Land Value Capture Contents

1Principles of land value capture

13.Land Value Capture is not a well-defined concept and, as such, it is important to begin this report by outlining some basic principles and the scope of what we want to achieve. In this chapter, we explore why land values increase, the typical extent of this uplift, and justifications for capturing a proportion of land value growth through taxation. We consider the extent of existing property taxation and whether there is any realistic scope for capturing additional values without undermining development incentives. Finally, we reflect on some of the lessons that might be learned from attempts by governments to capture uplifts in land value over the last 70 years.

What is Land Value Capture?

14.The debate around land value capture tends to focus on gains at the point of development, but, as highlighted by Liz Peace, “the issue of land value capture is… bigger than that”.11 Indeed, Professors Crook, Henneberry and Whitehead noted three reasons why land values increase: infrastructure investment improving the attributes of locations; increased prosperity leading to additional spending on housing and other goods, resulting in higher land values; and planning consent making it possible to change use to carry out physical development. They explained that, in England, land values are explicitly captured only in the third of these cases. This involves capturing some part of the difference between the value of the land in its existing use and its market value in its proposed new use.12

15.Consequently, in this report, we refer to land value capture in the context of taxes and charges imposed by local or central government which seek to capture, for the public benefit, increases in land value that arise from public policy decisions or specific development events, primarily the granting of planning permission by local authorities or as a consequence of new, or improved, major infrastructure projects.

Extent of the uplift in land values

16.The extent to which land values increase following the granting of planning permission varies considerably and is largely dependent on location and previous land use. According to Government statistics published in February 2015, the average figure for England (excluding London) is that agricultural land, which is granted planning permission for residential use, would, on average, increase in value from £21,000 per hectare to £1.95 million per hectare.13 The amounts involved with respect to brownfield sites vary considerably, although the same Government figures estimated the value of a typical industrial site to be £482,000 per hectare.14 Commenting on the size of the average uplift in land values subsequent to the granting of planning permission, Councillor Tett from the Local Government Association said, “To find it is quite such a large uplift even surprised me, but that was a Government statistic, so it must be correct”.15 However, while estimates of average increases can be helpful as a guide, it is important to note that the range of value increases is extremely broad. Some sites will see only very limited increases in value, while other increases will be much more substantial, distorting the mean averages cited in Government figures.

17.Large uplifts in land values were estimated as a consequence of major infrastructure projects, although their benefits were far more diffuse. The Greater London Authority (GLA) and Transport for London (TFL) highlighted a study by real estate advisors, GVA, which found that development dependent on the new Elizabeth line would create a potential value uplift of £13 billion in residential values and £215 million in commercial values by 2026.16 Julian Ware, from TFL, told us that methodology prepared by KPMG and Savills estimated that eight prospective transport projects in London, including Crossrail 2 and the Bakerloo line extension, could generate a land value uplift of £87 billion, although 65% of this would be realised in the existing residential market.17

Why capture land values?

18.Given the extensive land value uplifts arising from such developments, witnesses outlined several reasons why they thought a comprehensive system of land value capture, raising higher revenues than at present, would be beneficial. Many of the reasons cited were not concerned with simply raising revenue, but the use to which those revenues would be put. For example, the most commonly cited reason was the need to fund the additional infrastructure and services to which the demand for development gives rise, something that Liz Peace described as “a no-brainer, that somebody who is doing a development must make a contribution to the infrastructure that is needed to make that development acceptable”.18 Others, including Shelter, told us that a reformed approach to land value capture could boost the supply, and quality, of affordable housing.19

19.While some organisations, such as Deloitte, argued that any revenue raised should be “focused on objectives and outcomes rather than simply as a means to extract more monies from developers or landowners”, others said that land value capture would be a legitimate source of funding for any public service in the community affected by the development.20 It was also suggested that a more comprehensive system of land value capture would reduce speculation in the land market, as there would be fewer incentives for landowners to hold out for values to rise, and market volatility would be reduced by decreasing the elasticity of the supply of land.21

20.Many also stressed the distributional argument for capturing land value: that it is not fair that such significant profits, arising in the main from public policy decisions, should accrue to a small minority of landowners and that those who are disadvantaged by development generally do not receive some element of compensation. The Town and Country Planning Association told us that, “this is principally an issue of equity”.22 The Royal Town Planning Institute agreed, telling us they believed there should be a fairer way of sharing land value uplift between landowners and the community.23 Similarly, the Centre for Progressive Capitalism asked us to consider whether it was fair for significant profits, arising from public policy decisions, to accrue to a minority of landowners, arguing that this was at odds with a fundamental principle of our economic system, which rewards productive economic activity:

The Committee in its deliberations around land value capture should seek to understand why it is that the current land market enables a handful of private individuals and investors to earn £9.3bn of monopoly profits each year due to the productive work of others and local authorities changing land use.24

21.Others, however, said that “you cannot talk about fairness” in this context.25 Christopher Price, from the Country Land and Business Association (CLA), told us that market forces were key, and the focus should be on what would provide a competitive return for the landowner to want to bring land forward for development.26 However, Hugh Ellis, from the Town and Country Planning Association, said that he disagreed that fairness was not an important consideration “in the strongest terms I can muster”.27 He told us:

[ … ] the development process is acutely and definingly about fairness: fairness in relation to individual outcomes for people and places, and fairness in a wider sense, spatially, across England, about whether or not you are seeing even patterns in development. Land value capture can play a role in that.28

22.We acknowledge that land values increase for several reasons, but have focused our work on the significant increases that arise from the granting of planning permission by local planning authorities and from public investment in infrastructure. Such increases can be substantial and, given that these are significantly created by the powers of the state, it is fair that a significant proportion of this uplift be available to the state with the potential to invest in new infrastructure and public services.

Scope for capturing additional land value

23.Many advocates of new mechanisms for land value capture describe the current system as one in which almost all of the land value increase accrues to the landowner. For example, Shelter wrote, “Our current system, where all the uplift in land value flows to landowners in the form of windfall profits, simply cannot continue”.29 London YIMBY and PricedOut told us that “current methods… only capture a tiny fraction” of the land value uplifts arising from planning permission or new infrastructure.30

24.However, others highlighted that significant proportions of development value are already captured through existing charges—including Section 106 planning obligations, the Community Infrastructure Levy (CIL), Capital Gains Tax, Stamp Duty Land Tax, Business Rates, Corporation Tax and Council Tax—even if these mechanisms are not specifically designed to capture land value uplift.31 They also note that the UK has the highest burden of land taxation within Organisation for Economic Co-operation and Development (OECD) member countries. Indeed, many witnesses highlighted government figures, which showed that Section 106 and CIL were estimated to have generated just over £6 billion in 2016–17.32 However, Daniel Bentley, Editorial Director at Civitas, and Tom Aubrey, Adviser at the Centre for Progressive Policy, told us that these figures were inaccurate as they referred to sums agreed, but not actually collected—noting that one-third of planning permissions were not implemented—and that developer contributions had been falling relative to development values.33 As will be outlined later in this report, we also heard that the Section 106 system is being circumvented by means of viability assessments, such that developers are able to game the system to avoid local authority policy requirements to deliver affordable homes.

25.In our view, there are four distinct categories of property taxes and charges—only some of which are relevant in the context of the land value capture debate:

The Government and other stakeholders should not confuse these different approaches when developing policy in this area. Land value capture mechanisms should create value for the public purse in addition to generating revenue for infrastructure made necessary by the granting of planning permission.

26.Estimates of the proportion of the land value increase currently retained by the landowner once planning permission is granted vary considerably. There is no agreed methodology, particularly as pertains to what taxes and charges should be included, and there is a considerable difference in land value uplifts by location and previous land use. Christopher Price from the CLA told us that, due to the complications inherent in making such estimates, “You cannot really put any great weight on any figures that anyone comes up with in this space”.34

27.Nevertheless, it is helpful to have an approximation of the proportion of land value uplifts already captured by the state, at least insofar as to determine if there is any realistic scope to capture additional value. The Centre for Progressive Capitalism estimated that landowners currently retain an average of 75% of the uplift in land values arising from the granting of planning permission.35

28.However, analysis by Professors Crook, Henneberry and Whitehead found that, “the landowner is left with about a half of the market value of land”, although Professor Henneberry noted in oral evidence that this was “an average on a greenfield site on the edge of a growing town” and that for more complex circumstances—such as a brownfield inner-city site in the North of England—“the short answer is that I have not a clue”.36 Similarly, Philip Barnes told us that, while he would caution against estimating a figure, “I do not think the landowner ever gets more than 50% of that from the Barratt perspective”.37

29.Estimates of mean average increases in land value arising from the granting of planning permission are not particularly helpful, given the considerable variation in uplifts dependent upon location and previous land use. Approximations of the proportion of the land value increase retained by the landowner also vary widely, with no agreed methodology for this calculation.

30.Where estimates have been made, these suggest that landowners currently retain around 50% of the increase in land value arising from the granting of planning permission. Much of the captured value, however, is what is necessary to provide the infrastructure and services made necessary by development, with an additional amount to deliver affordable housing. Our view is that 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.

What can be learned from past attempts to capture uplifts in land value?

31.Past attempts at capturing land value uplifts can be considered from a number of perspectives—for example, national versus local mechanisms—but here, we have divided them into two broad approaches: the development of garden cities and new towns, with land acquired at levels close to existing use value, and attempts to capture increases in land values after development events.38

Garden cities and New towns

32.Ebenezer Howard created First Garden City Ltd in 1903, founding the UK’s first Garden City at Letchworth in Hertfordshire. David Ames, Head of Strategic Planning and Development at the Letchworth Garden City Heritage Foundation, explained that Garden Cities like Letchworth relied on “some form of intervention for land to be purchased at below market value, or a willing landowner to be involved”.39 He told us that the ability to capture land values arising from development in Letchworth was ongoing, and that the city’s property portfolio continued to generate a surplus of £7.5 million a year, which continues to be reinvested in charitable services and local grants.

33.During the Second World War, the Government commissioned the Expert Committee on Compensation and Betterment, chaired by Mr Justice Uthwatt, to “make an objective analysis of the subject of the payment of compensation and recovery of betterment in respect of public control of the use of land”.40 The findings of this report, published in 1942, ultimately contributed to the passing of the Town and Country Planning Act 1947, which introduced a requirement for planning permission to be granted for both the construction and the change of use of a building, imposing a 100% development charge on any uplift in land value arising from such a change. The 1947 Act enabled the State to acquire land at levels close to existing use value—until it was amended in the Town and Country Planning Act 1959, and with new compensation arrangements in the Land Compensation Act 1961—and, alongside powers provided within the New Towns Act 1946, enabled the establishment, through Development Corporations, of the post-war New Towns.41

34.Hugh Ellis, from the Town and Country Planning Association, highlighted that the New Towns programme ultimately led to the establishment of 32 communities for 2.8 million people, and successfully paid back its entire borrowing for the delivery of the towns in 1999.42 He told us that, since then, the assets of the New Towns, which were transferred to the Treasury in the 1980s, have been yielding £1 billion a year for the Government.43

35.Although the Government has recently announced a new generation of local authority-led New Town Development Corporations, several organisations, such as Shelter, highlighted that these would not have the same powers as their predecessors to acquire land at near to existing use value, due to the requirement to compensate landowners for ‘hope value’—which would reflect the potential future value of the land acquired—within the Land Compensation Act 1961.44 This issue will be discussed in more detail in Chapter Three.

Development charges and betterment levies

36.There have been a number of attempts since 1945 to introduce some form of national development taxation.45 Of those that are no longer in effect, or were never implemented in full, these included:

37.It is relevant to note that each of these attempts were not as successful as had been hoped. Dr Peter Bowman and Andrew Purves told us these strategies had:

[ … ] failed due to the political nature of their implementation - by successive Labour governments - which meant that landowners did not put forward land for development, in the belief that a change of government would bring about a repeal, in which assumption they were correct.49

38.Deloitte told us that these betterment levies “stymied development, proven difficult to administer efficiently, and have been repealed within a short period of time”.50 Barratt Developments said they had all struggled, to varying degrees, with the need to incentivise landowners to bring forward land for development, and were introduced with insufficient flexibility at the wrong stage of the economic cycle, causing disruption during the policy introduction and subsequent amendments.51 The CLA expressed their view that:

They were too complicated, discouraged development and encouraged hording. They did not incentivise landowners to carry out beneficial economic activity, rather they provoked inactivity. There was confusion over the use of the word land. As a result, they focussed on speculative profits made at the point of development or sale, not land values which are affected by a far wider range of factors.52

Lessons to be learned for future efforts to capture land value uplifts

39.Given the failure of previous efforts to implement systems to capture uplifts in land value, it is important to learn the right lessons to ensure that future policies have far greater success and are not similarly repealed within a short period of time. As highlighted by the GLA and TFL, it is clear that, to be successful, future taxes or charges on uplifts in land value will need to have cross-party political support.53 Single-party initiatives have historically been undone within a few years, with the ‘Development Charge’, the ‘Betterment Levy’ and the ‘Development Land Tax’ all introduced by Labour governments and immediately repealed by incoming Conservative governments.54 The Campaign to Protect Rural England (CPRE) noted that past efforts to introduce levies had often resulted in landowners holding on to their land in the expectation that the policy would be temporary, whereas governments in the 1940s and 1950s employed a direct development approach, compulsorily purchasing land at, or near, existing use value to build social housing. They argued that:

Direct development models therefore seem to be more effective than development taxation at capturing the land value uplift created by new development. However, the politics of implementing such models can be challenging.55

40.As highlighted by the CLA, many of these previous attempts to capture land value were too complex, with various exceptions and viability processes.56 The Royal Town Planning Institute told us that, “The greater the complexity of reforms, the greater opportunity for creative avoidance from landowners”.57 The issue of complexity in the Community Infrastructure Levy (CIL) will be discussed in the next chapter.

41.The Town and Country Planning Association highlighted that, “it is clear that a future betterment tax would have to be set at a socially acceptable level”.58 Hugh Ellis said that the ‘Development Charge’, introduced by the Town and Country Planning Act 1947, set at 100%, “was always bound to fail—if you set taxation rates at 100%, they tend to”, and that it had “effectively killed off the speculative market in land”.59 The CLA argued that, where betterment taxes were set too high, “the rational course of action for most landowners was to do nothing and so avoid triggering an obligation to pay the levy”.60

42.While national betterment levies have proven problematic, current locally-based development charges have had the effect of being regressive in terms of spatial distribution—they raise very different amounts of money in different parts of the country—a problem highlighted in the Interim Report of the Raynsford Review of Planning in England:

Because both Section 106 agreements and CIL are based on recouping development values, they inevitably yield the highest returns in the highest-value areas. Since there is no mechanism for redistributing this revenue to lower demand areas, both CIL and Section 106 agreements have the unintended effect of reinforcing spatial inequality.61

One lesson from current mechanisms is that spatial inequality should be limited in any new system of land value capture. Hugh Ellis told us that a redistributive mechanism may be required, although he noted that communities would expect to see revenues spent in the local area in which development was taking place.62 Dr James Richardson, from the National Infrastructure Commission, agreed that consideration should be given to whether revenues are collected locally or nationally and how they would be distributed: “how much money goes into the Exchequer and from where, and how much money goes out of the Exchequer and to where”.63

43.For decades, governments have sought to capture increases in land value, but with limited success. When considering new mechanisms for land value capture, it is vital that we learn the right lessons from the past. It is clear that any new approach should have cross-party support, with the intention of being retained for the long-term and should be simple to administer, without complicated exceptions or viability processes. It will also need to allocate land value increases fairly between central government, local authorities and landowners, without undermining incentives to sell or risk holding up the development process. Consideration should also be given to a mechanism for the redistribution of revenues between high and low-value areas. Where new land value capture mechanisms reduce incentives for landowners to participate in the development process, local authorities will require effective CPO powers to ensure that communities continue to benefit from developments in their areas.


11 Q2 (Liz Peace)

12 Professor Tony Crook CBE, Professor John Henneberry, & Professor Christine Whitehead OBE (LVC053)

13 Land value estimates for policy appraisal, Department for Communities and Local Government, February 2015, page 12

14 Land value estimates for policy appraisal, Department for Communities and Local Government, February 2015, page 13

15 Q88 (Councillor Tett, Local Government Association). See also supplementary written evidence from the Local Government Association (LVC093) and the Country Land and Business Association (LVC094)

16 Greater London Authority & Transport for London (LVC 091)

17 Q55 (Julian Ware, Transport for London)

18 Q2 (Professor Henneberry) and Q5 (Liz Peace)

19 Shelter (LVC037), para 6.1

20 For example, Deloitte LLP (LVC089), para 47, and Campaign to Protect Rural England (LVC068), para 11

21 For example, Dr Nicholas Falk (LVC004) and Town and Country Planning Association (LVC073), para 2.8

22 Town and Country Planning Association (LVC073), para 2.8

23 Royal Town Planning Institute (LVC055), para 3

24 Centre for Progressive Capitalism (LVC011)

25 Q138 (Christopher Price, Country Land and Business Association)

26 Q138 (Christopher Price, Country Land and Business Association)

27 Q188 (Hugh Ellis, Town and Country Planning Association)

28 Q188 (Hugh Ellis, Town and Country Planning Association)

29 Shelter (LVC037), para 8.2

30 London YIMBY and PricedOut (LVC017)

31 For example, Deloitte LLP (LVC089), para 47, and Professor Tony Crook CBE, Professor John Henneberry, & Professor Christine Whitehead OBE (LVC053)

32 Supporting housing delivery through developer contributions, Ministry of Housing, Communities and Local Government, 5 March 2018, page 9

33 Daniel Bentley (Editorial Director, Civitas) and Thomas Aubrey (Adviser, Centre for Progressive Policy) (LVC 096)

34 Q134 (Christopher Price, Country Land and Business Association)

35 Centre for Progressive Capitalism (LVC011)

36 Professor Tony Crook CBE, Professor John Henneberry, & Professor Christine Whitehead OBE (LVC053)

37 Q135 (Philip Barnes, Barratt Developments)

38 As reflected in the written evidence provided by the Centre for Progressive Capitalism (LVC011)

39 Q53 (David Ames, Letchworth Garden City Heritage Foundation)

41 Centre for Progressive Capitalism (LVC011)

42 Q187 (Hugh Ellis, Town and Country Planning Association)

43 Q187 (Hugh Ellis, Town and Country Planning Association)

44 Shelter (LVC037), para 7.4

45 Greater London Authority & Transport for London (LVC 091)

46 Country Land and Business Association (LVC082)

47 Country Land and Business Association (LVC082)

48 Kate Barker, Review of Housing Supply: Delivering Stability – Securing our Future Housing Needs, Final Report – Recommendations, 2004, p. 87, recommendation 26

49 Dr Peter Bowman and Andrew Purves, on behalf of the School of Economic Science (LVC035)

50 Deloitte LLP (LVC089), para 11

51 Barratt Developments (LVC022), para 2.3

52 Country Land and Business Association (LVC082), paras 4.21–4.22

53 Greater London Authority & Transport for London (LVC 091)

54 Royal Town Planning Institute (LVC055), para 39

55 Campaign to Protect Rural England (LVC068), para 18

56 Country Land and Business Association (LVC082), paras 4.21–4.22

57 Royal Town Planning Institute (LVC055), para 39

58 Town and Country Planning Association (LVC073), para 2.13

59 Q190 (Hugh Ellis, Town and Country Planning Association) and Town and Country Planning Association (LVC073), para 2.13

60 Country Land and Business Association (LVC082), paras 4.15

62 Q190 (Hugh Ellis, Town and Country Planning Association)

63 Q190 (Dr James Richardson, National Infrastructure Commission)




Published: 13 September 2018