Land values increase for many reasons—not least from economic and demographic growth—but some of the most significant increases arise from public policy decisions, in particular the granting of planning permission and the provision of new infrastructure. While there is considerable variation in land value uplifts dependent upon location and previous land use, landowners currently retain a very large proportion of the increase in land value arising from the granting of planning permission.
History has shown that attempts to capture land value increases have had mixed success. Governments have struggled to strike the right balance between capturing fair values for the community, without undermining incentives for private sector participation in the market, and in a way that is politically acceptable to all major parties. There have also been tensions between central and local government as to how revenues are spent.
However, it is widely accepted that the first generations of New Towns had considerably more success. This was made possible by the ability of Development Corporations to acquire land at, or near to, existing use value. Uplifts in land value were then captured to fund the infrastructure needed for the new developments.
Political interest in land value capture has re-emerged in recent years. Our inquiry has sought to contribute to this renewed debate and consider how land value might be more fairly and efficiently captured in the future.
The key conclusions and recommendations from our report are as follows:
Increases in the value of land arising from the granting of planning permission and the provision of new infrastructure are largely created by the state. It is fair, therefore, that a significant proportion of this uplift be available to national and local government to invest in new infrastructure and public services.
The Government should build on its recent reforms to the CPO process. For example, we heard that the requirement for the Secretary of State to confirm CPO submissions causes unnecessary delays. Such decisions should be made locally.
A well-defined local plan with clear objectives and requirements for which the developer must pay, would inherently be reflected in, and would create, lower market land values.
The present right of landowners to receive ‘hope value’—a value reflective of speculative future planning permissions—serves to distort land prices, encourage land speculation, and reduce revenues for affordable housing, infrastructure and local services. We do not believe that such an approach would be incompatible with human rights legislation, as there would be a clear public interest and proportionality case to do so.
Reform of the Land Compensation Act 1961 will provide a powerful tool for local authorities to build a new generation of New Towns, as well as extensions to, or significant developments within, existing settlements.
The Government and local authorities own tens of thousands of acres of land across the UK and there is much that can be learned from Germany and the Netherlands with regard to capturing increases in value from publicly-owned land.
These changes, alongside recent court judgements, should give assurance to local authorities that developers cannot avoid their local plan obligations by claiming that the price they paid for the site means that this would not be viable. However, further reforms will be necessary if Section 106 is to provide the infrastructure and affordable housing that this country needs:
CIL is far too complex and the extensive range of exceptions need to be removed. Importantly, there has to be greater certainty that the infrastructure associated with development is actually delivered at the appropriate time, sometimes in advance of development commencing.
A truly efficient and equitable system of land value capture should not focus solely on new developments, but should also address how existing properties benefit from development and particularly from public investments in local infrastructure.
Published: 13 September 2018