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.

 
 
 
 

How US planners experimented with “the iron hand of power” over colonial Manila

Manila in ruins, 1945. Image: Wikimedia Commons.

In 1904, Manila must have appeared to its new overlords a despairing prospect. Racked with poverty and disease, it was still recovering from years of war, epidemic and a fire that had left 8,000 homeless.

For architect Daniel Burnham, it was an opportunity to put to work the radical ideas he had dreamed of in America.

He was among those asking how America’s unprecedented wealth at the turn of the century could be reconciled with the lives of the country’s poorest. Like many, he admired the ideas of harmonised city-planning articulated in Edward Bellamy’s bestselling science-fiction Looking Backward (1888).

At the 1893 World’s Columbian Exposition in Chicago, Burnham constructed the “White City”. Built across 686 acres of parkland, boulevards, gardens and neoclassical structures rendered a spray-painted plaster vision of the future – all laid out to one comprehensive plan.

It was impressive – but implementing grand designs where people actually lived meant laborious negotiations with citizens, businessmen and politicians.

Instead, opportunity lay in America’s new overseas territories. As Daniel Immerwahr describes in How to Hide an Empire: A Short History of the Greater United States, “They functioned as laboratories, spaces for bold experimentation where ideas could be tried with practically no resistance, oversight, or consequences.”

An architect’s dream

The US had gone to war with Spain in 1898, taking advantage of an empire-wide insurrection. It ended up controlling the entire Philippines, along with Guam and Puerto Rico.

As a “territory”, the Philippines existed outside the protections of the constitution. Congress could impose any law, proclaimed the attorney general in 1901, “without asking the consent of the inhabitants, even against their consent and against their protest, as it has frequently done.”

Which is how Burnham, upon invitation by the Philippine’s new rulers, came to wield what the Architectural Record called “the iron hand of power” over Manila.

 Burnham’s plan for Manila. Click to expand.

Where Burnham’s Chicago plan was complex, took years and entailed collaboration with hundreds of citizens, Burnham spent six months on the Manila plan, and just six weeks in the Philippines. And with no voters to persuade, there seemed little reason to register Filipino input in his designs.

In 1905 Burnham submitted his Report on Improvement of Manila. It described filling the toxic moat of the Spanish fortress Intramuros and developing a rectangular street system modelled on Washington D.C., with diagonal arteries which even Chicago lacked.


Central to his plan was the city’s beautification through monumental buildings, waterfront improvements, and parks – “wholesome resorts” to “give proper means of recreation to every quarter of the city”

Burnham charged William E. Parsons as the omnipotent “Consultant Architect” to interpret his plan, who relished its authority over all public building as an “architect’s dream”. When concerned with the extent of his purview, he also chose to standardise a number of public buildings.

“I doubt if this method would bear fruit in our own city improvement plans, in which everything depends on slow moving legislative bodies,” reported the Architectural Record’s correspondent.

Despite Burnham’s colonial sentiments his biographer concluded his plan was “remarkable in its simplicity and its cognizance of Philippine conditions and traditions.”

His plans did not shy from asserting the colonial government’s authority, however. The Luneta, a favourite park, was to become the nuclei of government. The city’s avenues would converge there, for “every section of the Capitol City should look with deference toward the symbol of the Nation’s power.”

Unusual monumental possibilities

Burnham also worked on a summer palace for US administrators at Baguio, 150 miles north in the mountains. On land inhabited by Igorot people, Burnham saw an opening “to formulate my plans untrammelled by any but natural conditions”.

Baguio’s “unusual monumental possibilities” were facilitated by a road whose construction employed thousands, risking death from disease and falling off cliffs. Civic buildings would “dominate everything in sight” and a golf course would rival those of Scotland.

“Stingy towards the people and lavish towards itself,” griped La Vanguardia, the government “has no scruples nor remorse about wasting money which is not its own.”

As enthusiasm for US empire soured in the States, local power was relinquished to Filipinos. Parsons resigned in protest in 1914. He was replaced by Manila-born Juan Arellano, whose rebuke to imperialists was the mighty, neoclassical Legislative Building which hosted the elected Philippine Legislature. Arellano upheld Burnham’s plan, producing a beautified city bearing resemblance to Burnham’s White City.

But the Legislative Building, along with Burnham’s great edifices and almost everything else in Manila, was levelled as US troops recaptured it in 1945, this time ousting the Japanese in a brutal battle. “Block after bloody block was slowly mashed into an unrecognizable pulp”, recorded the 37th Infantry Division as they exercised their own “iron hand” over Manila.

American artillery had transformed Manila into ruins. “It was by far the most destructive event ever to take place on US soil,” writes Immerwahr, even if few soldiers realised they were liberating US nationals at the time. Burnham’s expansive vision was lost in the debris, and though some buildings were rebuilt a majority were replaced. Today, Manila’s pre-war architecture is remembered with fondness and nostalgia.