Granting planning permission massively increases land values. Shouldn't the state get a share?

This land is worth a lot more than the green fields in the background. Image: Getty.

For many years, those in housing and planning have grappled with the issue of “development gain”. How can the substantial uplift in land value, resulting from the granting of planning permission, be captured in way that shares the wealth with the community but does not discourage development?

As Kate Barker pointed out in her recent book, “Housing: Where’s the plan?” the scale of the uplift illustrates why this is an issue demands attention. Around Cambridge, agricultural land with no planning permission was worth around £18,500 a hectare in 2010; residential land was worth £2.9m. Around Belfast, agricultural land was assessed at an average value of £24,000 per hectare, compared with residential at £1.25m.

Of course, the windfall will not always be so large – and a proportion does goes towards the cost of development. But it makes the point that planning permission granted by the state can reap big financial gains for developers.

There are two reasons why it’s important that this gain is captured (a friendlier way of saying ‘taxed’). Firstly, the rise in the value of land is usually a result of public investment in the surrounding area: it’s therefore a windfall the landowner has done little to earn.

Secondly, new homes will increase the demand on the surrounding infrastructure. Improving and expanding it should be at least part-funded by the gain, or it will fall on the state to do so. Even in times of plenty, this isn’t the ideal situation. 

New homes must be accompanied with the development of social and economic infrastructure. Schools, hospitals, public spaces, transport, energy and communication links and more are all essential to create places where people want to live and can reach their full potential. And as we’re in the middle of an affordability crisis (the average house price is now 10 times the average wage; in London, it’s 14), it’s also crucial to build genuinely affordable homes.

Recent attempts to ensure this happens have come in the form of Section 106 agreements and the Community Infrastructure Levy (CIL). Both have drawbacks; councils that have introduced the CIL have seen a 49 per cent drop in planning applications for new homes. Section 106 has been criticised for failing to provide infrastructure investment and social housing proportionate to levels of private development.

They can also produce a clash between the aims of local authorities and those of developers. The former are keen to secure a level of affordable homes, the latter keen to maximise return (generally speaking) – and with stretched budgets, it is the local authorities that usually cede ground. Furthermore, the lack of transparency in the deal making process, and the ultimate failure to deliver affordable housing and the investment needed in the right type of infrastructure, is leading some councils to take legal action.

In our latest report, Devo Home, we argue for the creation of a set of new local bodies dedicated to housebuilding and place-making. What we call “Local Place Partnerships” will be coordinated by local authorities and bring together all the parties involved in this process: private developers, housing associations, residents, civil society and local business. We think this will speed up the building process by offering a single point of delivery, and act as a forum within which the competing and often opposing interests of the parties in the development process can be resolved.

Under this model we propose a new mechanism to capture the value of land, one that can be instigated by local authorities through the use of Local Development Orders (LDOs).

Using LDOs, councils can unlock sites and support developers in securing planning consent by establishing the parameters for housing on brownfield sites. They can relate to the size and numbers needed, as well as the design and the provision of infrastructure, thus helping developers work up suitable schemes to get work started in brownfield sites quicker.

Local authorities know how many affordable homes are needed, as well as the location of essential infrastructure services; they know the potential value of new development.

If they were to introduce LDOs on specific sites that require infrastructure, or a specific level of affordable housing, they would be able to capture the value of that site and set a bespoke levy, paid by the developer, which would contribute to the cost.

A major issue with Section 106 and the CIL is that they can create an atmosphere of uncertainty between those involved, as the terms of the agreement are not laid out at the start of the process. By empowering local authorities through LDOs, which can form part of the plans laid out in Local Place Partnerships (LPPs), the costs and requirements will be clear for all to see upfront.

Offering a bespoke and flexible alternative to Section 106 and the CIL, local authorities could enact this new mechanism together through LPPs. As the parties involved would already be working under the same roof, local authorities could work with their fellow LPP members. And when this involves more than one council, they can formulate cross-boundary development plans and raise funds in a more sophisticated, clear and flexible model than is currently available.

This empowers local authorities to tell developers the value of sites. It will enable them to take a more strategic approach to infrastructure planning, making sure that communities are developed alongside new homes.

A one-size-fits all answer to the challenge posed by development gain won’t work. But we think this one is worthy of a try.

David Fagleman is the project manager of the prosperity programme at ResPublica.

 
 
 
 

What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.


Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.