Written evidence submitted by the Country Land and Business Association [DSH 009]

 

The Country Land and Business Association (CLA) is the membership organisation for owners of land, property and business in rural England and Wales. Our 30,000 members own around 10 million acres and operate over 250 different types of businesses in rural areas. Our members are the most significant provider of houses for rent in rural areas and our members’ businesses also generate housing need and help sustain rural communities.

 

Background

 

The availability and affordability of housing in rural areas has continued to fall, creating a knock-on effect with regard to employment opportunities, availability of skilled labour, business growth and rural services and amenities. This is impacting the social cohesion and sustainability of rural villages.

 

For the rural economy to thrive, there needs to be an adequate supply of housing in the right place, size and tenure. Historically, rural landowners have played a central role in providing housing to help sustain their communities for future generations, but are currently discouraged by an over restrictive and complex planning regime, risk adverse planning officers and the tax regime.

 

Rural economies hold unique opportunities and their role will be paramount in helping the Government reach its legally binding target of net greenhouse gas emissions by 2050. However, this is dependent on their being a sufficient supply of housing for rural employees who, for example, manage woodland or work in the renewable energy and food sector.

 

The shortage of housing in rural communities is pricing the younger generation out and rural areas are ageing at a significantly faster rate than urban areas, resulting in the closure of key services and amenities, such as schools and pubs, due to the changing demographic.

 

Annex 1 sets out the CLA’s proposed solutions to the rural housing crisis, looking at the existing barriers to development and ways to overcome them.

 

 

Reform of the Planning System for Housing

 

Anyone who has been involved with the planning system will know it is slow and cumbersome.  CLA members report that it can take over 10 years to achieve a planning consent, usually after a huge time and financial resource being expended, with no guarantee of a successful outcome.  A streamlined planning system with a simpler, less bureaucratic application process that delivers more certainty would go far in delivering more rural houses.

 

The CLA has also identified that the categorisation of about 2,000 rural settlements as unsustainable is a major issue in delivering rural housing.  Unsustainable rural settlements will only be able to deliver limited housing as infill, not even fulfilling the needs of that settlement.  To address this, there should be an obligation on local authorities to undertake housing needs assessments in these settlements to ensure that, at the very least, these settlements receive the housing that they need.

 

The extension of permitted development rights, to deliver affordable housing on Rural Exception Sites, would be a big step forward in removing some of the uncertainty around the delivery of affordable housing in rural settlements.  

 

 

Q1 CLA are running a survey on your website on land value capture, specifically asking your members to give you information that you need “to make a compelling case against further measures”.  Is this a fair way to collect data on land value capture?

 

Like most membership organisations, we regularly collect information from our members so that we can give an evidence-based picture to government on what is causing problems on the ground, at what scale, and what solutions might be. As the predecessor Select Committee’s inquiry into land value capture progressed, it became clear that there was a need to capture our members’ experience, as landowners, in practice. It was clear that more information on land value capture (S.106, CIL and capital taxation etc) was needed in order to assess the validity of the opinions put forward by some commentators

 

The CLA therefore launched its land value capture survey in September last year to get a better understanding of the agreements being reached on the ground 

 

 

Q2 In June 2018, CLA told the predecessor Committee that data on land value uplift was unknown, but that some figures estimated it may be around 50%. Is this survey attempting to capture this data?

 

Yes, the CLA survey was attempting to get more detail on just that point. The information we received showed that the public sector is already taking on average 57% of the uplift in the value of land (s.106, CIL and capital taxation), which is above the figures quoted in 2018.  The landowner only retains 43%. Therefore, the public sector already receives more from the grant of planning permission than the landowner.

 

It’s important to remember that the increase in land value received by the landowner has to cover the cost of getting the site into the local plan, preparation of all the surveys to support the planning application as well as delivering the site up to the start of development.  All these costs are incurred at the risk to the landowner, who in the end may not be able to develop the land at all for a number of reasons, or may fail to get planning consent, or the market may have changed making the development non-viable.   Our survey revealed several cases where landowners had lost hundreds of thousands of pounds to failed planning applications.

 

It was also striking to discover from our members that it took on average 10.9 years for development to get started.  This demonstrates the huge time lag in the system, through the local plan process, application process, and agreement of a s.106. The shortest step (between getting all the consents finalised and construction works starting) took on average 18 months.  A lower cost and quicker planning system would benefit both the landowner and the public sector, both of whom would receive more revenue, as well as delivering more affordable homes.

 

Q3 The Budget 2020 report states that: Land availability, as constrained by the planning system, is the most significant barrier to building more homes. Do you agree with the Government’s analysis?

 

Yes, it is not land availability that is currently the problem, but an overly complex planning system. The issue is not so much that land is not being put forward for development, rather that the planning system contains a huge number of onerous checks and balances which act to slow down available land from being developed. It places considerable demands on planning authorities in terms of plan formation and development management. But the resources that authorities have available are often inadequate to meet those demands. The capacity issue has been exacerbated by constant tinkering with the system and the stream of consultations and new initiatives as well as the continued demands of meeting targets and chasing any available government grants. The outcome has been that for the past 30 years or more, applicants have had to grapple with out of date local plans. An out of date local plan does not deliver sustainable development as set out under the government’s National Planning Policy Framework (NPPF).

 

Furthermore, the increasing complexity involves ever more resources being devoted to training and updating of local authority planning staff, rather than coping with the current workload.

 

It also increases the costs for rural business people who have to engage professional advisers to guide them through the mass of detail. This professional advice is becoming ever more expensive, for two main reasons. The first is the time and financial cost of and the ongoing training required to bring professionals up to date with the latest changes to the planning system. The second is the increasing numbers of reports, surveys etc that are required to be submitted with planning applications for rural economic development. For example, a planning application for the redevelopment of a site in a market town required £1million of up-front costs for the supporting evidence, but was ultimately refused. Similarly, a planning application for an on-farm anaerobic digester plant incurred £300,000 of up-front costs but was refused.

 

 

Q4 When Christopher Price, then Director of Policy and Advice at the CLA, gave evidence before our predecessor Committee in June 2018, he said that land value uplift was not about fairness, but about what the market will demand. Later, Mr Price noted that compulsorily purchasing land without hope value was unfair, which suggests an acceptance that fairness should be part of the equation. What would be a fair proportion of land uplift for the public sector to take or for the landowner to retain? What about a 50/50 split, for example?

 

 

The landowner is very much a price-taker in housing development i.e. they are paid the residual from the final development value.  Landowners do not set the market, their share is taken from the final sale of the site profit, less the cost of building the houses (incl. developers profit), affordable housing other s.106 obligations and CIL.

 

The amount the landowner gets for development land will impact on the amount of risk they will be prepared to take in bringing land forward for development. There has to be a suitable financial incentive for a landowner to be willing to sell the land to compensate for the loss of income from other uses of that land (in perpetuity) and the potential reduction in efficiencies of scale. There can be difficulties in reinvesting the proceeds in replacement land because of the lack of availability of agricultural land coming forward for sale. 

 

“Hope Value” is reflected in the open market value of land; it is only when dealing with valuations for compulsory purchase that “hope value” is singled out as a separate elementRemoving the ability to claim hope value would be unjust as you would not be compensating the landowner for the full value of the property that the state has taken.

 

As detailed in our response to Q2 above, the CLA survey has found that the public sector is already taking an average of 57% of the uplift in the value of land. . Under a plan-led system there is a reliance on landowners voluntarily bringing land forward; if the public sector were to capture more of the uplift, the willingness of landowners to bring forward land for development would decrease, thus limiting the potential for delivering housing.

 

Where compulsory purchase is proposed, the reality of the timescales involved, the expense and professional time incurred, all have to be consideredThe use of compulsory purchase transfers all the risk and expense currently shouldered by the private sector to the public sector, which could compound existing resourcing problems with local plan preparation and development control.

 

Q5 The CLA said in November 2019 that: For years politicians have complained about the housing crisis while ignoring the fact that the answer is right under their noses. If just ten homes were built in every village the housing crisis would be eased considerably. Landowners are wanting to help but are being put off by endless bureaucracy, spiralling costs and a lack of planning officers. […] [Landowners] spend tens of thousands of pounds on planning applications, but extensive delays and constant knock backs from planning officers mean they give up, much to the detriment of the local and national economy. How do you suggest the planning system could be simplified?

 

Anyone who has been involved with the planning system will know it is slow and cumbersome.  CLA members report that it can take over 10 years to achieve a planning consent, usually after a huge time and financial resource being expended, with no guarantee of a successful outcome.  A streamlined planning system with a simpler, less bureaucratic application process that delivers more certainty would go far in delivering more rural houses.

There are a number of solutions that could be introduced quickly that would simplify the planning system. These solutions include:

      Permitted development rights for new build affordable housing for rent on rural exception sites

      Consider opening up the local plan to a more segmented approach so that the whole plan does not fail because of housing policy-related issues   

      Delivering sustainable villages by making rural communities fit for the future

      Designated areas – new national policy for the re-use of roadside barns

      Resourcing the planning system by fitting available resources to deliver the required system

 

 

There is also a role for Taxation to help stimulate development opportunities –

 

Both of these measures would help encourage delivery 

 

Q6 With 9 in 10 planning permissions granted, is the problem with planning applications or is it elsewhere in the system?

 

Whilst it is often said that 9 out of 10 planning applications are granted, this fails to acknowledge the amount of time and money that has to be spent before a planning application is even submitted (which represents a severe delay to delivery), the considerable length of time taken by the process, or all the proposed sites that are never bought forward for development.

 

From December 2017 to January 2018, the CLA undertook research of its members in England to gather their views and experiences of the planning application system. The results show that the application process itself can be characterised as plagued by delays, additional costs and unrealistic demands. The consequence of this is that proposed sites for small scale rural housing development, that would be of real benefit in a local community, are not brought forward.

 

Another concern is whether designation, for whatever purpose, should be used as a tool to prevent development or just a way of scaling and shaping the design and quality of development.  The former puts considerable pressure on non-designated areas to absorb any shortfall (especially in areas just outside the designation) whilst at the same time threatening the long-term sustainability of the areas set in aspic

 

 

April 2020

 

Annex 1 – retitled Homes England paper

Annex 2 – Land pooling

 

 

 

ANNEX 1

DELIVERY OF HOUSING IN RURAL AREAS

 

The CLA

 

  1. The Country Land and Business Association is the membership organisation for owners of land, property and business in rural England and Wales. Our 30,000 members own around 10 million acres and operate over 250 different types of businesses in rural areas. Our members are the most significant provider of houses for rent in rural areas and our members’ businesses also generate housing need and help sustain rural communities.

 

Overview

 

  1. The availability and affordability of housing in rural areas has continued to fall, creating a knock-on effect with regard to employment opportunities, availability of skilled labour, business growth and rural services and amenities. This is impacting the social cohesion and sustainability of rural villages.

 

  1. For the rural economy to thrive, there needs to be an adequate supply of housing in the right place, size and tenure. Historically, rural landowners have played a central role in providing housing to help sustain their communities for future generations, but are currently discouraged by an over restrictive and complex planning regime, risk adverse planning officers and the tax regime

 

  1. Rural economies hold unique opportunities and their role will be paramount in helping the Government reach its legally binding target of net greenhouse gas emissions by 2050. However, this is dependent on their being a sufficient supply of housing for rural employees who, for example, manage woodland or work in the renewable energy and food sector.

 

  1. The shortage of housing in rural communities is pricing the younger generation out and rural areas are ageing at a significantly faster rate than urban areas, resulting in the closure of key services and amenities, such as schools and pubs, due to the changing demographic.

 

Key Statistics

 

  1. Nearly 700,000 people are on a housing waiting list in rural areas and only a little over 1,000 social houses were built in 2018.[1]

 

  1. Rural local authority waiting list will take 154 years to clear at current building rates.[2]

 

  1. In 2019, only 9% of rural dwellings were affordable compared to 19% of urban dwellings.[3]

 

  1. In 2019, the number of families classified as homeless in rural towns and villages across England has increased by 85% between 2018 and 2019.[4]

 

  1. In 2018, 25% of the rural population were aged over 65 compared to 17% of the urban population.[5]

 

Barriers to Delivery

 

  1. More than 2,000 villages across England and Wales are considered ‘unsustainable’ by the planning system due to a lack of public services.  As a result, housing need in these settlements is not assessed by the local authority and therefore no housing is allocated and resulting very little chance of development, leaving them in a cycle of decline.

 

  1. Digital connectivity is key to a thriving economy, yet 72% of local authorities do not consider broadband in their sustainability assessments, ignoring the changing role technology will continue to play in rural areas.

 

  1. CLA’s proposed solution: Provide funding to local planning authorities to undertake a housing needs assessment in all settlements that are not allocated housing in the local plan.

 

  1. Delivery of affordable housing in small rural communities is mainly through the rural exception site policy. Exception sites deliver around 1,000 houses per year which is far from the number required to meet the housing need.

 

  1. A planning system that requires so many costly upfront reports and surveys acts as a deterrent to applicants.  These can cost thousands of pounds well before an applicant has any indication whether the proposal will be acceptable.

 

  1. CLA’s proposed solution: New permitted development rights for new-build affordable housing on rural exception sites.

 

  1. Landowners should be well placed to develop affordable houses, as they tend to take a long-term approach and already have a commitment to their community. They are also likely to have an existing residential portfolio so are well placed to retain and manage the housing.

 

  1. However, local authorities take an inconsistent approach to landowners developing, retaining and managing affordable homes, many only allow housing associations to build out sites. Although this model works well, it does not unlock the full potential for affordable housing delivery whilst landowners are unable to provide this housing themselves.

 

  1. This is largely down to authorities not understanding the technicalities of how a landowner would build and retain the affordable provision, which is set out in the section 106 agreement. This is often a result of being too under-resourced to take a more pro-active approach and a lack of central policy and guidance.

 

  1. CLA’s proposed solution: Improved planning guidance to ensure that planning authorities are confident in granting consents for landowners to build and retain affordable housing for rent.

 

  1. Rural landowners are key to the provision of rural housing but rented property is currently considered an ‘investment’ asset and therefore, on death will be subject to inheritance tax.  Landowners are unlikely to want to invest in building new affordable homes if it is likely to increase the inheritance tax faced by their families where the long-term financial returns are only likely to be marginal.

 

  1. There are 551,000 private rented sector households in rural areas in England.  If the deferral of inheritance tax encouraged 10% of homes currently let at market rates to be let at affordable rates, then the number of affordable homes in rural areas would increase by 15%, considerably easing the rural housing crisis.  If the uptake of the tax incentive created a 20% shift to affordable rent, the number of affordable homes would increase by 30%.

 

  1. If the tax incentive encouraged 20% of CLA members to build five affordable houses, there would be an additional 28,000 rural affordable dwellings.

 

  1. CLA’s proposed solution: A conditional exemption from inheritance tax for affordable rented housing for the period they remain let as such. This proposal was sent to HMT as part of the CLA’s Budget 2020 submission.

 

  1. Research by the Royal Society of Arts found that ‘just ten homes in each village would solve the rural housing crisis’. Landowners are well placed to deliver these and must be encouraged to do so.

 

  1. The decision to develop affordable housing is not a financial one, with the time, effort and cost far outweighing the return. It is the desire to deliver something for the village, the community and often local employment

 

  1. Registered Providers currently have access to funding which is critical to ensure the viability of sites. However, landowners are unable to access this funding which unfairly disadvantages rural landowners. 

 

  1. Delivery of affordable homes, particularly in rural areas, is critical and it is understood that government funding is key to enable their delivery. This funding should not favour one delivery body over another.

 

  1. A section 106 agreement means that the delivery and management of affordable housing does not differ from that provided by a Housing Association is no different from that delivered by a rural landowner.  In order to encourage this funding streams should opened up to encourage more sites to be built by rural landowners.

 

  1. CLA’s proposed solution: Landowners should be able to access funding to deliver affordable housing where it is shown to be required to deliver a scheme that could not otherwise be delivered

 

Compulsory Purchase

 

  1. Compulsory purchase is not an appropriate tool for the delivery of housing.  This paper has set out the main obstacles to the provision of affordable housing; that is an over-restrictive, risk laden and bureaucratic planning system together with a taxation regime that does encourage new building.

 

  1. The use of compulsory purchase would impose greater expense and risk onto the local authorities, who already suffer from under resourcing.  Compulsory purchase is not a quick fix solution and delays in development could well exceed the 10.9 years already experienced in the private sector, and in addition the full compensation payable is never clear until the end of the scheme.  

 

 

 

ANNEX 2

LAND POOLING TO FACILITATE CO-OPERATION TO DELIVER HOUSING SITES

 

How could land pooling make a more effective contribution to assembling land, and what additional powers or capacity would allow local authorities to play a more active role in land assembly (such as where ransom strips delay or prevent development))?

 

The CLA welcomes the intention to investigate land pooling as an alternative to compulsory purchase. The CLA would oppose the use of compulsory powers by local authorities for the purpose of land pooling, save in the most exceptional circumstances e.g. to overcome problems with the title to land or where the owner is untraceable. It is and should remain more likely that a planning authority would work with a developer who can find it easier to negotiate with landowners to pool land. The CLA is keen to work with the government (CLG, HMT and HMRC) as it develops its ideas further as there is a high level of complexity associated with land pooling.

 

Currently, there exists a high level of tax-related complexity associated with land-pooling which is entirely disadvantageous to private landowners entering into and/or leaving land-pooling arrangements. This complexity does not incentivise private landowners to enter into land-pooling arrangements. Nevertheless, private sector land pooling does take place but it is affected by very complex Capital Gains Tax considerations which can deter private sector land pooling. If the Capital Gains Tax considerations were to be simplified, this might make private land pooling a more attractive option especially if the landowner was given more certainty that no CGT charge would be payable either on entering or exiting such an arrangement.

 

In recent years, as Governments have looked for larger sites to be brought forward for residential development, landowners have looked to enter into collaboration agreements to facilitate the delivery of land.  This has highlighted the potential tax disadvantages that can arise from such arrangements.

 

At its simplest, Landowner A owns White Acre and Landowner B, Black Acre.  They wish to bring forward White Acre and Black Acre for residential development and decide to collaborate so that they can adopt a unified approach in the planning process, something which should help in the making available of strategic land.  They are likely to want to agree, therefore, that they will promote the land and will not be concerned as to the land uses which are ultimately applied to White Acre and Black Acre and will wish to provide that if the overall site is sold in tranches, which is very likely in the case of large sites, it will make no difference as to the order in which parts of White Acre and Black Acre are sold in terms of who receives proceeds, and in what shares.  They will, therefore, wish to “pool” the site in some way by deciding on the percentage proceeds each should receive on the sale of any part of the site.

 

Under the current tax legislation, an agreement to “pool” in this way is potentially hugely detrimental.  If part of White Acre is sold first then A will receive part of the proceeds as consideration for the sale of the land and will be able to put the relevant part of his base cost against those sale proceeds.  A will not, however, get any allowable deduction for the part of the proceeds he is obliged to pay to B and will potentially pay tax on those proceeds.  B will also be taxed on those proceeds paid to him by A but because he will not be selling any part of Black Acre, he will have no base cost against which to set the proceeds he receives.

 

In collaborating, and agreeing to share proceeds landowners will, therefore, wish to structure arrangements in a way that is not prejudicial.  It should be emphasised that this is not aimed at achieving some kind of tax advantage, merely to eliminate the tax disadvantages which would otherwise arise from an informal pooling arrangement as set out above.  One way of potentially neutralising the tax disadvantage would be through what is referred to as a “Jenkins v Brown” arrangement. 

 

However, in recent years, HMRC seem to have been making a deliberate effort to make such arrangements more difficult to put in place:-

 

They have obfuscated on the SDLT implications of such arrangements and, notwithstanding statements made by them in the past that such arrangements would not trigger SDLT, have suggested in recent years that they now take a different view.  Most recently, HMRC referred an application for SDLT clearance to their legal team.  Two years later no response to the application has been issued but the suggestion is that such a change of view would require primary legislation to implement.  This has left the position uncertain.

 

Finance Act 2016 replaced the Transactions in Land code previously contained in Chapter 3, Part 13 ITA 2007 with a new code contained in Part 9A ITA 2007.  This has eliminated the ability for clearance and it is unclear from the new guidance issued in December 2016 how widely HMRC will apply the new code.  This has brought into question whether a Jenkins v Brown type pooling arrangement, and alternatives to pooling such as the use of cross options, might attract adverse tax implications.

 

We consider it extremely important that a mechanism is put in place which, from the tax perspective, ensures that such commercially acceptable, indeed desirable, arrangements which are not put together for tax avoidance reasons can be structured without tax disadvantages to the efficient delivery of residential land which the Government wishes to achieve.

 

The risk for landowner of making an agreement with a developer in these circumstances would mean that the landowner will not enjoy CGT reliefs which he gets with a disposal direct to the planning authority. This is a very complicated area of tax law that requires simplification. (See Ahad v. HMRC http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00291.html where the relief was lost because the particular party which effected the purchase did not have compulsory powers which were available to another of the parties.)

 

The CLA believes that land-pooling is likely to be more successful if undertaken privately. This will be helped if the tax system is made clearer and more predictable. Inevitably the arrangements will be complex and it would be helpful if there could be a clearance procedure to enable the parties to be certain of the tax consequences of what they propose. We reiterate that we are making a request for an amended tax structure that will actually lead to the incentivisation of land-pooling by private landowners. What is required is a level playing field.

 

To make land-pooling easier to achieve it is very important that CLG, HMT and HMRC work together to resolve these complicated tax issues. We reiterate the CLA will be very happy to work with directly with government departments towards overcoming these tax difficulties and deliver more land for housing.

 

 


[1] Countryside Charity, https://www.cpre.org.uk/about-us/cpre-media/rural-social-housing-waiting-lists-grow-2020/

[2] As above

[3] English Housing Survey data on stock profiles, https://www.gov.uk/government/statistical-data-sets/stock-profile

[4] The Countryside Charity, https://www.cpre.org.uk/news/new-cpre-research-shines-a-spotlight-on-the-rural-housing-crisis/

[5] Rural population and migration, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/862320/Rural_population_and_migration_Jan_20.pdf