There is increasing awareness across Northern Ireland’s political spectrum that urgent action is needed to resolve the ongoing housing and infrastructure crisis. According to a recent Chartered Institute for Housing report, “the number of new homes built in 2023–24 was 5,418 – the lowest in a decade, falling short of even conservative estimates of need.” In addition, the report notes there is a dearth of affordable housing with over 47,000 households on the social housing waiting list, which in turn has exacerbated homelessness.
Devolved administrations across the United Kingdom looking to solve their housing crises, must first think about building new infrastructure. Without new infrastructure being deployed, the ability to increase housing output is inherently limited. The empirical long–term relationship between infrastructure investment and additional housing is clear.
While the building of new public transport networks can help unlock new areas of medium to high–density housing, infrastructure investment must also include utilities such as water and electricity, as well as plans for green spaces to improve the built environment. Indeed, water shortages remain a barrier to transforming the built environment in Cambridge, and they also remain a significant impediment to Northern Ireland with its outdated sewage system preventing new building across 23 towns.
Hence, to achieve a housing revolution requires an infrastructure revolution. This means that strategic planning across entire functional economic areas must be the starting point for these plans including water, transportation and of course housing. For other parts of the United Kingdom this has been more complicated as housing and planning are devolved to individual local authorities. However, Northern Ireland is better set up to undertake strategic planning with the Northern Ireland Housing Executive working in conjunction with the Housing Council, containing representatives from each of the 11 districts of Northern Ireland.
Such a strategic plan must not only look at new housing and water infrastructure but also how best to develop new transport infrastructure enabling the jobs of the future, whether they be in logistics across Northern Ireland’s ports, or the creative industries and financial services.
This leaves the issue of how a large–scale project might be funded and financed – which in recent years has been the major barrier to achieving housebuilding at scale. In my recent report on the funding and financing of new towns and urban extensions published by The Bennett Institute, I argued that the situation in England and Wales has been transformed as a result of the Levelling Up and Regeneration Act (LURA) 2023.
In LURA 2023, amendments were made to the Land Compensation Act 1961, whereby the Secretary of State can issue a direction for a development corporation to ignore prospective planning permission for land compensation purposes, and hence acquire land at values close to use value. This makes many large–scale projects financially viable, and crucially was the most important funding mechanism that enabled the delivery of the post–war new towns – as well as the pre–war garden cities.
The New Towns Taskforce is currently looking at locations across England, where these powers could potentially be used. Indeed, without these powers to capture the uplift in land values, it is unlikely that any new town or large–scale urban extension would be financially viable. The reason why Milton Keynes was the last new town to be built is because it lost a court case against a landowner which then required compensation for prospective planning permission to be paid.
The devolved administration in Wales can also exploit these new powers. However, neither Scotland nor Northern Ireland have yet to implement such powers, which would significantly improve the financial viability of large–scale projects. In 2017, I was invited to give the annual BEFS lecture in Edinburgh where I argued the Scottish Parliament should reform the Land Compensation Scotland Act 1963. I also met with key members of the Scottish Parliament. Despite the ruling SNP administration stressing the need for more infrastructure and housing, nothing has been done to reform this act.
With regards to Northern Ireland, the land compensation legislative framework is governed by The Land Compensation (Northern Ireland) Order 1982, section 13. Hence, if Northern Ireland wished to use land value capture to make large–scale projects financially viable, it will need to be amended.
While every parliament should take care when amending property rights, my defence of liberalism set out in All Roads Lead to Serfdom argues liberal property rights are not absolute, but contingent upon these rights providing value to a society. Hence when land values increase as a result of planning permission being granted, liberal property rights do not permit landowners to derive unearned income from the labour of others. This corresponds to John Locke’s theory of private property which requires those who caused the rising demand for land via their labour to benefit, which is of course the community and not the landowner. Compensation for landowners under a liberal society must therefore exclude speculative values that might arise from alternative planning uses, or what is sometimes described as hope value.
This shift towards liberal property rights was pioneered by West German Chancellor Konrad Adenauer who led the way for European liberal democracy via the Baulandbeschaffungsgesetz in 1953. This precluded compensation from being paid to landowners based on the change or potential change of use of land or hope value. This subsequently led to a massive expansion in housebuilding across the newly formed West Germany.
Land compensation remains a contentious issue in Ireland, too. The Housing Commission in Ireland identified that about 27% of the uplift in land values is captured locally (excluding CGT) which is similar to my own prior estimates for England. Ireland is currently looking to increase the amount of value sharing via the effects of zoning land through its Land (Zoning Value Sharing) Bill 2024, The amount of the zoning value payment is set to be equal to 25 per cent of the zoning value of the land, although there remain carve outs. But that still leaves a significant amount of value not captured to help support infrastructure and affordable housing.
The devolved administration in Northern Ireland now has the opportunity to change its land compensation laws for the benefit of the residents of Northern Ireland and its economy. By amending the 1982 Act, it could bring Northern Ireland in–line with European norms and help fund a wave of new infrastructure and housing.
To what extent Northern Ireland’s politicians are willing to take the tough decisions, however, remains to be seen. The limited movement in Scotland and Ireland highlights that it’s easier to talk about these issues than actually make the necessary changes.
Dr Thomas Aubrey is the founder of Credit Capital Advisory. He has written widely on financial and economic issues including All Roads Lead to Serfdom (2022), Profiting from Monetary Policy (2012) and co–authored Prediction Markets: The end of the regulatory state? (2007) with Professor Frank Vibert. He has also acted as a senior policy advisor for a number of British, European and Asian public bodies on areas including capital markets, corporate governance, infrastructure & housing and industrial strategy.
He is also an affiliated researcher at the Bennett Institute of Public Policy, University of Cambridge; a Visting Senior Fellow at the European Institute, London School of Economics; and a Visting Researcher at the Centre for Sectoral Economic Performance, Imperial College.
