Is The State Capturing Enough Land Value From Development?

This is an issue that has ‘taxed’ the minds of politicians for decades. Is it right that landowners can stand to make an enormous profit on the value of their land following the grant of planning permission for residential development?

The Housing, Communities and Local Government Select Committee report published in September 2018 on this subject suggested that reform was required in order to deliver what it termed as ‘fairness’ to the system. These reforms included: 

  • Reform of the Land Compensation Act 1961, to give local authorities the power to purchase land at a fairer price. This reform – which the committee claimed has growing political support – would in their words 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’;
  • Further simplification of the Compulsory Purchase Order process, to make it faster and less expensive for local authorities, whilst not losing safeguards for those affected;
  • Reform of the Community Infrastructure Levy (CIL) to remove complexity and the extensive range of exemptions that the committee believe currently limits its effectiveness;
  • More resources for local authorities to ensure they are able to negotiate robustly with developers to secure the appropriate level of planning obligations;
  • Securing the maximum value for new infrastructure and public services from public land put forward from residential development.

Support for reform has grown across the political spectrum and even the last Conservative manifesto promised to ‘work with private and public sector house builders’ on the issue. However, none of the suggested reforms has entered the statute book; probably because Parliament has been busy with something else in the last few months…

The most common type of question on this subject tends to be, “how does land worth £21,000 per hectare suddenly become worth £1.95m (using estimates in government statistics) and who should get the windfall?”

The answer to this question requires a fine balance – getting it right could boost construction of new homes and provide a new source of funds for the Government to spend on infrastructure and affordable housing; getting it wrong could destroy incentives for landowners to bring land forward and mean housebuilding rates dry up.

The simple fact is that despite politicians insisting that landowners don’t need to do much to see such large increases in land value, (see the quote from Clive Betts MP, Chair of the Select committee who stated “the current system allows landowners, through no effort of their own, to make multi-million pound profits from the substantial increases in land value that arise from public policy decisions, such as the granting of planning permission”) the truth is much more complicated than that.

Promoting your land through the complex and costly UK planning system remains fraught with risk for those who seek to do it by themselves; on average the costs of such a promotion from Local Plan representations through to the gathering of specialist technical evidence plus the cost of an outline application will regularly exceed £500,000. This cost is of course at risk, without knowing whether the site will succeed in obtaining that ‘golden ticket’ of a planning permission.

The final question to answer must be whether or not the state actually captures enough from this increase in value already. Research submitted by the Land Promoters and Developers Federation to the Select Committee showed that over 50% of the gross land value is already captured, through affordable housing, payments towards education, transport, parks and gardens etc and general taxation such as Capital Gains Tax. This excludes of course the stimulus to the Gross Domestic Product (GDP) that house building generates, with over 90% of the estimated £11.9bn per year spent on suppliers and materials staying within the UK.

That is not an inconsiderable amount of value being captured. When the state has tried to capture land value in the past, it has inevitably made a mess of it, resulting in less land being brought forward for development. Perhaps this time it will learn from the mistakes of the past.     

Could your land have development potential?

Find out more about land promotion: www.catesbyestates.co.uk

David Morris - Planning Director 01926 836910 / davidm@catesbyestates.co.uk

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