MPs have made a case for increasing the financial contribution development makes to local communities; however, landowners say they already contribute their fair share.
Extra funding for new local infrastructure and affordable housing could be raised by wide-ranging reforms to how the increase in value of land resulting from public policy decisions is captured, the Housing, Communities and Local Government Committee has concluded.
Government statistics show that agricultural land, which is granted planning permission for residential use, would, on average, increase in value from £21,000 per hectare to £1.95 million per hectare.
The report on land value capture makes the case for local authorities and central government to capture a ‘significant proportion’ of this uplift in value to invest in new infrastructure and public services.
The Committee argues that there is scope for raising additional revenue from reforms to existing taxes and charges, consideration of new mechanisms for land value capture, and reform of the way local authorities can compulsory purchase land.
The Committee also highlights the success of the first generations of New Towns, which acquired land at, or near to, existing use value, and captured uplifts in land value to invest in new infrastructure. It calls for reform of such powers – through amendment of the Land Compensation Act 1961 – which would lead to a ‘much-needed’ boost to housebuilding.
Clive Betts MP, Chair of the Committee, said, “Land value capture is fundamentally about fairness and necessity. Fairness, because 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. As these increases are significantly created by the actions of the State, it is right that a significant proportion of this should be shared with the local community.
“Necessity, because if the government is to meet the challenge of providing enough new homes over the coming years, then they will also need to find the funds for improving the surrounding infrastructure.
“Our proposed package of reforms to taxes and charges will ensure a fair proportion of the increase in value arising from public policy decisions can be used by national and local government to invest in new infrastructure and public services.
“In particular, 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.”
The proposals have pleased councils. Local Government Association’s Housing spokesman, Cllr Martin Tett, 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.”
However, the CLA has argued that the proposed changes to the way the government captures the increase in the value of land when it receives planning permission would fail to deliver additional homes in order help solve the housing crisis.
The CLA said the reforms would remove the incentive for landowners to bring land forward for development, arguing that landowners and the development sector already contribute significant sums of money to local communities which pay for affordable housing and social infrastructure.
CLA Director of Policy and Advice Christopher Price said, “The current system of capturing the increase in land values already provides a range of benefits. In 2016/17 £6 billion was raised via planning obligations like the Community Infrastructure Levy and Section 106. This money was raised by capturing the change in the value of land when planning permission is granted. History shows us that increasing these obligations too far stops landowners bringing land forward and stalls development.
“We are frustrated that the committee has recommended the removal of hope value. The principles of fair compensation are that any price should reflect the value of the land if it was to be sold on the open market. It is iniquitous to ignore the fact that the price paid for land with development potential should be higher than land with no development value whatsoever.”