We all know the government wants to reform the planning system to unlock the delivery of the homes and infrastructure it deems necessary for growth. While it has already set out its stall via changes to the National Planning Policy Framework and in the Planning and Infrastructure Bill currently making its way through parliament, further reform is in its sights.
Meeting the cost
One area the government is exploring is how the delivery of affordable homes and infrastructure should be funded, linked closely with ensuring that communities benefit adequately from development happening within them. There are three main players who are the focus of this discussion, and diverging views on the extent to which each should benefit from development, or contribute to the public good:
- Landowners – when planning permission is granted, in many cases the landowner enjoys a significant increase in its value. In other cases this uplift occurs even earlier – when the land is allocated in planning policy for a particular use. Some believe that it is unfair that the landowner retains all of this value. However, if taken to extremes, denying landowners the right to these value increases poses a real risk that they will be disincentivised from bringing their land forward for development at all. In some cases, compulsory purchase may be an option (more on that later), but this will not – and should not – always be the case. Many in the industry would say that a key challenge in recent years has been the availability of good development sites. At a time when we want to unlock more of these sites, removing the financial incentive for making them available seems shortsighted.
- Developers – in recent years it has seemed increasingly politically expedient to question developer profits, every pound of which seems to be held up as one denied to local communities. However, again, there is a real risk in this stigmatisation. It is developers who bear the risk for bringing forward development, so surely they are entitled to adequate reward to justify that? Any model which seeks to erode this too far runs the risk of seeing far fewer willing to take on the challenge that development poses.
- Government – there are clearly different views on the role of the state in funding affordable housing and infrastructure. However, there seems to be a growing consensus that it should not be footing the bill for all of this, albeit that this conclusion may be fuelled by wildly varying ideologies. There also seems to be a growing belief that, having created value in land, for example by granting planning permission, the state should benefit from that in some way.
Seeking out the answers
To help balance this conundrum, the Housing, Communities and Local Government Committee is holding an inquiry to consider how land value capture policies can contribute to the funding of affordable housing and public infrastructure.
The inquiry’s aims were to consider possible reforms to the current system of developer contributions towards affordable housing and infrastructure, the government’s plans to reform compulsory purchase compensation rules, and how increases in land value can be captured more effectively for public good. This included an examination of the effectiveness of what it views as existing land value capture methods, including the community infrastructure levy and planning obligations.
Launching the inquiry, the committee chair noted that landowners can make significant profits from the substantial increase in land value occurring when local authorities grant planning permission, and highlighted that the government considers that there needs to be a land value capture system which is fair and helps deliver the housing and public services communities need.
This suggests the government is beginning this process with clear views as to where the burden should fall.
Mitigation or social contribution?
Setting aside possible outcomes, the way the inquiry is framed raises an interesting point, highlighting a shift in the role, and justification, of planning obligations and CIL, given that it is predicated on these being a form of land value capture. While it is correct that the value generated by development is used to deliver public benefits, that is not the primary purpose of planning obligations and CIL. Their role is, instead, to mitigate the impacts of development. The law is very clear that, in order to be taken into account when determining an application for planning permission, a section 106 obligation must be “necessary to make the development acceptable in planning terms”. This is targeted at offsetting any harm which would otherwise be caused by the development – not sharing any bounty that it generates.
The role of viability is also interesting. In the context of section 106 agreements, historically planning policy has set out the maximum required mitigation. Viability has then only been referred to in order to reduce the overall requirement, never to increase it. With the introduction of CIL, aimed at making the developer contribution regime more transparent and predictable, rates still had to have regard to viability when being set, but only to ensure they were not too high.
It was not until the ill-fated infrastructure levy that the first steps were taken towards linking developer contributions to profit, as opposed to the cost of addressing harm. Although the current government has no appetite for the specifics of the IL regime, it seems this particular feature is likely here to stay.
Abandon ye all hope
Measures have already been introduced by various governments to limit the role of hope value when determining compensation for the compulsory acquisition of land. By eradicating this in some cases, the compensation paid to landowners will be less, and the body acquiring the land will benefit from a greater share of any uplift in land value.
However, the principle of equivalence – that those losing land to a compulsory purchase order should be left no better and no worse off than in the absence of the CPO – is deep rooted in CPO law, and hope value is an important part of this. If the value received for land acquired compulsorily is less than would have been paid in the open market, then the landowner is losing out. The premise of the inquiry seems to be that this appropriation of value from landowner to state is, nonetheless, appropriate.
Thoughts so far
Details of written evidence submitted have been published, with bodies such as the Greater London Authority, the National Housing Federation, the Town and Country Planning Association and many others providing views on the key issues. Among other things, these representations have highlighted the proposed shift in approach regarding developer contributions from mitigation, and concerns are raised regarding the implications of the evolving hope value position.
Interestingly, while there is agreement that the developer contribution regime could be improved, there is little appetite for a wholesale rewrite at this time. The industry continues to face many challenges, including uncertainty in key areas. Adding to this by proposing to start from scratch on such a key topic for viability would at the very least slow delivery down, while developers and local authorities alike grapple with the ramifications. This is hardly what’s needed to unlock the delivery the government is so keen to see.
Given the seemingly clear vision the government had when going into this process, though, it will be interesting to see how these pleas, and the other representations made, are crystallised into firm proposals.
Hannah Quarterman is a partner and head of planning, Hogan Lovells International LLP
