Introduction
1.Land value capture seeks to ensure the fair distribution of increases in the value of privately-owned land between landowners, the local community and national government. Land values increase for many reasons—not least from economic and demographic growth—but some of the most significant increases arise from specific public policy decisions, in particular the granting of planning permission and the provision of new infrastructure. There has been renewed discussion in recent years about how the state can efficiently and fairly redistribute increases in land value arising from such policy decisions, while ensuring that privately-owned land continues to come forward for the appropriate development. Our inquiry seeks to contribute to that debate.
2.The debate around land value capture is not new and the state has sought to capture uplifts in land values arising from public works for centuries. Indeed, in Britain, the first recorded ‘betterment’ levy was imposed by Henry VI in 1497, to capture increases in private land values arising from flood defence works.1 Political calls for comprehensive systems of land value capture were evident at the start of the 20th Century. For example, in 1909, Winston Churchill spoke of the “unearned increment” accrued by landowners following public investment in infrastructure and called for the state to capture more of this uplift for the public benefit:
Roads are made, streets are made, railway services are improved, electric light turns night into day, electric trams glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains—and all while the landlord sits still. Every one of those improvements is effected by the labour and at the cost of other people. Many of the most important are effected at the cost of the municipality and of the ratepayers. To not one of those improvements does the land monopolist [ … ] contribute, and yet by every one of them the value of his land is sensibly enhanced.2
3.Throughout the 20th Century, various systems of land value capture have been attempted in the UK. In 1903, Ebenezer Howard created the first Garden City at Letchworth, and in 1967, the Milton Keynes Development Corporation was founded, both of which captured land value increases arising from residential development to reinvest in local infrastructure through land ownership. Over the last 70 years, there have been several legislative attempts to introduce betterment levies, including the Town and Country Planning Act 1947, the Land Commission Act 1967, the Community Land Act 1975 and the Development Land Tax Act 1976. In more recent years, Section 106 and the Community Infrastructure Levy (CIL) have been the primary mechanisms through which governments have sought to capture development value.
4.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. As Councillor Tett from the Local Government Association (LGA) told us, “If it was easy, everyone would have done it years ago”.3 Liz Peace, referring to her work as Chair of the CIL Review Group, explained that, “it is probably the most intellectually difficult thing I have ever grappled with in my career. There is no easy answer to this”.4
5.Political interest in land value capture has re-emerged in recent years. The 2017 Conservative and Unionist Party manifesto stated that:
[ … ] we will work with private and public sector house builders to capture the increase in land value created when they build to reinvest in local infrastructure, essential services and further housing, making it both easier and more certain that public sector landowners, and communities themselves, benefit from the increase in land value from urban regeneration and development.5
The Minister of State for Housing, Kit Malthouse MP, told us that this commitment referred to changes to the existing system—such as changes to the viability assessment process and increasing the use of Strategic Infrastructure Tariffs—as opposed to a proposal for new mechanisms of land value capture.6 Political interest also extends to issues closely related to land value capture. For example, in February 2018 the Labour Party announced its policy to amend the Land Compensation Act 1961 to enable central government and local authorities to compulsorily purchase land at a price that excludes the potential for future planning consent.7 Similar calls have been made by Conservative politicians, including Nick Boles MP and Ruth Davidson MSP.8
6.The revived debate around land value capture has particular relevance in the context of the present housing crisis. The Government’s target to build 300,000 homes a year by 2020/21 will, of course, require the provision of major infrastructure and additional public services.9 Many argue that this should be paid for through new, more broadly-based systems of land value capture. Others argue for improvements to existing mechanisms. The National Infrastructure Commission’s 2017 report, ‘Partnering for Prosperity’, highlights this issue in the context of providing infrastructure across the Cambridge-Milton Keynes-Oxford arc:
[ … ] if central and local government can balance the certainty and proportionality of mechanisms for land value capture, then there is a powerful case for using a greater share of land value uplifts to fund growth-enabling infrastructure at the local level. This case is strengthened by the urgent need to expand the housing supply within the arc [ … ] the need to support the development of well-connected new communities [and] the need to balance the interests of the taxpayer and land owners.10
Our inquiry
7.Noting the re-emerging political interest in land value capture, we launched an inquiry to hear from academics, experts and industry groups regarding how central and local government could better capture increases in land values for the public benefit. This report is intended to be a record of the key areas of debate in this area, as well as an opportunity to express our views as to how land value might be more fairly and efficiently captured in the future.
8.In our call for written evidence, we sought information as to how well existing taxes and charges, such as Section 106 and CIL, captured increases in land values arising from the granting of planning permission, and how they might be improved to better serve this purpose. We asked whether there was any need for new methods of land value capture, and what the advantages and disadvantages were of the various models that have been proposed. We were particularly keen to hear examples of effective practice that already existed, including internationally. Finally, we asked for evidence on the main lessons that should be learned from past attempts to capture uplifts in land value.
9.Over the course of our inquiry, we held an informal roundtable with academics, before taking public evidence from a range of stakeholders, including experts, campaigning groups, local authorities, landowners, developers, practitioners, legal experts and the Government. In addition, we received formal written evidence from 92 individuals and organisations, as well as extensive correspondence. In September 2018, the Committee visited Amsterdam in the Netherlands and Freiburg in Germany, where we met with national and local policy experts, politicians and industry groups.
10.This report has four chapters. The first chapter outlines some of the basic principles of land value capture, including why land values increase and the reasons central and local government should seek to capture a proportion of those uplifts. We explore whether existing taxes and charges already capture a significant proportion of these increases and the extent to which there is scope to capture any additional land value. We also reflect on some of the main lessons that might be learned from past attempts to capture land value. The second chapter considers proposed reforms to existing charges, such as Section 106 and CIL, to make them better suited to capturing increases in land values arising from the granting of planning permission. The third chapter asks how the Government’s plans for a new generation of new towns and garden communities might be achieved in practice, and recommends several improvements to the Compulsory Purchase Order (CPO) process and reforms to the Land Compensation Act 1961. The final chapter outlines some of the alternative approaches to land value capture that were highlighted in evidence to us, and briefly reflects on calls for new systems of property taxation, such as Land Value Taxation.
11.In our report, we have distinguished between the land value capture which relates to increases in land value that arise from specific development events—primarily the granting of planning permission by local authorities and the provision of significant new infrastructure—and Land Value Taxation, which concerns the taxation of all development, including existing properties, according to ongoing changes in land values. For clarity, our inquiry has focused on mechanisms for capturing value arising from new development events.
12.We wish to express our thanks to all of those who gave public evidence to the Committee and provided informal briefings, to those who made written submissions, and especially to our Specialist Advisers, Kelvin MacDonald and Christine Whitehead.
1 As highlighted by the Expert Committee on Compensation and Betterment, chaired by Mr Justice Uthwatt, in 1942. Expert Committee on Compensation and Betterment (Uthwatt Committee): Minutes and Papers, 1938–1946, The National Archives
2 Land and Income Taxes in the Budget, Liberalism and the Social Problem, Winston Churchill, 17 July 1909
5 Forward, Together: Our plan for a stronger Britain and a prosperous future, The Conservative and Unionist Party Manifesto 2017, page 71
7 Labour plans to make landowners sell to state for fraction of value, The Guardian, 1 February 2018
8 Boles defends Labour’s ‘deeply sinister’ land value capture plans, Planning Resource, 5 February 2018, and Ruth Davidson lecture: Building a stronger future for Britain – Full text, Policy Scotland, 31 May 2018
9 New housing agency to boost housebuilding, Press Release, Ministry of Housing, Communities and Local Government, 11 January 2018; and New powers for councils to deliver homes for local families, Press Release, Ministry of Housing, Communities and Local Government, 4 June 2018
10 PARTNERING FOR PROSPERITY: A new deal for the Cambridge-Milton Keynes-Oxford Arc, National Infrastructure Commission, page 65
Published: 13 September 2018