Summary
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:
- There is scope for central and local government to claim a greater proportion of land value increases through reforms to existing taxes and charges, improvements to compulsory purchase powers, or through new mechanisms of land value capture.
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.
- Compulsory Purchase Order (CPO) powers can be especially important in enabling the development and provision of necessary infrastructure on large sites particularly where ownership is fragmented. This could facilitate completely new developments, extensions to existing communities, or the build out of large schemes within urban areas.
- The CPO process should be further simplified, to make it faster and less expensive for local authorities, whilst not losing safeguards for those affected.
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.
- There is an urgent need for local planning authorities to agree up-to-date local plans.
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 Land Compensation Act 1961 requires reform so that local authorities have the power to compulsorily purchase land at a fairer price.
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.
- The compensation paid to landowners should reflect the costs of providing the affordable housing, infrastructure and services that would make a development viable, as well as capturing a proportion of the profit the landowner will have made.
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.
- Where public land is put forward for residential development, it is important to ensure that the maximum value is captured for new infrastructure and public services. This may not always equate to selling public land to the highest bidder.
- The compulsory purchase reforms we have recommended, such as reform of the Land Compensation Act 1961, would give greater powers to local authorities to assemble land and, in so doing, achieve a higher level of control over developments in their areas.
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.
- We believe that the Government has made several important changes through the revised National Planning Policy Framework (NPPF), in particularly around transparency in the viability process—something we have called for repeatedly in the past.
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:
- The Government should work with the Local Government Association (LGA) to provide additional resources, training and advice to local planning authorities to ensure that they are able to negotiate robustly with developers and that local authorities are consistently able to contract for the appropriate level of planning obligations.
- Local authorities should consider using their existing CPO powers to enforce Local Plan policies, in particular in relation to affordable housing, where some developers seek to use viability assessments to avoid their obligations.
- The Government should give further consideration to the future implementation of a Local Infrastructure Tariff.
- If the Community Infrastructure Levy (CIL) is to become an effective mechanism for capturing development value for the provision of local infrastructure, it requires considerable reform.
- The Government is right to explore how Strategic Infrastructure Tariffs can be extended across the country.
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.
- The Government should commission a cross-departmental project to consider how to capture land value increases on existing properties.
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