Land Value Capture Contents

Conclusions and recommendations

Principles of land value capture

1.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. (Paragraph 22)

2.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. (Paragraph 25)

3.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. (Paragraph 29)

4.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 additional value to deliver affordable houses. 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. (Paragraph 30)

5.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. (Paragraph 43)

Improving existing mechanisms

6.We agree with the witnesses who told us that Section 106 had been successful in generating significant revenue for infrastructure and affordable housing, that its contractual nature helped to ensure delivery, and that it should be retained as part of a wider package of land value capture mechanisms. 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. It will, however, be important to ensure these changes lead to real improvements and the Government should report to the Committee in 12 months’ time as to the effect of these reforms. (Paragraph 64)

7.Further, the recent judgement in Parkhurst Road Ltd v Secretary of State for Communities And Local Government 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. (Paragraph 65)

8.It is clear that the most successful local planning authorities have well-defined local plans, which set out clear expectations of what is required of developers, and the professionalism and resources to ensure that these obligations are met in practice, resorting to enforcement mechanisms where necessary. Local authorities that expect to raise higher revenues from Section 106 agreements should ensure that they too have agreed local plans that provide clarity and certainty to developers. (Paragraph 66)

9.However, further reforms will be necessary if Section 106 is to provide the infrastructure and affordable housing that this country needs: (Paragraph 67)

10.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, as highlighted by the CIL Review Group. 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. It is regrettable that the Government has decided not to implement a Local Infrastructure Tariff, as recommended by the Review Group, which would address some of these concerns. We call on the Government to reconsider its rejection of this proposal. (Paragraph 77)

11.The Mayoral CIL in London indicates that Strategic Infrastructure Tariffs that are simple, generally accepted and universally-applied could be effective mechanisms for capturing value to fund specific large infrastructure projects. The Government is right to explore how Strategic Infrastructure Tariffs can be extended across the country, and in particular to combined authorities, who may wish to seek advice from the Greater London Authority as to how such schemes can be successfully implemented. However, the Government should show greater urgency in this respect, given the CIL Review Group made its recommendations nearly two years ago. Care must be taken, however, to ensure that Strategic Infrastructure Tariffs create an additional source of revenue and do not undermine Section 106 receipts. Once a number of Strategic Infrastructure Tariffs are in place, the Government should undertake an assessment to ensure that they have indeed raised additional revenue and not simply diverted money from one pot to another. (Paragraph 78)

12.Tax Increment Financing (TIF) has been used to some effect in Battersea and local authorities should consider how it could be used more extensively to fund infrastructure in enterprise zones. However, if TIFs are to be more widely adopted, the Treasury-approval process will need to be far less complex, while there urgently needs to be greater certainty around the Government’s plans for business rates retention—something this Committee has repeatedly called for. (Paragraph 82)

Legislative reforms

13.CPO powers can be 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 Government should build on its reforms to the CPO process and consider ways in which the process can be further simplified, to make it faster and less expensive for local authorities, whilst not losing safeguards for those affected. We heard that the requirement for the Secretary of State to confirm CPO submissions causes unnecessary delays. Such decisions should be made locally, including by local authority-led New Town Development Corporations. (Paragraph 88)

14.It is concerning that, in many low-value areas, the financial compensation offered by local authorities or central government for property is not sufficient to purchase an equivalent replacement elsewhere. The Government needs to assess how best to address this inherent unfairness in the CPO system and explore whether, in some circumstances, it may be more appropriate to provide an equivalent replacement for what has been acquired. (Paragraph 90)

15.A well-defined local plan with clear objectives and requirements for which the developer must pay, would inherently be reflected in, and could create, lower market land values. There is already much that can be done to capture land value increases arising from planned development and infrastructure provision. This reinforces the urgent need for local planning authorities to agree up-to-date local plans. (Paragraph 110)

16.In addition, we believe that 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 make this change. (Paragraph 111)

17.We believe that increases in the value of privately-owned land arising from public policy decisions should be shared with the local community. The compensation paid to landowners should, therefore, 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. The value paid to landowners should be determined by an independent expert panel and be binding on all parties. On land acquired by the public sector, this would allow local authorities to capture the remaining value to provide the infrastructure and services made necessary by development, as well as additional revenue for other local priorities. It would also serve to lower land prices traded within the private sector, ensuring that developers are able to meet their local plan obligations in full. (Paragraph 112)

18.The first generation of New Towns owed much of their success to the ability of Development Corporations to acquire land at, or near to, existing use value and capture uplifts in land value from the infrastructure they developed and subsequent economic activity to reinvest in the local community. Reform of the Land Compensation Act 1961, alongside the enhanced CPO and land assembly powers that we recommend, 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. This is a model that has worked well in the past and would lead to a significant, and much-needed, catalyst for housebuilding. (Paragraph 113)

Alternative approaches to land value capture

19.The Government owns tens of thousands of acres of land across the UK and so there is much that can be learned from Germany and the Netherlands with regard to capturing increases in value from publicly-owned land. The Government should reflect on the experience of Freiburg and Amsterdam to ensure that, where public land is put forward for residential development, the maximum value is captured for new infrastructure and public services. This may not always equate to selling public land to the highest bidder, but instead on the basis of the proposed levels of affordable housing or commitment to providing the necessary infrastructure. (Paragraph 118)

20.The compulsory purchase reforms we have recommended in this report 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. As we saw in the Netherlands, on publicly-owned land local authorities would have greater power to introduce incentives to require developers to build sites within an agreed timeframe, through the use of options to develop and forfeitable fees. Public ownership of land for residential development would likely lead to greater developer cooperation, higher levels of affordable housing and faster build-out rates than it is currently possible to achievable through the existing planning system. (Paragraph 119)

21.Given cross-party support for new approaches to land value capture, the Government should be flexible and support individual local authorities in piloting some of the more innovative approaches to land value capture that have been suggested during our inquiry and elsewhere. A programme of innovative pilots would allow local authorities to tailor approaches to their local circumstances and provide useful evidence as to which methods of land value capture are most effective. (Paragraph 127)

22.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. The Government should commission a cross-departmental project to consider how this wider goal might be achieved and report back to this Committee within 12 months. (Paragraph 128)

Published: 13 September 2018