Labour is drawing up plans that would force landowners to sell plots for a fraction of their potential market price in an effort to cut home-building costs in England, according to party officials.

Lisa Nandy, shadow levelling-up secretary, intends to reform how land is valued when acquired by councils through “compulsory purchase orders” (CPOs), if Labour wins the next general election.

The Labour proposal for sweeping land reform would go far beyond recent government moves to allow ministers to make landowners sell their holdings more cheaply on limited occasions.

Housebuilding is set to be one of the big themes of the next election, with Labour leader Sir Keir Starmer promising to massively increase construction to ease the country’s property crisis, while the Conservatives are more cautious.

At present, many potential first-time buyers are unable to get on the housing ladder because of high prices.

CPOs allow public bodies or local authorities to force property owners to sell if land is deemed essential for building homes or critical infrastructure.

Under the proposals, a future Labour government would introduce legislation allowing local authorities to buy land at a price that does not reflect the value of potential planning permissions.

This would overwrite the 1961 Land Compensation Act, which prevents councils from buying plots for development at their agricultural value.

Currently, local authorities acquiring sites through CPOs must factor the “hope value” into the purchase price. This is the added value based on the expectation that land will gain planning permission in future.

Since then, the gap between the value of agricultural land and fields with permission has widened dramatically.

Land worth £22,520 per hectare as agricultural land can on average be worth £6.2mn per hectare with permission — 275 times more — according to the Centre for Progressive Policy think-tank.

“We want local areas to capture and benefit from a lot more of the uplift than they currently do when development occurs,” said one Labour aide.

“We want to tilt the balance of power. It feels like the scales are tilted towards . . . landowners, we want to re-tilt it towards the communities that want to see more houses built,” the aide added.

Labour maintains that the plan would bring England more in line with land valuation systems in Germany, France and the Netherlands.

The proposals are likely to anger some landowners, especially those with fields suitable for development. But Hugh Ellis, director of policy at the Town and Country Planning Association, a charity, said Britain’s “new towns” programme of the 1940s and 1950s had been successful because development corporations could buy vast tracts of land at agricultural value.

He said Labour was “quite right” to look at potential reforms, arguing that property holders had enjoyed “an absolute licence to print money”.

“Labour need to strike the right balance with landowners, giving them some kind of uplift but nowhere near the extent that we have seen over the last 15 years.”

In 2018, a government review by Sir Oliver Letwin, a former cabinet minister, stopped short of recommending that authorities be allowed to buy up land at its agricultural price.

The government launched a consultation in 2022 into capping or abolishing hope value. In April this year, it announced new powers allowing the levelling-up secretary to limit or suspend hope value compensation payments, on a scheme-by-scheme basis.

That new rule is set to be introduced through an amendment to the levelling-up and regeneration bill. At the time, the department said the “scheme by scheme” approach would allow cases to be assessed in relation to the European Convention on Human Rights.

The Department for Levelling Up, Housing and Communities said that hope value payments could often increase costs for councils.

“Our reforms will ensure the taxpayer gets best value for money, by removing ‘hope value’ where justified and in the public interest,” it 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.”