Land Value Capture and the Public Interest – The Crucial Question @clivebettsmp @kitmalthouse @sricketts1 @danielbentley

Some interesting recent views here   Daniel Bentley from and here   Simon Ricketts Let me try and crystallise the debate with  case.

A city builds a road, before the road the sites had no access and limited value.  After the road it is worth residential land value.

If the authority wanted to CPO the land needed it could apply the ‘pointe gourde principle’ and CPO the land and land opened up by it  at existing use value.  No guff (as spouted at the MHCLG select committee) that anything less than ‘market value’ was a breach of the market principle.  The No scheme world determines that prior to the road the market was far less liquid.  The real issue is at what ‘point in time’ the market value is assessed not whether the land is valued at less than market value.

Now imagine the owners of the land for the road give it away.  Now the road is build but the public sector  have to tax their residents to pay for it, and for the infrastructure to service the development.  They cannot acquire the development land at existing use value -compensation.  Hope value is added to the equation by virtue of the Land Compensation Act.  The LPA can of course recoup some infrastructure and affordable housing through CIL and S106, but this wont recoup the cost of at risk the public sector having to pay interest on the front loaded infrastructure spending, and any land withheld from the market for speculation increases these costs.  What usually happens of course is that this infrastructure spending is considered too risky by LPAs, the full cost of the infrastructure would fall on the first landowner to come forward, so it doesn’t come forward.  So we don’t get the housing or the infrastructure, and those lucky enough to have an existing asset see it appreciate, and those at the back of the queue become generation rent.

A classic example of this is Horsham North, where nothing happened for a decade on the local plan allocated because the private sector could not build the road, so Homes England had to buy it after threatening CPO using the ‘pointe gourde principle’

This case illustrates what ‘hope value’ is it is a tax on the whole community to subsidise existing asset holders when that value is solely and only created by the decision of the res publica.  What is more bizarrely it is a tax that doesn’t apply when a landowner behaves in a non public spirited land refusing to give up land for much needed infrastructure.  This was never thought through or intended, it is a by product of unintended consequences of case law combined with a political decision to boost the income of farmers in the early 60s before our late entry to the Common Market bailed them out more.  Our continental neighbors didn’t make this mistake and as a result they don’t tax non asset holders to subsidise asset holders – who then can afford to hire lawyers to spread FUD about ‘human rights’, and consequently these countries can afford typically to build housing at twice the rate per head of population we do and still win all European Convention of Human rights challenges when they do.

3 thoughts on “Land Value Capture and the Public Interest – The Crucial Question @clivebettsmp @kitmalthouse @sricketts1 @danielbentley

  1. Andrew, going on something of a tangent, I would very much like to read your thoughts on the designed to be ever increasing nightmare for All LPAs, of the Housing Delivery Test, Taking effect in November.
    How do councils make developers, develope, other than by approving the application as soon as it its the desk and not bothering with those annoying things called conditions and planning obligations?
    The foxes really are about to be given the keys to every hen house it seems.

    • I think HMG will end up using HDT as less of a stick than 5HYLS. They see that latter as very much something until the control of LPAs, but accept that the former is much less so. You can see that playing out in the housing deal in Oxfordshire were a promise to be ambitious on land supply is rewarded with a better deal on HDT (though one still to be detailed, so perhaps “watch this space” is appropriate).

      But, regardless of what the HDT thresholds are, the Test undoubtedly shifts the onus on LPAs to be more careful about the nature of schemes they give permission to (and the conditions or legal undertakings appended). Allowing inherently more commercial (saleable) schemes will become the order of the day. That could have implications for policies that jar with the market – design, car parking, garden size, affordable housing mix etc.

      One area we might see some changes is in CIL. I don’t know whether it’s legal, but might having a stepped CIL (ie a discount for CIL paid sooner) encourage developers to move forward more quickly? Particularly if those steps were steep…

      • LPAs can’t be careful about the applications they give permission to, as these are required to be in accordance with an adopted Local Plan, unless they are windfall sites.
        What you are suggesting is that the onus is now on LPAs to rollover and give in at any threat not to commence with a development, because the developer is too greedy to meet their obligations to provide the essential infrastructure needed.
        If this proves to be the case, then the government had better make preparations now, for the ranks of PINs to be significantly boosted. LPAs across England will see development committees rejecting application after application, where’s there’s an obvious and calculated intent on the applicant to avoid even the most basic commitments, because the developer thinks we are all running scared of the Housing Delivery Test. Think again.

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