WHERE AUSTRIAN ECONOMICS MEETS REAL WORLD ACTION

Public bodies in England can now buy some land as if it could never be built on. The owner who refuses to sell is the one who ends up paid less.

Your family has farmed the field on the edge of town for forty years. You have never sold it and never tried to. But you are not naïve about it either. The houses have crept closer, the station has been rebuilt, and every few years a developer writes to ask whether you would consider an option.

You have always known what the field is really worth. Not what it grows. What it could become. So has everyone who has ever made you an offer.

Then a different letter arrives. The council wants the field for affordable housing, and it intends to buy it whether you sell or not. It will also ask for your compensation to be worked out as though nobody would ever be allowed to build there.

The field has not changed. The station has not moved. The only thing that has changed is who is buying. And that buyer has just told you that the part of the price everyone else was willing to pay does not count.

Compulsory purchase is the one sale in which “willing buyer, willing seller” is false. So the law imitates it. Compensation is what the land would fetch from a willing buyer on the open market, ignoring any rise or fall in value caused by the council’s own scheme.

Part of that price is what the trade calls hope value: what a buyer will pay for the chance that planning permission might one day be granted. An illustration, with invented figures. A field worth £100,000 as farmland might be worth £3 million with permission to build. Without permission, no developer will pay £3 million, but none will get it for £100,000 either. They meet somewhere in between, say £800,000. The gap between the farmland price and the agreed price is hope value. It is not a separate payment. It is part of the price.

The highest court in the land has said so. In 2009 the House of Lords held that land with a probable but uncertain prospect of permission must be valued on exactly this basis: the chance, priced by the market. On the facts of that case, the chance was worth about three-quarters more than the land’s existing use.

The new rule lets a public body ask for that chance to be ignored, so that compensation is worked out as though permission would never be granted.

—     Since 30 April 2024, section 14A of the Land Compensation Act 1961 has allowed it where the land is for affordable or social housing, health or education, and excluding hope value is justified in the public interest. The authority must publish what it intends to do with the land. A permission already granted, even if unbuilt, still counts.

—     Since 18 February 2026, the Planning and Infrastructure Act 2025 has let parish, town and community councils use it for affordable housing. If nobody objects, the authority can now confirm its own order, discount included. Contested orders go to a planning inspector rather than a minister.

—     From the same date, the statutory loss payments for being forced out are calculated on the discounted value.

How readily directions will be approved against an owner’s objection has not yet been tested, commentary this week notes. The Law Commission’s wider review of the whole system is expected to report, with a draft Bill, in 2027.

The government’s case, at its strongest. The owner of a field near a town often did nothing to earn its rise in value. It comes from roads, stations and schools paid for by the public, and from the planning system itself. When a council must pay that uplift to build affordable homes, schools or clinics, public money goes to landowners for value the public created, and many worthwhile schemes stop adding up. The sums are large: the New Economics Foundation estimated that removing hope value would cut £4.5 billion from the cost of building 90,000 social homes a year.

Much of that is right about where the value comes from.

Start with the question underneath all of this. Compulsory purchase is the one sale in which the seller’s “no” counts for nothing. Whether anyone should hold that power is a question older than any of the Acts involved, and readers will have their own answer. This issue takes the power as given.

Take the government’s case as given too. Every word of it. What follows is unaffected.

Who created the value is the wrong question.

Anyone who buys land takes a risk. The town might grow towards it or away; a station might open or close. The owner carries that risk either way, and a rise in value from something a neighbour did is what holding land means. If a private developer built a shopping centre next door, nobody would suggest it could then buy up the surrounding houses at pre-centre prices. The station makes no difference because a public body paid for it.

The law already strips out the one uplift that genuinely belongs to the buyer: any value created by the council’s own scheme is ignored. What section 14A removes is everything else.

Nor has the state ever treated hope value as imaginary when it is the one collecting. When land near a town is sold, capital gains tax falls on a gain that includes it, and stamp duty on a price that includes it. On inheritance, the main farm relief covers only the land’s agricultural value; the hope value is outside it. Real when taxed. Imaginary when paid for.

And if the premium is a symptom of rationed permission, taking it from one owner cures nothing. The shortage is still there the next morning, for every other buyer.

The forced seller never agreed to the market price.

Market value is the price at which a buyer and a seller who both chose to trade would meet. The owner facing an order is, by definition, not one of them. If the market price had been enough for him, he would already have sold. English courts said as much in 1870: value means value to the owner, not to the purchaser. What the land is worth to him sits above the market price, and that gap is the whole reason the state needs compulsion.

Modern law then does the opposite. Its first rule of compensation is that no allowance is to be made because the purchase is compulsory. The only recognition of the forced sale is a separate loss payment, justified as covering inconvenience, capped, and adjustable by ministerial regulation. A cap only makes sense if the owner’s own valuation does not count. Past the cap, the more you lose, the smaller your payment as a share of it.

The same 2025 Act that widened the discount also cut that payment. In England, an owner who does not occupy the land, such as a landlord, an investor or a promoter, now receives 2.5% of its value, capped at £25,000, down from 7.5% and £75,000. Occupiers were moved the other way, to 7.5% and £75,000. And both are now calculated on the discounted value. The one payment that recognises the owner did not choose to sell shrinks with the price.

Hope value is a price, not a windfall.

Hope value is the price of a judgement about what land could become, paid by real buyers in a real market. It sits in the price the current owner paid, the option a promoter bought and the valuation a bank lent against. Whoever collected any windfall collected it long ago, and it was not the person holding the land when the order arrives.

The direction does not pay the price the land had the day before the scheme. It pays a price assuming permission would never be granted, lower than anything the market would have paid. A market price is arrived at by two parties who could each have walked away. “Assume no permission, ever” is an assumption, chosen by the side that pays. And promoters’ surveys, options and applications are how the market finds land worth building on. Assume the prize away, and less of that work gets done.

You can price a rule. You cannot price a discretion.

A direction is granted when excluding hope value is justified in the public interest and a fair balance has been struck. Both are judgements, not thresholds. There is no formula, no stated minimum, and no track record against a determined objector. An owner, a promoter or a lender cannot price a risk defined like that. They can only price around it.

The buyer now sets the value of what it buys.

The body that decides whether land may be built on is now buying it at a price that assumes it never will be, and where nobody objects, it approves its own discount. English law has an old principle that no one should be a judge in their own cause. No bad intentions are needed for this to go wrong; the incentive is enough.

Nor does the cost disappear. The £4.5 billion is not a saving. It is a transfer: the land is still used, and still had another use; the difference is simply paid by the landowner instead of the budget. A scheme that books land below its worth shows accounts cheaper than the truth, so the authority can no longer tell whether it is worth doing. Projects that would fail at the true cost of the land now pass.

A claim in ten years is not payment today.

Parliament built in a safety valve. If, ten years on, the authority has not done what it said, and the direction would not have been granted on what actually happened, the former owner can apply for more. You do not build a remedy for a risk you think is imaginary. And a claim you might bring in the mid-2030s, if the council failed and a minister agrees, is not payment at the moment of taking. Money a decade late is worth less, and the cost of watching and arguing sits with the person who has already lost the land.

Last resort becomes first resort.

Compulsory purchase is meant to follow attempts to buy by agreement. But every negotiation with a body that holds the power happens in its shadow: if the alternative is compulsion at farmland value, the “agreed” price follows it down. A power meant to be used last should be the expensive option. This rule makes compulsion cheaper than agreement.

This is general information, not legal, valuation or financial advice. On any specific site or order, take advice from a compulsory purchase specialist.

If the state must be able to buy land compulsorily, four changes would make the power honest:

—     Market value, hope value included, as the floor.

—     A forced-sale premium on top, calculated on that full value. The principle is already in law. The cap should not make it trivial where the loss is greatest.

—     Compulsion only after a refused offer at full market value.

—     Fix the scarcity rather than confiscating its price. If hope value is a shortage the planning system created, release more permission. The premium then falls for every buyer, councils included, through the market rather than out of one owner’s pocket.

There is also a test of intent, and the government has already sat it. It chose not to apply the discount automatically to whole categories of site, because consultation responses had not shown how hope value was actually stopping homes being built. If that case could not be made in general, it should have to be made site by site, and the burden should be heavy.

Which is the principle underneath all of it. If the state may override an owner’s refusal at all, the burden should sit with the state: to show it had no other way, and to pay what the owner actually loses.

The rule now runs the other way. The less willing the seller, the cheaper the land.

Stay free,

Jean-Pierre

The Austrian Actor

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