Compulsory purchase
| DOI | https://doi.org/10.1108/JPIF-05-2014-0035 |
| Pages | 518-529 |
| Published date | 29 July 2014 |
| Date | 29 July 2014 |
| Author | Richard Grover |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
EDUCATION BRIEFING
Compulsory purchase
Richard Grover
Oxford Brookes University, Oxford, UK
Abstract
Purpose – The purpose of this paper is to review the economic theories that lie behind the assessment
of compulsory purchase compensation and the issues that arise from them.
Design/methodology/approach – The method has been to review the literature about the theories
and the critiques of them and to examine the extent to which they provide guidance in specific cases.
Findings – The Hicks-Kaldor compensation test was developed as a way around certain problems
in welfare economics but attempts to use it to determine whether projects involving compulsory
purchase increase welfare are subject to a number of problems. Ultimately, there are issues of equity as
well as efficiency so that a test that just looks at efficiency issues is problematic.
Practical implications – Understanding the weaknesses in the theoretical models behind
compulsory purchase compensation can help policy makers devise alternative approaches in
situations in which land has to be assembled for regeneration or infrastructure projects and fairer
systems of compensation.
Originality/value – The use of the Hicks-Kaldortest has been challenged in environmentaleconomics
but the validityof these criticisms for compulsorypurchase has not been recognised to the sameextent.
The use of some original case studies helps to identify some of the issues and alternatives.
Keywords Welfare, Equity, Efficiency, Compensation, Compulsory purchase, Hicks-Kaldor test,
Economic theories
Paper type Technical paper
Introduction
Normally when valuers are called upon to value properties for a transaction, the
proposed sale is between a willing buyer and a willing seller. The key aspect of such
transactions is that they are voluntary, with each party giving its free prior informed
consent. None of the parties is compelled or coerced into taking part. Therefore, such
transactions should only happ en because each party expects, in its own estimation, to
be better off as a result, with its gains outweighing its costs or losses.
There are certain situations in which the transaction is not a voluntary one with one
party being compelled toparticipate. The implication is that free priorinformed consent
was withheld byeither the seller or the buyer as the transactionwas not seen to be in its
best interests.The transaction only took place because the other partyhad the power to
coerce the unwilling one to take part. Such situations are contrary to normal market
processes. Usually the unwilling party is the seller, who does not wish to dispose of the
property or, at least, not at the time of expropriation.Alternative terms for expropriation
include compulsory purchase,compulsory acquisition, eminent domainand resumption,
though the terminology used has subtly differently meanings in English. Expropriation
can imply that property is taken or a sale forced without compensation or with only
nominal compensation, whereas compulsory acquisition or compulsory purchase implies
that there should be payment of fair compensation.
Sometimes a seller can oblige an unwilling buyer to purchase a property contrary to
its perception of its best interests. For example in the UK an owner occupier, whose
interest is adversely affected by planning proposals and who can only sell it at
a substantially reduced price, may serve a Blight Notice requiring the appropriate
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Journal of Property Investment &
Finance
Vol. 32 No. 5, 2014
pp. 518-529
rEmeraldGroup PublishingLimited
1463-578X
DOI 10.1108/JPIF-05-2014-0035
518
JPIF
32,5
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