Labour would give local authorities new powers to buy land cheaply and develop affordable homes if it wins power at the next election, Sky News understands.

The reforms would overhaul how land is valued under the compulsory purchase order (CPO) process, as part of efforts to tackle the UK’s housing shortage.

A CPO allows a public authority to buy land without the owner’s consent to make way for major infrastructure projects or housing developments.

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The landowner is entitled to compensation, but under Labour’s plans the amount would not reflect “hope value” – a premium accrued through the expectation of planning permission being granted for developments in the future.

A Labour source said this does not mean paying below market value for land.

The principle is to “rebalance the power between landowners and local communities”, an aide told The Guardian, which first reported on the story.

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Officials believe such an approach would bring England in line with arrangements in Germany, France and the Netherlands.

A Labour spokesperson said: “For too long the Tories have stood aside while speculators have squeezed affordable housing, green spaces and homes for first time buyers.

“Labour is the only party that will deliver much needed reform to give people secure, affordable and decent housing.”

Campaigners have long called for the “hope value” system to be scrapped to pave the way for more social housing.

Research by the Centre for Progressive Policy think tank in 2018 found that land worth £22,520 per hectare as agricultural land could be worth £6.2 million per hectare with planning permission: 275 times more.

Housing charity Shelter says hope value is effectively calculated by the amount the land could be worth if it was sold to build luxury private homes, and scrapping it would force owners into accepting a fairer price – meaning more affordable homes could be built.

The government has acknowledged the current rules “can significantly increase costs for councils” and has promised to reform CPO compensation to remove hope value where it is in the public interest – but this will be at the secretary of state’s discretion.

The changes are part of the levelling up and regeneration bill, which is currently passing through parliament.

A spokesperson for the department for levelling up, housing and communities said: “It will ultimately be for the secretary of state to decide whether a compulsory purchase order can be approved and if the removal of hope value is appropriate.”

Housing key battleground at next election

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Housing supply is likely to be a key battleground at the next election amid a chronic shortage of homes, the soaring cost of rent and a drop in homeownership.

Earlier this month Michael Gove, the housing secretary, admitted there is a housing problem in the UK and “the problem is there simply aren’t enough homes in this country”.

“It is increasingly difficult to get on the property ladder,” he said as he promised to look at ways to make it easier for young people to buy their first home.

The admission came after Prime Minister Rishi Sunak was forced to row back on a Conservative manifesto commitment to build 300,000 homes a year in response to a revolt by Tory MPs and activists.

Labour has vowed to “back the builders, not the blockers” and recently launched a series of pro-building policies, including bringing back mandatory targets and making it easier to develop on the green belt.

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