To address the housing crisis, local authorities need to put forward solutions that are tailored for each individual locality. However, Section 123 rules are often seen as a barrier, preventing councils from progressing land disposals for social or affordable housing.

When it comes to land disposals, councils actually have more flexibility than they might realise. Having a close understanding of the legalities surrounding General housing and other consents, for example, could enable them to sell land specifically for social housing development, to meet the needs of people in the local area. 

The rules that apply to local authority land disposals depend on how it is held and the purpose of its sale.

Overcoming the barriers of land sales

It’s common for local authorities, as well as neighbourhood-based organisations like community land trusts, to be hesitant about disposing land below market value for social housing developments. Bids from cash-ready private developers offer the best return and tend to come out on top. 

The rules that govern the sale of land, such as Section 123 and subsidy control law, can be a source of frustration, preventing councils from selling land to developers of social rent or other affordable homes that people can afford to live in. 

Before accepting a bid, councils should decide whether they are aiming for the highest possible capital receipt to support other services, or enable the delivery of more homes that local people can afford. Having a close understanding of the rules surrounding disposals could help them to achieve their goal. 

Understanding land disposal regulations

To understand which rules are applicable, it’s important to consider how the land is held and the relevant legal framework:

• Councils may hold land either for housing purposes in their housing revenue account, where they have one, or in their general fund.
• Section 123 of the Local Government Act 1972 applies to land held in the general fund, whereas Section 32 of the Housing Act 1985 applies to land held for housing purposes under that Act.
• Section 32 allows local authorities to dispose of land held for housing purposes, usually with the consent of the Secretary of State. A disposal may include a sale, lease or other transfer of the land, and can also cover the grant of an option to purchase.
• General housing consents, which allow councils to dispose, lease or transfer council housing land and assets without needing specific Secretary of State permission. Different consents give authorities the freedom to either dispose of land at market value, or at nil value.

Depending on how the land is held and the circumstances of the disposal, councils could have greater scope to support social housing development than they realise.

Limitations of Section 123

There are some limitations to disposal under Section 123. For land held in the General fund, Section 123 rules require councils to obtain the best value reasonably available, unless an exception or consent applies. For example, the General Disposal Consent 2003 allows land to be sold below market value where the disposal is likely to improve economic, social or environmental well-being, provided the undervalue does not exceed £2 million.

However, this threshold is now considered outdated and may pose limits on disposals. Rising land values and development costs mean that larger social housing schemes can quickly exceed this limit, meaning that councils would have to seek specific consent from the Secretary of State. This can add delays and further administration to projects that are already difficult to deliver.

Aligning disposals with subsidy control

Another consideration for local authorities is the Subsidy Control Act 2022, where selling land below market value may provide the purchaser with an economic advantage. This a strong case for updating both the General housing consents and the Section 123 General consent, so that they align more clearly with the current subsidy control framework. This would reduce the need for authorities to navigate overlapping land disposal and subsidy control requirements.

New consents could work alongside measures such as the Housing Streamlined Subsidy Scheme, which provides defined routes for public authorities to address viability gaps in social housing projects.

Key takeaways

• Councils already have more flexibility than they might realise to facilitate the sale of land for social housing development, but a detailed understanding of the rules surrounding General housing and other consents is required.
• Modernising consents could help authorities use land more strategically, reduce procedural barriers and make it easier to prioritise the delivery of homes that are affordable for local people.
• Local authorities should familiarise themselves with the regulations and consents already available so that they can make better-informed decisions about land disposals.