The Subplot | Why removing hope value might be hopeless

This month’s long read

• Hope over experience: limiting hope value in compulsory purchase may not be the magic wand ministers hope
• Elevator pitch: your rundown of what’s going up, and what’s heading the other way

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Can a CPO rule change make everything better?

The government hopes further curtailment of the ‘hope value’ rules will help make the compulsory purchase of land cheaper, opening the door to new houses and infrastructure. It almost certainly won’t.

Picture the scene: a minister’s office, Whitehall. The chimes of Big Ben are audible in the background; civil servants are gathered around the ministerial desk. So, says the minister (let’s call him Matthew), what are the big brakes on development? I’ve been told it’s the inflated price of land. Civil servants nod. Up to a point, minister, one of them says. Great, says Matthew, how can we make land cheaper, because I’ve read about the post-war development boom and new towns being built on land bought cheap at agricultural prices, how can we do that?

Civil servants look at one another and perhaps at the back of the huddle there’s a slight audible sigh from the single solitary qualified planner in the room. At last someone speaks: you’re thinking of compulsory purchase, minister? Yes! he says, how can we make that cheaper? Everyone smiles: this minister isn’t going to be as much trouble as they feared.

One of them produces a file with the title ‘Reform of the Compulsory Purchase Process’ – in fact, the very same file they’ve given to every minister since Michael Heseltine left office – and it is handed to him with appropriate modesty. The minister’s face lights up. You read the manifesto? he says, delighted. The official nods demurely: indeed, minister, the official says, and we understand the urgency of your 1.5m homes housebuilding target so we thought, maybe begin a consultation before Christmas? The minister is enjoying this. Yes! he says, let’s not waste time. That’s my decision.

Back to reality

And so here we are again. In a statement to Parliament on 19 December the minister said: “… we need to make better use of under-utilised land across the country… but plans are all too often frustrated by onerous barriers to land assembly, complex purchasing processes, and unrealistic compensation expectations on the part of landowners. The result is significant amounts of developable land that remains unused and overpriced.” The manifesto “promised to take steps to ensure that for specific types of development schemes, landowners are awarded fair compensation rather than inflated prices based on the prospect of planning permission being granted on the land in the future – known as ‘hope value’.” The consultation, which you can find here, closes on 13 February.

Same ideas

The latest set of proposals builds on the changes introduced by the Tories’ Levelling-up and Regeneration Act 2023 – and yes, you’re right, it’s that file again. The 2023 Act allowed for the removal of value associated with the prospect of planning permission (the ‘hope value’) from the assessment of compensation if it is in the public interest because it involves the provision of affordable or social housing, new schools, or new hospitals. The new plan was billed as making this process more efficient, and the calculations fairer.

The minister says

The red meat is a proposal to move from a system of extinguishing hope value case-by-case, to a system where the government just blots it out, in advance, from a whole category of development. General directions would remove hope value from “brownfield land in built-up areas, suitable for housing delivery, but with no extant planning permission for residential development” and “land allocated for residential development in an adopted plan but which has not come forward for development.” That could be a lot of land, moreover a lot of very valuable land. The consultation asks for evidence of schemes this might help, whether it would work, and what the consequences (intended or otherwise) might be.

Chilling effect

It’s early days, but a few things are already becoming clear. The first is the risk of chilling the land market. If it’s done incorrectly, the strategic land people who make a living out of putting sites together and sorting out viability issues could end up in deep trouble, and the market would suffer. Much would depend on the timing of government intervention, says Philip Rees-Roberts, a CPO specialist and partner at Liverpool law firm Glenville Walker. “Removal of ‘hope value’ in relation to brownfield land which has not extant planning authorisation would appear reasonable to give the acquiring authority more certainty in assessing viability. In relation to other land which is allocated for housing but not yet developed, this appears more contentious and prejudicial to the land owner,” he says. The fights which sometimes dog compulsory purchase orders could get rougher, not smoother.

Job (already) done

The second is the slightly nerdy point that the government has also beefed up the National Planning Policy Framework, and thus, the whole plan-led system that hangs from it, and hasn’t quite grasped the consequences of what it’s already done. To unpack that thought: if planning is all about allocating sites in local strategic plans, and the presumption is that you’ll only get planning permission for the kind of development envisaged in that local plan, then the hope-value problem has pretty much dissolved already. That’s because there’s no alternative use available, this site is for X and not Y, so no hope of getting permission to build Y, which might be the higher value use.

Target missed

The third point is that what makes many brownfield developments unaffordable isn’t toppy prices screwed out of taxpayers by selfish landlords, but the cost of contamination, infrastructure, and servicing the site. Getting electricity wired up is particularly expensive, and can shift a scheme from the viable to unviable columns all on its own. By asking the questions it has, the government risks the answer it doesn’t want, which is either option a) brownfield land is unviable for all kinds of reasons and land price isn’t the deciding factor, or option b) it’s your fault, not ours.

Begone, evil spirits

Or put it another another way: “It might be better for the government to accept that if a scheme delivers socially critical benefits (affordable housing, schools, hospitals), then those benefits are funded through the public purse. Hence we return to a fiscal position, as well as one where the government might need to be more engaged with the development industry rather than assume that the industry is only ever in it for itself, and they are the cause of the problem,” says Jeremy Hinds, who leads both the national retail planning team and the North planning team at Savills.

Hezza was right

So having gone around the houses, we zoom back 30 years to the Michael Heseltine-era discovery that the real impediment to brownfield development is not the price of land, but the cost of making it usable. Heseltine projects like garden festivals as a way to return contaminated land to use (Liverpool, but more promisingly Gateshead), creating development corporations to assemble sites (Leeds, Newcastle, Trafford, and Central Manchester were winners), and city challenge funding to sort out infrastructure (Hulme the stand-out example) might work more effectively than further focus on hope-value.

But all that kind of effort costs money, and with government borrowing costs rocketing this week to a 27-year high, the Chancellor of the Exchequer doesn’t have any of that to spare. Place North’s Mind the Gap campaign to plug funding gaps is relevant here: alongside Cavendish and Lichfields, the campaign is pressing for a government discretionary grant aid programme for the North.

Pending a government contribution of some kind to help make development viable, the CPO review is merely minister-pleasing rather than world-changing.

 ELEVATOR PITCH

Going up, or going down?

A great month to invest in hyperscale data centres, a not so good month to splurge on speculative offices. Doors closing, going up.

Speculative offices

Some excitable people profess to be astonished that investors aren’t hurling money into speculative office schemes. If only investors could overcome their hesitations and grasp the chance, because it would definitely pay off! This nonsense needs counter-acting, and as a result it is Subplot’s sad duty to mention 100 Embankment.

The 166,000 sq ft Salford-side-of-the-river office scheme was a brave move by Salford City Council, which provided the financial unpinning for a project nurtured in the slightly hysterical over-heated pre-Brexit referendum years. Planning permission was secured in 2016, thrown off its pace by the collapse of Carillion and some post-Brexit oddities, and completed in August 2020 in the midst of a Covid-saturated world. The first deal landed late, in April 2022, and the last just before Christmas, with National Highways signing up for the final 12,000 sq ft suite. In that time much has changed and nothing has changed: gross development value started and closed at £65m.

100 Embankment has packed a lot into its short life. It’s been a roller-coaster, a decade of ups and downs leading slowly to a respectable, if not amazing, outcome. You really can’t blame investors for deciding they’d prefer (yet) another quick-win residential tower.

AI hits property

Subplot has been bleating on about data centres for ages – the latest bulletin was last spring

and the Christmas run-up brought more heartening news. Microsoft completed the £53m purchase from Harworth of plot 1 at Skelton Grange, the former power station site.

A hyperscale data centre is planned by Microsoft, and if you wonder what distinguishes this from a normal data centre, the answer is it is basically a wholesaler of connectivity, rather than a kind of retailer (which is what normal, co-location data centres are). If you still don’t know what that means never mind, it doesn’t really matter.

Will more hyperscale data centres be heading to the North – especially Yorkshire’s – way? You bet, thanks in part to AI. One research outfit reckons the compound annual growth rate (measured by value) will be about 5.4% up to 2032. Savills predicts the doubling of European hyperscale data centre capacity in the next four years, with the UK getting a hefty chunk.

Get in touch with David Thame: david.thame@placenorth.co.uk