Login | Register
13/09/2018

Land value capture system reform could offer public service gains, say MPs

Words: Laura Edgar
Land value capture / Shutterstock_18748375

The Housing, Communities and Local Government Committee (HCLG) has concluded that the government must reform the Land Compensation Act 1961 to fund the infrastructure and local services required to meet its housing targets.

The committee highlights government statistics suggesting that when agricultural land is granted planning permission for a residential development, it increases in value on average from £21,000 a hectare to £1.95 million a hectare.

Its report, Land Value Capture, states that there is scope for central and local government to “claim a greater proportion of land value increase through reforms to existing taxes and charges, improvements to compulsory purchase powers, or through new mechanisms of land value capture”.

Compensation should reflect the cost of providing 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 report explains.  

Noting that land for the first generation of new towns was acquired at or near to existing use value, with land uplifts captured and then invested in new infrastructure, the committee calls for an amendment to be made to the Land Compensation Act 1961.

This would lead to a “much-needed” boost to the level of housebuilding, providing a “powerful tool” for local authorities to build a new generation of new towns, or extend existing settlements. Lessons to be learnt from the Netherlands and Germany to ensure that the maximum value is captured for new infrastructure and public services show it may mean not selling to the highest bidder.

Clive Betts MP, chair of the HCLG Committee, said: “There is a growing consensus that the Land Compensation Act 1961 requires reform. The present right of landowners to receive ‘hope value’ is distorting land prices, encouraging land speculation and reducing revenues that could be used for affordable housing, infrastructure and local services.

“Ensuring local authorities have the power to compulsorily purchase land at a fairer price will provide a powerful incentive to build a new generation of New Towns and the extra homes that we so desperately need."

Land Value Capture also recommends:

  • Further simplifying the Compulsory Purchase Order process so it is faster and less expensive for local authorities while maintaining safeguards for those affected.
  • Reforming the Community Infrastructure Levy (CIL) to removing complexity and the range of exemptions that “limit” its effectiveness.
  • Providing more resources for local authorities to ensure that they are able to negotiate robustly with developers to secure the appropriate level of planning obligations.

Reaction:

The RTPI welcomed the committee’s unequivocal stance on change.

“This is the clearest signal so far from politicians that the current system of ensuring that land value uplift is shared fairly is not working for the public good and needs wide-ranging reform,” said Victoria Hills MRTPI, chief executive at the RTPI.

For Hills, the country’s “over-reliance” on developer contributions has put the planning system under immense strain. It has also fuelled public resentment against developments when obligations are watered down or unfulfilled.

“What started out as a means of mitigation has become a replacement for mainstream public investment, and this must change.

“But we think changes need to go further to ensure that uplift from all land, not just those land released for development, is shared fairly.”

David Smithen, partner at law firm TLT, noted that it should be forgotten that the CIL system does allow “payments in kind” for pre-identified Regulation 123 Infrastructure to be delivered by developers in lieu of cash CIL payments. Further, Smithen called on the government to ensure that when it next makes a decision on the funding of infrastructure, it commits to sticking to the new system for a prescribed period of time to provide certainty.

“Another challenge will be that developers and the relevant local communities will expect to see some ring-fencing of funds collected by the proposed taxation – so as to ensure that it is actually spent efficiently to deliver the promised infrastructure. The experience with CIL has left many cynical as to when and how that ‘tax revenue’ is actually spent upon the infrastructure it was supposed to fund.

“In reality, development land taxes, like CIL, that seek to relate, however indirectly, to a development profit tend to be paid by land sellers in terms of reduced land prices. Thus, the proposals will be watched very carefully by all stakeholders – from developers to landowners and community groups.”

Ian Fletcher, director of real estate policy at the British Property Federation (BPF), highlighted that land values vary significantly across the country and there will be many locations across the Midlands and the North, and on brownfield land, where there is no value to capture.

“Crudely applied reform imposed in these locations will deter much-needed private sector investment into housing delivery and our town and city centres,” he explained.

“Where there is significant land value uplift, there is substantial private sector investment available for new public infrastructure. Developers committed £6 billion towards the CIL and Section 106 in 2016-2017, in addition to paying other taxes, and the real estate sector is now more heavily taxed in the UK than any other country in the Organisation for Economic Co-operation and Development.

“In London, the real estate sector is contributing £600 million to the cost of Crossrail via the Mayoral CIL and S106, and encourages other UK regions to adopt Strategic Infrastructure Tariffs to collect funding in this way.

Martin Tett, housing spokesperson for the Local Government Association (LGA), said: “Rising land prices is one of the most influential contributors to our housing crisis – it means less homes are built, they are less affordable, they are built more slowly, there can be compromises on quality, and there is not enough funding left over for vital local infrastructure and services that communities need to back development.

“There are therefore huge gains for communities, economies and public services in allowing councils being able to capture potentially billions of pounds’ worth of land value increases to invest in the very infrastructure and services that generate those increasing values.

“We are also pleased the committee recommends that government provides extra support to councils, through the LGA, to help give local authorities a strong hand in negotiations with developers.

“Government action on these recommendations would have a significant impact in building more homes with the right infrastructures and places that people want to live and work.”


Land Value Capture can be found on the UK Parliament website.

Image credit | Shutterstock

Tags