Written evidence submitted by the Home Builders Federation [HLV 042]

Introduction

The Home Builders Federation (HBF) is the representative body of the home building industry in England and Wales. Our members are responsible for providing around 80% of all new private homes and most of our members are small or medium-sized enterprises.

HBF and its members are grateful to the Housing, Communities & Local Government Committee for the opportunity to contribute to its inquiry into how land value capture (LVC) policies can contribute to the delivery of the Government’s house building plans and help fund affordable housing and public infrastructure.

The home building industry is sympathetic to efforts to both optimise and streamline developer contributions through the planning system. Establishing a clear link between new developments and the benefits they bring to existing and future residents is crucial for fostering more positive attitudes toward new housing.

In its response to the Infrastructure Levy (IL) consultation in 2023[1], HBF cautioned against such a major overhaul of current arrangements because of the unprecedented threats the development industry faces from a combination of economic uncertainty, the increasing burden of regulation and a planning process that sees applicants waiting years for consent not months.

A system for developer contributions can either be simple or it can optimise delivery, but it can never fully satisfy both. In the aforementioned IL consultation, HBF highlighted that the existing arrangements already strike a balance to some extent. Rather than implementing the IL, a more effective approach would be to improve the current Section 106 (S106) Agreements and Community Infrastructure Levy (CIL) frameworks.

How effective and efficient are current mechanisms of land value capture in England?

There are arguably two mechanisms for capturing land value in England.

The first is through the planning system and more specifically the production of development plans and associated policies that are the basis for planning gain contributions (affordable housing, etc) collected by way of individual planning applications (the aforementioned S106 Agreement and CIL Frameworks).

For this system to operate as effectively as possible first of all development plans need to be up to date and policy requirements need to be subjected to viability testing so as not to prejudice broader policy objectives.

Notwithstanding how poor local plan coverage steadfastly remains (75% of Local Planning Authorities (LPAs) are projected to have an out-of-date plan for housing delivery by the end of 2025[2]), even when plans do progress there can be a significant period of time between the point at which the viability of strategic policies are tested and the point at which those policies are subjected to site-specific appraisal. During that time myriad factors can change, such as costs, revenues, national regulatory requirements and the requirements of infrastructure providers. HBF calculated in 2022[3], for example, that 12 new taxes, levies and regulations, meritorious in and of themselves, would add £20,000 to the cost of building a new home.

Whilst imperfect, it is important to recognise the benefits that current forms of land value capture are securing. The IL consultation material noted that current mechanisms secure developer contributions worth around £7 billion per annum. Savills[4] estimate that around 50% of land value uplift is captured via developer contributions, once the costs of site remediation and enabling works are taken into account.

This, it should be remembered, is before the second mechanism of capturing land value in England, which is the tax a landowner pays on the subsequent land transaction.

As such, the issue with the existing arrangements nationally seems to concern how the money is collected and spent, rather than the quantum of money that is received.

The basis for the Committee’s inquiry is how land value capture policies can help fund affordable housing and public infrastructure, but there is evidence already, in places like Gloucestershire[5] for example, that CIL being collected by Districts is not being passed to the County for investment in such facilities.

Whilst there are provisions in legislation preventing CIL from being spent on anything other than infrastructure, there are no mechanisms for ensuring that revenue raised through CIL is transferred to county councils, or that any of the revenue raised through CIL is actually spent at all.  For example, HBF research, based on Freedom of Information results from estimates that local authorities in England and Wales are sitting on over £8 billion of infrastructure payments by developers, including over £6bn from Section 106 agreements and almost £2bn raised through the Community Infrastructure Levy (CIL)[6].

It is understood that as of April 2023 there are 158 CIL charging authorities (down from 163 due to local government reorganisation, which represents only 51% of LPAs with a CIL in place).

On the one hand, it may be the case that LPAs have simply elected not to adopt a CIL (or a zero rated CIL) as it would not result in improvement infrastructure, but on the other hand, were CIL to have been made mandatory it is likely more of the gremlins associated with it would have been ironed out by now and the skills required to promote and adopt one would be more prevalent.

S106 Agreements are important in drawing a direct line between development and the benefits that development can bring. There is also scope to significantly improve the effectiveness of this regime.

While some negotiations can be protracted because of their complex, strategic nature, as the 2020 report on ‘The Incidence, Value and Delivery of Planning Obligations and Community Infrastructure Levy in England in 2018-19’[7] identified, a distinction can be drawn between unavoidable delays and avoidable delays.

The negotiation of the agreement, an unavoidable delay, could be expedited by expanding the scope of Planning Performance Agreements to involve statutory consultees all the way through the process and to make the scope of, drafting, and execution of an agreement key milestones within the project timeline.

Some proponents of LVC reform point to the extent to which S106 Agreements are subsequently renegotiated, often as a result of purported ‘overbidding’ for land. Evidence for such assertions about the scale of this perceived problem would be interesting to see. The aforementioned report identified that most LPAs received only a small number (four or fewer) of requests to amend a S106 Agreement each year and Planning Practice Guidance has been amended to make clear that where viability assessments are used to inform decision making under no circumstances will the price paid for land be a relevant justification for failing to accord with relevant policies in the plan.

Avoidable delays could be reduced by, for example, greater scope for renegotiation to account for changes in circumstances; reducing reliance on locum solicitors that start each agreement from scratch by adding greater internal LPA resource; and the adoption of standard template agreements.

Other issues like the opaqueness and uncertainty of how and when funds are collated and spent and by whom could also be readily dealt with accessible policies and effective monitoring arrangements, perhaps expressed by way of a development plan document on developer contributions.

It was reported in April 2023[8], for example, that West Northamptonshire “does not have an overall picture of developer contributions worth millions of pounds and communities could be missing out”.

Perhaps the issue, locally, is again less what is being collected, and more how those contributions are collected and spent.

What alternative methods of land value capture might be most suitable for England?

• Would alternative mechanisms of land value capture deliver more affordable housing and public infrastructure than the current section 106/Community Infrastructure Levy regime?
• How could the benefits of alternative mechanisms of land value capture be realised across England, including regions with lower average land values?

A CIL review group[9] was established by the former Communities Secretary, Greg Clark and the former Minister of Housing and Planning, Brandon Lewis, in November 2015 to ‘assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to recommend changes that would improve its operation in support of the Government’s wider housing and growth objectives.” 

It was observed that:

CIL has not provided the universal and therefore ‘fair for all’ approach to developer contributions that was originally envisaged. For various reasons, many of them sound and usually to do with development viability, a number of local authorities, many of them in the north of England, have decided not to introduce a CIL and this has resulted in a patchwork of CIL and non-CIL authorities across the country and a continuing, more extensive reliance on Section 106 than originally envisaged. That means many smaller developments which could afford to pay something towards infrastructure are getting away without making any contribution.

That CIL review group recommended that CIL and S106 Agreements be replaced by a Local Infrastructure Tariff, with a Strategic Infrastructure Tariff at a HMA or combined authority geography. If reform in the way that infrastructure is funded is to be pursued, then this could be an avenue to explore.

In relation to regional disparities, there will always be more value to be captured from uncomplicated greenfield sites in higher value settings than brownfield sites in lower value settings.

The IL consultation material, for example, noted that, according to research conducted in 2020, 53% of funds raised by CIL are raised and spent in London compared to just 3% in the North East.

The redistribution of value captured from uncomplicated greenfield sites in higher value settings to lower value settings, be that across the country or a across a conurbation, is evidently possible, but is a political decision and not a planning decision.

What are the economic and practical opportunities and challenges of pursuing land value capture policies in England?

Development of any nature is highly complex and often relies upon contractual arrangements with landowners that agreed at the very beginning of the process that can take many years to complete. These agreements are similarly complex and often contain provisions around developer contributions, minimum land values and tax freezer provisions (whereby landowners are able to delay the sale of their land if the tax levels exceed an agreed rate).

At the higher level, any policy initiative that increases the gap between a benchmark land value and market value will reduce amount of land available for development, compromising broader policy objectives and reducing the contribution that housebuilding can make to the wider economy.

It should be borne in mind that the 240,000 homes delivered by the housebuilding industry in 2023[10] generated:

• £6.4 billion in revenues for the exchequer (via SDLT, Corporation tax, NI, PAYE etc);
• £9.2 billion of new ‘affordable’ housing (20 per cent of all new homes are ‘affordable’;
• £1.5 billion investment in infrastructure;
• £16.6 billion spent in the construction supply chain (90 per cent stays in the UK); and
• £216 million investment in open space, community and sports facilities.

At the site-specific level, any policy initiative that comprises viability or introduces more scope for delay will delay the process of securing planning permission and the subsequent execution of land contracts.

The below is an extract from a briefing note from Lichfields that accompanied HBF’s submission to the 2024 NPPF consultation (and accompanies this submission for the Committee’s reference) and specifically the proposal that 50% affordable housing be a ‘Golden Rule’ of Green Belt development.

The Government's tentative suggestion to reduce BLVs on a national basis speaks to a view - which appears on a recurring basis in certain policy circles (and seemingly not always fully cognisant of the reforms to viability introduced by the PPG in 2019) - that there remains large amounts of untapped value in the increase in land value arising from permission. But all that glitters may not be gold.

What mechanisms of land value capture have been effective internationally?

HBF offers no comment.

Should reforms to land value capture be pursued through changes to the current section 106/Community Infrastructure Levy regime, or by introducing a new mechanism?

Improvements to the operation of existing mechanisms, particularly clarity and transparency around planning gain obligations through the plan-making process, will be considerably less disruptive that contemplating and implementing new mechanisms.

What changes to planning law and guidance would be needed to introduce a new mechanism of land value capture?

The kind of a Local Infrastructure Tariff imagined by the CIL review group would be an entirely new concept, but a Strategic Infrastructure Tariff is consistent with the kind of Mayoral CIL being promoted as part of the current devolution agenda.

Would new methods of land value capture be compatible with human rights legislation, regarding property rights?

HBF offers no comment.

How could different mechanisms of land value capture complement the Government’s ongoing planning reform agenda, including delivery of New Towns and the release of ‘grey belt’ land for development?

It is noted that the next stage of the New Towns Taskforce’s work will include an analysis of different delivery and funding models, as well as the approach to land acquisition, to inform final recommendations for government. This work will no doubt be of interest to the Committee’s Inquiry.

It is not considered that sites coming forward by way of the new Grey Belt provisions, either by way of local plan allocations or ahead of local plan allocations, require a mechanism for LVC different to any other site coming forward for development as the ‘golden rules’ around affordable housing provision on Grey Belt sites, for example, can be secured by way of a S106 Agreement.

Overall, would reforming land value capture support or distract from the Government’s target of delivering 1.5 million new homes by the end of this Parliament?

The 2018 LUHC Select Committee report on land value capture[11] concluded that:

When considering new mechanisms for land value capture, it is vital that we learn the right lessons from the past. It is clear that any new approach should have cross-party support, with the intention of being retained for the long-term and should be simple to administer, without complicated exceptions or viability processes. It will also need to allocate land value increases fairly between central government, local authorities and landowners, without undermining incentives to sell or risk holding up the development process. Consideration should also be given to a mechanism for the redistribution of revenues between high and low-value areas.

In the long-term any proposed reform of existing arrangements that is consistent with these conclusions should be supported, but anything that is not will ultimately serve only as a short-term distraction.

March 2025