Some thoughts on the recent HCLG select committee report on land value capture (LVC).
First question is why even bother given that housebuilders prefer lower land prices and more LVC could help?
The answer is that that Barratt wants to build more homes and we see that much higher LVC could disincentivise landowners. Thereby presenting a threat to the necessary supply of land to support growth.
The report is a credit to the committee in terms of the its depth of analysis and the balance in its presentation. The conclusions, from a practitioner’s point of view, are generally sound.
In particular, it is good to see the recognition of:
- LAs needing to maintain up to date and deliverable local plans;
- The scale and importance of existing LVC mechanisms, namely S106 and CIL plus the taxation of development, landowners and developers;
- The benefits of a Local Infrastructure Tariff, perhaps as an alternative to CIL;
- The folly in the oft-stated view that, on the continent, housing land is bought by the state at agricultural value;
- The need for greater transparency in the viability and LVC process, something that Barratt has not resisted.
Good but familiar bits
Many of the other conclusions are equally sound but have been made by other select committee reports, so many times over my career, I am not sure they add much new. In particular the recommendations to:
- Look more closely at the law and practice of CPO;
- Encourage more LAs to use CPO more often;
- Produce a new LVC mechanism which is “simple to administer without complicated exceptions” (Perhaps easier to say than do).
- Spend more money on training planning officers;
- increase the resources in LA planning departments.
Not so good bits.
Notwithstanding the above, there appears to be some areas, despite the depth of the analysis, where it seems that the Committee has not quite got it right. Obviously looking solely from the perspective as someone out securing sites and making planning applications.
For example, in the section on CPO I was pleased to be quoted (para 100) saying that, “many commentators simply ignore the both the Human Rights Act and the role of the plan led system”. But was then left disappointed that the Committee didn’t make any analysis of the role of the plan-led system prior to making it’s recommendations. Thus leaving unanswered, a key question namely:
- Should the LA buy the housing site at the end of the plan-led process, at agricultural value, in which case a two price market will be created, given that all other allocations will trade at the market value reflecting the allocation; OR,
- Should the LA buy the site at the start of the plan-led process, at existing use (agricultural) value. Thus creating the risk of not being allocated for housing by PINS, when compared to other sites, against the NPPF site allocation guidance. (Unless of course the process always ensures that the Councils’ site wins, North Korea style)
- Or somewhere in between?
More clarity is required on how the state can effectively be both (a) responsible for the fair operation of the plan-led process and also (b) a participant with risk money invested in the same process.
Secondly the Committee delved into the details of land valuation and then felt able to assume that c.50% of uplift was retained by the landowner and therefore, “our view is that there is scope…… to claim a greater proportion of land value increases……” However this conclusion proceeded a discussion on land values derived from out of date Government sources which themselves advise that they should not be used as market value estimates. And it remains unclear as to whether the fundamentally important issue of net to gross land values has actually been factored in. Neither in terms of (a) net to gross development area or (b) net to gross values, either including or not including S106 costs.
Thirdly the report references the threat of CPO as a means to drive down land values. From my seat that threat is hollow. Barratt often struggles to find LA resources to determine its planning applications on time so the idea that LAs can realistically step up to CPO’ing land for 300k homes, every year, seems fanciful. That means 000’s of sites every year. The reality is that most land will always trade on the open market, cognisant of local plan and NPPF policy.
Fourthly it is good that the Committee refers to a shift towards the victim of a CPO being, “provided with an equivalent replacement”. However that is also much easier to say than do, especially in areas of the North where the experience of the Pathfinder Projects confirms that this additional cost burden would likely result in an enormous gap between the price paid for the CPO land, and the subsequent open market value of the cleared site for new homes. I recall once calculating the acquisition cost of a small estate of terraced homes, and then comparing it to the actual value of the cleared site. Frightening.
And finally it was disappointing to see the Committee appearing to give credence to evidence referring to a £500 per sq ft (£5000 per sq m) CIL rate. That would simply end housing development in the UK
So three concluding questions from a practitioners perspective:
- The Committee confirmed the importance of the ‘no scheme’ world when valuing land for CPO. This is obviously straightforward when valuing a farmers field needing to be acquired for a new road junction, which opens up access to a new development area. But perhaps less easy when valuing land which, despite no current local plan allocation or consent, complies with NPPF guidance on where future housing allocations could and should be made. In that circumstance, what does ‘no scheme’ and ‘hope value’ actually mean in the real world of land valuation?
- With the impossibility of LAs being able to CPO the 000’s of sites for 300,000 homes per year, how can a two price market be avoided if the state wishes to CPO at land values well below the level which rational landowners will sell at?
- Will the more radical Select Committee recommendations actually gain any traction? Perhaps not given that Kit Malthouse was very clear in his evidence that the focus must be on letting the recent changes in the 2017 Act and NPPF bed in. Very sensible IMHO.
Final point is to agree with the lawyers. Both in the evidence to the Committee but also HERE (Simon Ricketts) and HERE (Richard Harwood QC). Namely that deliverable local local plans, with good policies focussed on creating great places, is the best way to “right price” housing land.
No thanks to further changes with potentially massive unforeseen impacts on housing delivery and yes please to up to date local plans which deliver infrastructure and great places.