Letwin, Land Pooling and Homes England Assembly of Strategic Sites

Land Value Capture was a major theme of 2018, culminating in the Letwin review which the government isdue to respond to in Feb 2019.

The nature of the likely response is already given in the response to the MHLG Select Committee report on land value capture

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 government will respond to Sir Oliver’s report in February 2019.

[those being CPO’d] are entitled to the market valueof 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…. If land is acquired by a new town development corporation, compensation would be assessed in accordance with the no-scheme principle .
…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.

All the Neighbourhood Planning Act 2017 did on this point was consolidate the caselaw regarding the ‘Point Gourde’ principle, that the ‘no scheme world’ was the value without the roads and infrastructure making the site developable in the first instance.

Therefore forget for strategic sites the land compensation act 1961, as the market value for compensation purposes is simply existing use value plus the level of ‘compensation’ dictated by caselaw on the ECHR.  Therefore primary legislation would not be needed to implement Letwin, who in any event recommended compensation recommended valuation at the bottom end of the 10-20x agricultural value embodied in current practice by the Harmen Report.

There is no need to rehearse the potential advantage soft land value capture here to further housebuilding through funding infrastructure and affordable housing.  The issue is whether landowners will take seriously a regime where the official value of there land is reduced by millions of pounds an acre and whether they will simply without their land, as the owners of the North Essex Garden Communities have, daring public authorities to acquire land compulsorily.  The risk is a regime that doesn’t offer some share in uplift to landowners will fail, as it has before, with authorities with little appetite or expertise in land acquisition to accept instead ‘leapfrog’ sites, sub optimal sites in terms of accessibility which don’t require assembly.  After all this was the problem with the implementation of the Uthwatt report regime and is very much the problem is many Asian and African cities where there is scattered and fragmented land ownership around major cities often leading to large scale leapfrog development to unsustainable locations.

The plea here is for a policy of pragmatism, not going for a policy on land value capture which leaves insufficient share of the cake for landowners so that strategic assembly is thwarted.  An appeal for pragmatism must be based on proposals that have been shown to work, and what has been shown to work is land pooling.

Land pooling, in some countries also known as land readjustment,  was an approach first implemented in German Planning Law

its origins are in Germany and are often attributed to the 1902 Lex Adickes of Frankfort-am-Main. This city’s expansion was hindered by ancient
inheritance laws, which created long, narrow strips of land difficult to convert for development. The mayor of the city, Franz Adickes, steered enabling legislation through the Prussian Parliament, the application of which was extended by the Prussian Housing Act 1918

and then adopted in Japan, and now widely copied throughout South east Asia and increasingly India as an alternative to large scale land appropriation.  It works as follows.  The land is subdividided by a public authority and land owners get back a smaller proportion of the land which recognises both the land needed to build roads, public spaces, community facilities and affordable housing and the sale of plots necessary to fund this enabling infrastructure.  There is a wide spectrum of type of pooling ranging from the voluntary to those facilitated by compulsory acquisition powers, from those where the landowners get back the bulk of land to those where they get back a smaller part but one of much higher value.  I have seen it successfully applied in several countries and its success in wide;y different cultures suggests to me that it is an idea begging to be tried.

There are several major advantages

  • It gives landowners an incentive to cooperate
  • Public authorities don’t need financing for the compensation, just grant of title back
  • It leads to more orderly development of strategic sites subdivided into smaller ones, sites that are more accessible without ‘leapfrogging’ and easier to service.
  • Landowners don’t need to forward fund the enabling infrastructure.
  • It created subdivided parcels with multiple landowners and potential developers, just what we want to see in oligopolistic markets such as England.

In England I suggest a very simple rule, land owners get back 1/4 of the area of sellable plots (not withstanding final land use) following subdivision and allocation for roads, parks and community facilities.  This would not be too dissimilar to the position that existing in case law and statute (dating back to the 16th century) prior to the 48 Act.  International experience suggests this is sufficient to enable most strategic sites to come forward with voluntary pooling in the large majority of cases.

A great example is the new Capital of the state of Andhra Pradesh Amaravati. It had an (admittedly dreadful) masterplan by Fosters, just the sought of plan which gives imperialistic planning of sites without seemingly visited the sites and imposing a geometry on it (ignoring even the flow of gravity of water to the adjoining river, and as originally planned without any public transport and giant squares with ridiculously pompously public buildings) but that aside it needed to be implemented over the top of a landowners pattern which gave typically a couple of dozen plots per superblock.  It could have used compulsory means but there heavy handed use had fallen into disfavour as farmers fought for grater compensation and against forced dispossession.

Out of the 24 villages approached to give up their land, 22 agreed within four months
of the scheme’s announcement. Following this, the returnable land plots were allocated through electronic lotteries for fairness.
These lotteries were held at the villages, with landowners receiving confirmation of their plot allocation via mobile message. Their plot allotment letters were also printed and handed out to them immediately, with softcopies made available online.

Within just 60 days of implementation, the government managed to persuade 25,000 farmers to give up 30,000 acres of land….To secure land necessary for Amaravati’s development, the state is moving to invoke the Land Acquisition Act, where
the villagers will be required by law to give up their land in return for
monetary compensation. These pockets of resistance, however, are small in comparison to the majority support, with nearly 90% of the required land already secured through land pooling.

The compensatory plots were around 1/4 of the original land.  My suggestion of 1/4 sellable reflects the higher ‘exaction’ for community facilities and public open space necessary in English Masterplans.

What would be needed to make this work in England?  Not a lot as it could be done initially on a voluntary basis with conventional CPO used a a fallback.  In the long-term though regulations would help, as part of a wider much needed powers for masterplanning and subdivision of land, to help resolve disputes bout the size and value of reallocated plots,.  Here there is a wealth of experience of such regulations around the world, indeed many land readjustment systems such as Japan were simply verbatim translations of the German law.

The government is faced with how to implement the potentially hugely complicated Letwin system.  Land readjustment based on an internationally tested systems of land assembly and subdivision offer a pragmatic way forward, and Housing England a potential body with the funding and expertise to do it, initially on a voluntary and experimental basis.  So far there is a lack of potential sites in development plans of Garden Community or Strategic growth location scale, but that will change and by the end of 2019 there should be several in development plans that offer great potential.