Government Nods a Wink towards Increased Land Value Capture

Rseponse to CLG Committee report on Land Value Capture

Some Highlights

The Government agrees that there are some circumstances where significant increases in land value arise from the granting of planning permission by local planning authorities, and from public investment in infrastructure. We agree with the principle that it is fair that a proportion of this uplift should be retained by the public sector to invest in new infrastructure and public services…

The Government agrees that there is scope for central and local Government to claim a greater proportion of land value increases. The Government’s priority is delivery, in line with the Housing Minister’s commitments to provide more higher quality housing more quickly.
Changes to land value capture systems can have profound impacts on the land market in the short term, even where they are sensible for the longer term. Accordingly, the Government’s priority is to evolve the existing system of developer contributions to make them more transparent, efficient and accountable. It will of course continue to explore options for further reforms to better capture land value uplift, providing it can be assured that the short-run impact on land markets does not distract from delivering a better housing market.

The Government recognises that there is considerable interest in reforming the basisof compulsory purchase compensation under the Land Compensation Act 1961. We share the Committee’s view that compulsory purchase compensation should be fair, reflecting the requirements of planning policy. This is what the current legal framework seeks to provide for. Through the Housing and Planning Act 2016 and Neighbourhood Planning Act 2017,
The Government has recently taken forward wide-ranging reforms to make the compulsory purchase process clearer, fairer and faster for all. These reforms include extensive changes to the Land Compensation Act 1961. We are keen to let these recent reforms bed in but will continue to monitor their practical application and remain open to considering practical improvements to the framework. The Committee will be aware that the Rt Hon Sir Oliver Letwin has published his independent review of build out alongside Autumn Budget 2018. The review has set out recommendations to increase the market absorption rate of new homes –which Sir Oliver identified as the binding constraint on build out rates on large sites – including on compulsory purchase. The government will respond to Sir Oliver’s report in February 2019.
Compulsory purchase compensation is currently based on the overriding principle of‘equivalence’. This is the principle that people whose interests are acquired compulsorily, or under the threat of compulsion, should be put – at least in monetary terms – in the same position as if the land had not been taken, being entitled to compensation which is neither less nor more than the value of their loss. Reflecting this, they are entitled to the market value of the land to be acquired , disregarding any increase or decrease in value caused by the ‘scheme’ (e.g. regeneration project, new settlement, trunk road etc) underlying the acquiring authority’s Compulsory Purchase Order – or the prospect of that scheme. This is known as the ‘no scheme principle’, which was codified through changes in the Neighbourhood Planning Act 2017 which came into force in September 2017. The basic premise is that compensation should reflect what the land or property would be worth on the open market if the scheme to which the Compulsory Purchase Order relates did not exist (i.e. in the ‘no-scheme world’).

Compensation includes ‘hope value’ (i.e. value based on the land’s development potential) only insofar as it can be demonstrated to exist in that no-scheme world. The extent of this hope value will reflect the prospects of obtaining planning permission for an alternative development in the absence of the scheme, taking into account the risks, uncertainties and costs associated with implementing such a development. This includes the costs of providing the affordable housing, infrastructure and supporting facilities required to make the development acceptable in planning terms, as well as any Community Infrastructure Levy liability….

The Government accepts that the use of compulsory purchase can play an important role assembling land for new settlements. If land is acquired by a new town development
corporation, compensation would be assessed in accordance with the no-scheme principle. In practice, the value of compensation would depend on the location, character and planning status of the specific land being acquired. If there are limited prospects of the relevant land
being developed in the absence of the designated new town, the market value is likely to be the same as or close to existing use value. As noted in paragraph 31, even where planning permission for an alternative development has been granted or can be assumed, the level of
compensation would reflect the ability of a claimant to implement that development, and the costs of providing the necessary infrastructure…

We are working with local areas through our work on.
the Oxford-Cambridge Arc and Housing Deals to support local authorities to develop the most effective mechanisms for capturing uplift in land values to reinvest in their areas,

Thi is important in that it makes explicit was was implicit in the case law (pointe Gourde) and the changes fro the 1917 Act, stating clearly that a new settlement is to be consider a new scheme.  If an LP is to build a new road to be funded by a scheme it can apply it.  But perversely if it has already built the road it cannot. This could have the perverse incentive of making it more beneficial to allocate strategic sites where there is no existing infrastructure compared to where there is already as there ill be more potential to capture land value for affordable housing in the former areas.

On LVT

the Government is opposed to land value taxation of existing properties. As noted in the evidence to the Committee, it would require frequent, complex and expensive revaluations of land; would lead to very significant increases in taxation in some parts of the country and would penalise homes with gardens (a ‘garden tax’).

On the ‘Arc’ it reveals for the first time I think a formal cross government working party

We recognise the importance of working across departments to ensure a co-ordinated
approach to maximising benefit for the public sector as a result of Government decisions on growth and investment. The National Infrastructure Commission, in their National Infrastructure Assessment have set out the importance of taking a co-ordinated approach to housing and transport and this was also highlighted in the NIC’s report on growth in the Oxford-Cambridge Arc, Partnering for Prosperity: a new deal for the Cambridge-Milton Keynes–Oxford Arc. We are already working cross-Government to ensure that the Government’s decisions on placemaking, economic growth, the environment, and infrastructure and connectivity, are made in a
joined-up way.

This cross departmental working in support of the high ambitions for growth in the Oxford-Cambridge Arc will set a benchmark for aligning housing and transport decisions and ensuring a co-ordinated cross-Government approach. We will report back to the Committee by the end of 2019 on our progress with this