The housing crisis isn’t really about housing

A million and a half homes. It won't solve the housing crisis we face, but it'll make a dent. It's a bold signal, particularly considering our nation's steady decline in homebuilding capacity since the 1940s. Here's the quirk though: the problem isn't housing innovation. We have plenty of stuff from modern methods of construction to design codes with sustainability baked in. The problem is land. It's always been land.

I've just finished a project for the day job, helping government develop evidence-based designs for housing delivery vehicles. They’re a throwback to development corporations of old, but reimagined for the future, where the vision is new towns built at scale and pace.

In government, speed is always prioritised, driven by the constraints of political cycles. With a mere three to four year window to demonstrate impact, the pressure to move quickly butts heads with institutional inertia. As I’ve bemoaned before in 'Slow agile', there's often an illusion of momentum, with quick decision making followed by painfully slow delivery.

The primary thing slowing everything down? Land assembly. The term suggests something straightforward, like assembling a piece of flat pack furniture. Or land as Lego pieces that just need fitting together in a proper arrangement. But it's vastly more complex, with complexity rooted in how we value land both now and in a speculative future.

This complexity manifests everywhere in the UK. Land banking and speculation are rife because the market signals that land value will always go up and to the right. So it becomes a waiting game, one reinforced by our archaic planning system that essentially rigs market conditions while tying its own two-hands of effectiveness.

This waiting game not only delays development but creates mechanisms where public value is captured privately. Land becomes an investment commodity rather than an asset for societal good.

The current tools aren’t working

Government is strengthening land purchasing powers in the new planning and infrastructure bill. I’ve read it so you don’t have to, and one thing I can tell you is that it’s putting compulsory purchase orders more firmly on the table. This provides leverage, but it's only part of the solution. The critical question remains: how do we maximise public value from land once acquired?

Current value capture mechanisms like the Community Infrastructure Levy (CIL) and Section 106 Agreements attempt to address this. Both require developers to contribute to infrastructure based on anticipated development value. While these capture some future land value increases, they're fundamentally limited by being negotiations that are fixed at a point in time. Because of that, they often undervalue the actual uplift and aren't directly tied to development needs.

A new market mechanism: Land value options

Here's a slightly radial, though potentially more effective approach: creating a land value options market.

A Development Corporation (DevCorp), those vehicles I’ve been thinking a lot about lately, would identify undervalued land parcels with growth potential due to planned infrastructure improvements like rail links or road expansions. East-West Rail here’s looking to you!

Rather than selling this land outright, the corporation would issue tradable "Land Uplift Rights" (LURs, always an acronym in this game). These are essentially futures contracts linked to anticipated land value increases post-development. These financial instruments are by no means new, they’re everywhere in financial markets. Largely associated with stocks, indexes and currency. But here, they would create a transparent value system for land development.

Investors, developers, and landowners would trade these LURs on an open market, with prices fluctuating based on real-world development progress. New transport approvals or planning permissions would drive prices up; delays would push values down, creating market signals for infrastructure urgency.

The innovation comes in how value is captured and used. When land development occurs, LUR holders could redeem their rights for an agreed percentage of the value uplift, or even use them as "development credits" reducing upfront costs. The DevCorp would retain a significant share of the uplift to fund infrastructure and community assets, reducing reliance on slower government grants.

This creates a system where:

A big bonus here is that local authorities would see community benefits materialise earlier, potentially reducing opposition to new housing developments too.

Legally, DevCorps would maintain land ownership while issuing LURs under a regulated public-private partnership model, with Treasury and MHCLG oversight ensuring market fairness.

Learning from limited precedents

It might not come as a surprise that no UK government has fully implemented such a system. However there are adjacent examples that give me hope. From what I can tell, in the 1980s the London Docklands Development Corporation used a competitive auction system for development rights, rather than selling the land itself outright. A similar concept that allowed control over land use while capturing some upside, though it functioned more like today's fixed levies due to its one-time nature.

This approach represents a fundamental shift in how we think about land value. Moving from static, negotiated agreements to dynamic market-based mechanisms that align private profit motives with public development goals.

If we're serious about solving the housing crisis, we need to innovate not just in construction methods, but in the financial mechanisms that determine how and when land becomes homes. I think this idea has legs. If anyone out there in the Cabinet Office's Test, Learn and Grow team wants to pilot this – hit me up.

by KJ