up scheme for a long-vacant "eyesore" site would better achieve land recycling. The auction suggestion should be quietly dropped. It is likely an auction process would be to the benefit of a recalcitrant owner. The current system, used well by a determined LPA should, following due process, give such an owner little benefit at all for dragging their feet.

Homes and Communities Agency

The White Paper exhorts LPAs to consider the significant changes to compensation law already in the Neighbourhood Planning Bill and use the new processes to promote new development through CPO. It also proposes that the Homes and Communities Agency (HCA) should look to use its powers to support development and regeneration, including supporting LPAs.

The Government indicates its own willingness to intervene in the market, promising to:

"look seriously at any request from local authorities for Government powers to be used to support delivery in their local area, and will be prepared to consider all the levers at our disposal to do so."

These levers include consideration of infrastructure delivery at a spatial level, encouraging joint planning and statutory plans, and through the HCA supporting the process - including using its own wide CPO powers.

It is not clear what is radical in all of this. All of it could - and should - happen now. Supporting the relevant authorities and encouraging them to intervene is welcome, but the power is nothing new. It does however present a shift for the HCA which has, following a bad CPO experience not of its own making[5], until now mostly sought to stand behind a LPA and not use its own wide-ranging powers. An emboldened HCA can make a real difference to providing suitably title-cleansed sites, without facing some of the hurdles faced by LPAs in justifying expropriation.

New towns

One of the more radical proposals is the suggestion that new "locally accountable" New Town Development Corporations will be provided for in legislation.  This is subject to the local areas deciding themselves that one is needed – the historic tension between development corporations and the local authorities having corporations imposed on their area being recognised.

Reference to communities being able to "benefit from land value capture" suggests the new development corporations could have a powerful tool kit, including CPO powers.

It is likely legislative change will be by amendment to the New Towns Act 1981.

Conclusions

The Housing White Paper makes some gestures to cementing CPO more firmly in housing delivery. It seeks to play the difficult game of respecting localism and the removal of planning for infrastructure at an appropriate level in the planning hierarchy, whilst also advocating historically "top-down" concepts, such as new corporations to secure the scale of development that is needed. Localism and the state's power of expropriation rarely belong together (the Neighbourhood Planning Bill being a rare exception). Binding such competing concepts together is difficult, so it is unsurprising the proposals for CPO reform in the White Paper are sometimes inconsistent (and possibly not fully thought through).

The call for representations for further reform of the CPO process are certainly welcome as much more could be achieved. The invitation will be picked up by the Compulsory Purchase Association and no doubt by others.

Fully understood, fairly and respectfully used, and forming part of a properly thought through and funded process for development, CPO can be part of the answer to fix the housing market. It will require a degree of state intervention that is probably not immediately associated with the current Government's ideology, accompanied by significant funding commitments and an investment in skills. The process needs to be shortened and the Government needs to be clear in its guidance as to what it wishes LPAs and HCA to achieve.

CPO is not broken, but needs at least running repairs and ideally an overhaul.  If the White Paper's promise of allowing further reform to be discussed and then implemented is stuck to, to deliver a faster fairer and clearer system, then CPO really can provide some of the mortar to fix the housing market.