How to build a New Town
Milton Keynes
By Tim Thorlby
6 mins
The Labour Party Manifesto includes a bold commitment to build a new generation of New Towns in the UK. It’s a big, bold ambition.
But is building New Towns a good idea? Can we possibly afford it? Is it even possible today? This blog takes a look at New Towns and checks out whether they are still possible today.
1 - What is a New Town?
The Labour Party Manifesto has committed the party to building “a new generation of New Towns” as part of its drive to build 1.5 million homes over the next Parliament.
The promise to deliver an average of 300,000 new homes every year is a level of housebuilding which the UK has not achieved for over half a century. It’s ambitious. This is why they are talking about New Towns as part of the mix, as it will not be achieved just through piecemeal housing developments here and there, as the Conservatives discovered.
(By the way, this blog assumes that the UK does indeed need to build lots of new houses every year for reasons set out in a recent blog, where I take a long view of the UK’s housing omnicrisis).
A New Town is a large-scale planned development including a lot of housing (and social housing) but also all of the other kinds of development you need for a happy and successful town – infrastructure like roads, retail, leisure, public services, etc. A new town in fact.
The difference between building a new town and a large urban extension (which is how a lot of new housing gets built today) is not really the difference between ‘black and white’, they have many similarities, but the scale and complexity of a new town is just one notch above, so they do require a bit more planning and management to make them happen.
There have been several waves of New Towns built over the last century in the UK, with three waves since 1945. They were often expanding an existing settlement rather than starting from an empty green field. They include over 30 towns which are now so well established that many people are often not aware that they were New Towns at all – places like Welwyn Garden City, Northampton, Peterborough, Telford and Milton Keynes.
Although the New Towns were enabled by national legislation (the New Towns Act 1946) each one was identified and shaped by the relevant local authorities in those areas and local Development Corporations were established in each case to lead the planning and redevelopment processes, so these are not ‘top down’ impositions, but very much locally shaped projects. The Development Corporations were set up to be time-limited and then wound down when most of the construction was completed.
2 - Are New Towns any good?
New Towns are not perfect, some mistakes were made in their urban planning and they are also subject to all of the same social and economic challenges as the rest of the country. They are not little utopias.
But they are subject to much the same stresses and strains as any other major new housing developments. So, if we are going to build lots of houses – and we need to – then they are a reasonable and rational way of doing so.
They are home to nearly 3 million people and house price data shows they have been popular, with rising house values often outperforming the prevailing average in those regions. So, simply based on popularity and demand for housing, yes, we can see the general public voting with their feet and millions seem quite happy to live there.
3 - How much do New Towns cost to build?
The historic experience of the post-war New Towns is that they, by and large, paid for themselves. They do cost a lot of money to get started, but the subsequent investment returns cover the costs and deliver a surplus. So, over the longer term, then, they cost nothing because we get our money back, with interest.
Although the development of a new settlement is clearly a complex process, the postwar New Town Development Corporations were loaned funds by central government on a 60 year basis, with fixed interest rates, and by 1999 these had mostly been repaid, with interest[1].
The general approach to building a new wave of such settlements could therefore take a similar approach, albeit with the need to modernise some of it.
The New Towns legislation still exists, updated in 1981. A new Development Corporation, on the ground in each area, would have the focus and skills to lead the process.
If the previous experience was mirrored, then the public loans from government would be repaid making the new towns an investment over the longer term, not a cost. The economic benefit is greater than this, as not only are the loans repaid, but you are creating a lot of construction jobs along the way and you have millions of new homes at the end of it.
To my knowledge, no-one has ever done a full cost-benefit analysis of the post war New Towns, but the published evidence to date is pretty positive about the financial and economic returns.
One of the major challenges facing any new town development is the need to find a way to pay for all of the public infrastructure that is essential to making it happen – the roads, the schools, the community buildings, social housing, etc. It is not enough to draw up plans for a new settlement and invite private housebuilders to come and build houses, someone needs to pay for the upfront public and community infrastructure too.
The rest of this blog will look at the past experience and future possibilities for this core issue – i.e. how this infrastructure gets paid for – a key issue in making new towns a reality in the future.
4 - Who paid for the infrastructure?
The original New Town Development Corporations were able to use their legal powers of compulsory purchase and land assembly to buy up agricultural land (at agricultural values)– and then zone them for housing and then sell the land at a higher price (at much higher housing values) to prospective housing developers. The profit they made on the land sale was an important part of how they paid for the public infrastructure like roads. This is sometimes called ‘land value capture’.
If agricultural land is worth £20,000 per hectare and the same field is worth £2 million per hectare after planning permission for housing is granted, you can see the sort of values at stake.
The cashflow for the whole enterprise was supported by the initial 60 year loans from central government. They had to buy the land in the first place, after all. The loans were repaid through the profits from the resale of the land for housing and other commercial uses like retail and leisure.
Other national public agencies also contributed, as one might expect, using their mainstream budgets to fund particular elements – highways, schools, hospitals – which they would have had to do anyway.
Public assets like parks, once created, were then taken on and managed by the relevant local authority, sometimes with an endowment also being given to help with future management costs.
The first wave of post-war new towns were so financially successful that they repaid all of their initial loans and made a surplus for central government.[2] Harlow managed to repay its loans in just 15 years and had the capacity to make loans to others. Homes for England still owns land in some of the new towns and is still using it for redevelopment and income.
Mrs Thatcher’s government undermined the economic base for the New Towns in the 1980s by insisting they sold off most of their remaining land and assets and instituting a ‘clawback’ requirement so that when any further land was sold, HM Treasury took most of the profit.
Notwithstanding these more recent changes, it is clear that the New Towns, as a whole, were a successful financial investment which also delivered homes for 3 million people. An investment, not a cost. Quite a remarkable achievement.
5 - So, can we still build and pay for New Towns today?
So far in this blog we have established that New Towns:
are home to nearly 3 million people, so can deliver housing at scale
are popular with their residents
can pay for themselves over the longer term, so are not a drag on the public finances
require an upfront loan and powers to buy land at reasonable prices
So there appears to be a good model, tried and tested, that delivers towns, homes and returns.
But can it still be done today?
The three tools you would need are land, a loan and the power to buy land at fair prices. Let’s briefly look at each one.
Tool 1 – Finding the land
There are long and important planning debates to have about where you would put the next wave of New Towns. I am not going to get involved in that locational discussion here, as this blog is really about overall feasibility. So, the question to resolve here is just – is there enough land to build more towns?
I don’t think any serious commentator would have any other answer than ‘yes’ to this question. The UK clearly needs more houses for its current population after decades of under provision and they need to go somewhere. The total amount of developed land in England remains at 9%, so we are hardly an overdeveloped nation. With a mix of brownfield land, urban fringe land and some new greenfield sites there are plenty of options.
So, yes, the land exists to build more houses and New Towns, although it would need to be carefully chosen.
Tool 2 – Taking out a sizeable long-term loan
A more significant question is probably whether HM Government has the imagination and capacity to make significant long term loans, at sensible interest rates, to New Towns to get them started. It was clearly possible in the past, so you would think it was possible today if the political will is there.
The prospects for loans are probably enhanced if a creative civil servant in HM Treasury can find a way to re-classify New Town loans as ‘investments’ (which they are) rather than public sector ‘running costs’ which will no doubt make them look problematic for the public finances.
It is also possible that the UK’s pension funds might be interested in making the very large, long-term ‘patient’ investments required for such development. It’s the sort of thing they ought to be doing.
So, if a government wants to make this happen, it should be possible, but it will require some political leadership.
Tool 3 - Powers for buying and assembling land
Would a new wave of New Town Development Corporations benefit from the same cost-effective approach to land purchase as in the original New Towns? Can they ‘capture’ the land value to fund the infrastructure?
There seems to be some confusion on this, but broadly the answer seems to be that, yes, the legislation is still in place to enable New Towns to capture land value, just as they did in the 1950s and 1960s, so yes, it is all still possible. The game is still on.
I found some fascinating arguments online, which appear to confuse the general compulsory purchase powers of local authorities with those of New Towns, but it turns out that they are quite different.
The rules about how much a local authority has to pay to buy land through compulsory purchase changed in 1961 to allow ‘hope value’ to be included. In other words, it meant that local authorities had to buy land at a full market value, taking into account any planning permissions that might be granted in future. It made land purchase by the public sector much more expensive. Very recently, the Levelling Up and Regeneration Act 2023 has made a partial reform to this, giving local authorities the powers to undertake compulsory purchases for certain purposes (e.g. for affordable housing or a new school) at current land values, excluding the ‘hope value’, thus making it cheaper. The 2024 Labour Party Manifesto promises to go further than this recent reform, although is somewhat vague about how much further.
However, it turns out that New Town Development Corporations actually have special legal powers all of their own to undertake extensive compulsory purchases without taking ‘hope value’ into act and these powers still exist. The rules were reviewed as recently as 2019 and are still there[3], so the usual restrictions that apply to local authorities do not matter if you are a New Town.
Feasible?
So, it does rather look as though the land, the loan and the powers are there, or potentially there.
There are of course many other things to consider in such a complex project as building a whole new town, which cannot be addressed in one blog.
One of the key issues will be who does the construction? There is a need to ensure a diverse supply of housing and housing tenures, as well as decent quality and variety, and this means we need to use a range of housing providers, not just the obvious volume housebuilders. (My recent blog on how to build more houses explains the issues with volume housebuilders.)
6 - Should communities own some of these assets?
There is a good question as to whether there is a role for the direct community ownership and management of some of the new public assets in New Towns – like community centres, parks, leisure centres – instead of these being run by the local authority.
One of the failings of the first waves of new towns is that they did not plan properly for the sustainable ownership and management of public assets like parks and community centres. So, there is clearly a need in the next wave of new towns to establish an effective ownership and management model for such assets.
There isn’t scope here to run through all of the pros and cons of this. But a properly endowed ‘community trust’ in each New Town, arms-length from the local authority but working in partnership with it, could be part of the answer.
The early pre-war Garden City experience does offer some cautionary tales though, as the first one, Letchworth, which was run by a private company, was targeted by carpetbaggers and asset strippers keen to sell off its assets and it had to be rescued by Parliament. (Remember the experience of some of our old Building Societies which were demutualised by hordes of carpetbaggers looking for one-off cash windfalls). Any community ownership of assets at scale would need robust protections in place to ensure that the assets remained in community ownership in perpetuity.
7 – Final reflection
A safe, affordable home is fundamental to our ability to flourish as human beings and families.
The ability of a nation to build beautiful and environmentally sustainable towns and cities, with affordable homes and where strong communities can develop and people can prosper is probably one of the greatest tests of a nation’s values and abilities. Is there any greater test for a civilisation?
I have written elsewhere of the faith-inspired ideas and values which influence my own work. With respect to New Towns, I would pick out two things in particular which I would push for in their implementation:
Build communities, not just markets – The New Town challenge is not just to build houses but to build communities. This is much harder. It means that we need to ensure that the towns are planned and funded in ways that recognise social need not just the demands of the market. In the UK in recent years, market ideology has transgressed into spaces where it does not belong. Markets are wonderful things but they cannot do everything and cannot be allowed to determine every decision. Successful New Towns will require a proper balance between markets, state and civil society, each operating in its appropriate place.
We need more local power – The UK has one of the most centralised states in Europe; it is time to decentralise power from central government to local government and, where possible, to individual communities and civil society. New Towns offer an opportunity to innovate and embody this through greater local decision-making and powers over land and budgets. Places matter and giving local communities appropriate power for where they live is the best way to unlock local pride, creativity and responsibility.
New Towns? Can we build them? Yes, we can.
This blog was written by Tim Thorlby. Please sign up for the email alert if you’d like to know about future blogs, usually published once a month.
Notes
[1] Evidence from: TCPA (2021) A new future for new towns: Lessons from the TCPA New Towns Network
[2] TCPA (2015) New towns and garden cities: lessons for tomorrow. Stage 2: Lessons for Delivering a New Generation of Garden Cities
[3] New Town Development Corporations have their own powers for compulsory purchase under the 1981 New Towns Act and a special exemption from taking ‘hope value’ into account in section 6D of the 1961 Land and Compensation Act; they can value land as if ‘no scheme’ existed. The land needs to be situated inside a designated New Town. It is worth noting that half of the post-war New Towns were built after 1961 so the 1961 Act can’t have been much of a hindrance.