Having first suggested the Bank of England try and freeze house prices by introducing tighter mortgage lending restrictions,the Institute of Public Policy Research (IPPR) has proposed freezing land prices as a way of bringing down the cost of new homes.
Yet far from being caused by landowner greed, land prices reflect the artificial scarcity of land created by the planning system and other restrictions such as the green belt. Land earmarked for residential development is subsequently worth so much more than agricultural land because of the cost and difficulty in securing and delivering planning consents.
Moreover, a price freeze could inadvertently restrict the supply of land as landowners hold on to sites as the price does not reflect their real or perceived market value. Land value is largely a function of house prices, which is clearly demonstrated by regional variation. House prices are predominantly set by supply and demand, meaning the most effective way of controlling them (and therefore land prices) is to significantly increase the supply of new homes.
Rather than freezing house or land prices, the government should continue to seek to speed up delivery by introducing incentives to diversify housing supply. This could be by bringing in more SME developers, improving the choice of tenure through delivering more private rental homes or creating more serviced self-build plots.
On larger schemes, the government and local authorities could apportion or incentivise plots specifically for SME builders, self-builders and build-to-rent units to significantly boost the choice and variety of delivery paths. In turn this would measurably improve the supply of new homes and provide much greater control to house and land prices.