Written evidence submitted by Mr Stephen Ashworth [LVC 056]

1                     This submission is made by Stephen Ashworth, a planning lawyer and partner in Dentons UK and Middle East. The submission is made in a personal capacity.

Experience

2                     I have been practising planning law for over 30 years, and spent a year working at the Lincoln Institute of Land Policy based in Boston Massachusetts, a think tank focused on research into property values and the works of Henry George.

3                     I have:

(a)                chaired the Circle Initiative, which promoted for the first five business improvement districts in the UK;

(b)                chaired the British Property Federation working groups responding to the Planning Gain Supplement/ Community Infrastructure Levy, and sat on the DCLG expert group on CIL;

(c)                 led the legal work for the Milton Keynes Partnership on their ground breaking planning tariff approach;

(d)                worked for the London Thames Gateway Development Corporation in developing their tariff approach, and planning obligation review mechanisms for increasing contributions if sales levels increased above anticipated levels.

4                     I am presently working:

(a)                on the North Essex Authorities proposals for three garden communities in and around Colchester and for Places for People on their 10,000 home development to the north of Harlow.

(b)                with URBED on an emerging paper for the GLA on how overseas approaches to value capture and land assembly could be applied in the London housing market.

Synopsis

5                     This submission argues:

(a)                that a clear distinction must be made between:

(i)                   the need to ensure that development makes the maximum reasonable contribution towards the costs that it imposes on the community. This can and should be done by having clear planning policies/infrastructure levies that are then reflected in the market value of land – "right pricing" the land;

(ii)                 ensuring any increases in value associated with public investment in infrastructure, including the creation of public realm, are secured to repay the investment – infrastructure related value capture;

(b)                given the need for cross party support for both right pricing and infrastructure related value capture I argue that any attempt to capture other increases in land value arising from inflation, demand pressures, private sector investment or other factors should either be taxed or simply left in the hands of landowners;

(c)                 the present planning process and Community Infrastructure Levy instruments can work to deal adequately with "right pricing".  We should all concentrate our efforts on using these mechanisms sensibly;

(d)                fiscal mechanisms are best suited for dealing with infrastructure related value capture. They have the significant benefit that they potentially have a wide tax base, and do not just seek value from land that is being developed;

(e)                if fiscal measures are not available, then planning instruments could be modified to secure a proportion of infrastructure related land value increases. However, doing so risks undermining the integrity of and trust in the planning system;

(f)                  public land ownership mechanisms should be used both to help right price land and to capture infrastructure related value increases, if necessary backed up by the use of CPO powers. The RICS guidance on valuation should make it unequivocally clear that planning policy requirements should be taken into account in full in right pricing land and that comparable values are of limited weight when assessing land values affected by newly introduced policies. Where land is being acquired in order to capture the value associated with infrastructure investment, a change to the statutory compensation regime is necessary to make it absolutely clear that any value increase attributable, in any way, to the infrastructure scheme itself should be disregarded.

Are current methods, such as the Community Infrastructure Levy, planning obligations, land assembly and compulsory purchase adequate to capture increases into the value of land?

Right pricing land

NPPF aims

6                     One of the core aims of the planning system should be to ensure that development makes the maximum reasonable contribution towards the infrastructure costs that it imposes on the community. The NPPF should be revised to make this clear.

7                     If this policy aim is clear then a combination of development plan allocation requirements, planning conditions, planning obligations and the Community Infrastructure Levy can be used to identify recoverable costs and then to right price land.

8                     In order to make the system more effective, paragraph 173 of the NPPF should also be updated.  It should make it clear that viability issues should, always, be assessed at the local plan level.  As suggested in the Housing White Paper only in exceptional circumstances should viability questions be reopened as part of a development application process. 

9                     The NPPF should also be clearer about "competitive" returns.  Too often, this is taken as 20% on gross development costs or, worse, gross development value or even on larger schemes as a 20% internal rate of return.  This over-rewards many developers for the "risk" being taken.

10                 Taken together this would provide a better foundation for right pricing land.

Plan Led approach

11                 If used properly, the plan-led system already provides a good framework for the right pricing of land. Planning policies should be defined in a way that seeks to secure appropriate contributions towards infrastructure.  They should set proper quality and amenity standards. They should set out schemes for comprehensive development and equalisation where land is in multiple ownerships. Importantly, plans should be clear and precise. Too often plans are caveated and hedged. They invite negotiation. That is bad practice. 

12                 Good plans should always be underpinned by a clear understanding of the viability of development across a local plan area as a whole (and, in many cases, sub-areas within that). Any planning policy requirements should be assessed and should not exceed a level that, in general, would reduce residual land values in the area below a benchmark value.  The benchmark value is often taken as existing use value + 20%[1]. It might be sensible to look instead at an absolute figure above the existing use value that the land owner might receive.  20% for a small plot might not be sufficient incentive to release the land to the market; 20% on a 100 hectare farm would be too much.

Planning allocations

13                 The plan should also be clear about the most appropriate use of land. It should identify land that will be used for public purposes. It should identify land that will be used for, for example, affordable housing or for private rented sector accommodation. It should make it clear that proposals for other uses on that land will not be accepted.  That would then ensure that the value of that land reflected the proper proposed land use.

14                 On large sites the proper planning of an area can leave some owners with windfalls and others with wipeouts.  The owner with the commercial centres reaps a reward while the owner of the school site does not.  Planning policy should make it clear that consents in such areas will only be issued if agreements contain equalisation or pooling mechanisms.  They can work provided local authorities are willing to be activist in enforcing them – as they should be.

15                 Taken together allocation policies can help right price land.

Planning conditions and obligations

16                 The planning system, quite rightly, imposes limits on the use of planning conditions and obligations. The constraints are contained in the Newbury rules and in Regulation 122 of the CIL Regulations (as amended).  This rightly limits the level of contributions to the cost of the infrastructure etc. that can be required to that which is necessary, reasonable and proportionate.  

17                 More use could be made of planning conditions to secure infrastructure.  There is too much caution within local planning authorities about the use of conditions to secure infrastructure, in most cases leaving requirements for both delivery and contributions to planning obligations.  In Scotland and in Ireland conditions are regularly used to secure financial contributions.  Provided that that is supported by a proper planning framework there is no legal objection to conditions being used in that way.  There has been a political squeamishness about financial conditions.  The concern has been that unlike planning agreements, conditions are not consensual.  That is a foolish concern and, in any event, there is always a right of appeal against a condition.  A clear policy on contributions enforced through conditions would help right price land.

18                 Planning obligations have become more astute recently.  Where planning obligation requirements, including infrastructure contributions have been negotiated downwards in response to viability concerns, review clauses now appear regularly in planning agreements.  These provide for a further financial review if development does not proceed quickly and/or a review part way through the development process to "check" the outcome figures.  Effectively, these mechanisms seek to "right price" land post permission.  Importantly the maximum additional contribution is capped at the planning policy compliant level.

19                 There is a case for simplifying the approach to review mechanisms.  The Mayor's SPG on affordable housing seeks to do this.  It is, however, dependent on a sensible financial viability appraisal.  Too often the inputs into those appraisals are questionable, even when interrogated on behalf of the public sector. 

20                 It would be better to develop simpler mechanisms.  In the London Thames Gateway planning obligations the preferred approach was to link the payment of infrastructure contributions to the sales value per square metre for residential properties above a figure agreed as part of the application process[2].  Sales values are publicly available and the approach avoids any post-agreement debate about the inputs into financial reviews.

Community Infrastructure Levy

21                 The Community Infrastructure Levy (and the strategic infrastructure levy when it arrives) also play an important, but overlapping part in right pricing land. CIL has the benefit of being non-negotiable. The evidence is clear that it is reflected in land values. There are four issues in relation to the infrastructure levy:

(a)                it should be a residual figure, calculated after taking into account all proper planning policy requirements.  It should, for example, be set at a level that allows affordable housing to be provided at policy compliant levels. Too often, because CIL is fixed, affordable housing levels are negotiated downwards;

(b)                the first generation of CIL setting was unadventurous. CIL was set at levels that allowed for significant viability "buffers", effectively sacrificing a significant part of possible contributions and leading to a greater than necessary infrastructure funding deficit;

(c)                 too often, CIL was set at low/nil rates in comprehensive development areas, on the basis that planning agreements would cure an appropriate level of contribution. There is little evidence that that has been effective;

(d)                at present the CIL Regulations prevent local authorities borrowing against future CIL receipts. This is simply stupid. Infrastructure is required to support development, and is often needed well ahead of CIL contributions being made. If local authorities could borrow against CIL then that would be possible.

Effect of right pricing

22                 It is important to emphasise that in right pricing land the planning system is not really capturing value although it can often seem that way.  Instead it is simply operating to make sure that land is properly valued, and value does not accrue to the landowner that should be used, properly, to mitigate the impacts of development.   The language is important.  Value capture suggests a greater land owner entitlement to increases in value than is the case.

Land Assembly

23                 Land assembly and compulsory purchase can already be used to right price land. Acquisitions should be at market value, reflecting the proper planning policies. If acquired compulsorily, land will already be valued at a rate that reflects proper planning policies.

24                 The main perceived disadvantages of land assembly and compulsory purchase are the costs and the delay. In practice, these factors should not be real concerns. 

25                 CPO transaction costs can be kept to reasonable levels and if land is being acquired at market value then the public sector is acquiring an asset that it will be able to sell for, broadly, the same value. The same is true if land is compulsorily acquired, other than for the various "loss" payments that are required.

26                 It is true that the CPO regime is, relatively, slow. However, since it is the exercise of a draconian power that deprives people of their property it should be subject to proper safeguards.  However, a proper caution does not mean that the CPO process cannot be operated relatively swiftly. A CPO can be promoted, from inception through to acquisition in 12 months. In reality, CPO powers only need to be exercised infrequently. The occasional use of them would be sufficient to encourage landowners to deal sensibly – either developing land or selling it on voluntarily.

27                 Right pricing will be most effective if the use of CPO is encouraged.  Being able to ensure that there is a proper market price in an area, if necessary by forcing land into the market post compulsory acquisition, will limit the benefits of land banking.

Infrastructure related value capture

28                 A consequence of the Newbury rules and CIL Regulation 122 is that planning mechanisms are not directly appropriate for securing infrastructure related value increases.

29                 However, the provision of infrastructure, and even the anticipation of it, can increase land values. As noted above any increase above existing use value+ can be used to secure the level of proper planning contributions. In many instances, the proper levels of planning policy requirements (and hence planning policies) are capped by what is viable in an area; where values in an area improve or are likely to improve as a consequence of infrastructure delivery then that cap, necessarily, should move upwards.

30                 There is, probably, more that local planning authorities could do when reviewing planning obligation requirements/CIL, to identify anticipated increases in value that will arise from public sector investment. Planning obligation and CIL zones could be set at a higher level in those areas to reflect the anticipated increases in value. This could be "graduated" to reflect the programme for the delivery of infrastructure.

31                 There must always be a cap on the ability to recover additional contributions towards   infrastructure – effectively the cost of the infrastructure itself. 

What new methods may be employed to achieve land value capture and what examples exist of effective practice in this area, including internationally?

32                 The existing instruments can work appropriately to "right price" lend.  Other alternatives might include:

(a)                The rapid introduction of a strategic infrastructure levy.  The Crossrail CIL experience is that these can work.  There may be a case for similar tariffs to cover soft infrastructure;

(b)                The costs of infrastructure can, in some cases, be taken as a revenue charge from consumers.  These could include capital costs.  Where, for example, new water infrastructure is required in order to serve new communities, then the water utility should be allowed to charge, perhaps, a new community a levy within the defined benefit area.  In practice, this additional cost should be capitalised and reflected in the sales prices of houses and business units in the area, with a knock on effect on land values, with similar consequence to planning contribution policies.

(c)                 In a similar vein new developments could face a higher Council tax or national non-domestic rate supplementary charge to reflect the infrastructure provided to support the new development. 

(d)                Private land pooling could be encouraged so that the value of land increases, leaving more to fund infrastructure.  This occurs privately when a developer assembles land, the cost of the constituent parts being less than the value of the assembled whole.  The difference between the two accrues to the developer.  This is, a laborious exercise.  There are relatively few developers with the skills to assemble large scale sites in this way.  It should be made easier.  A statutory mechanism that allowed for land pooling to be promoted by a majority of owners within a site, forcing the compulsory sale of land by other owners, might be a mechanism for enhancing site values and allowing a greater level of infrastructure cost recovery.

(e)                If the public sector use CPO powers more to assemble sites, public sector land pooling, then that would have a similar benefit, with the additional site value then being available to fund the proper infrastructure costs.

What are the possible advantages and disadvantages in adopting alternative and more comprehensive systems of land value capture?

33                 In relation to the "right pricing" of land, there are no material advantages in adopting alternative practices. Indeed there is a material disadvantage in changing the system once again.

34                 One of the clearest lessons from history is that certainty about costs leads to those costs being reflected in the land price. Changes in policy and approach almost automatically undermine that.

35                 The main additional method that could be used to secure greater value is by right pricing land on the basis of an assumed marriage of interests and then encouraging acquisition and land pooling, both at a private sector and public sector nature.

36                 By far the best way of capturing increases in value of land is to use the tax system. The Mirrlees Review[3] is clear about ways in which this could be done. We could, for example, move to an annual tax on property or, even better an annual tax on land values. This would have the very substantial benefit of making sure that everyone benefiting from public sector investment paid not just those whose land is brought forward for development.

37                 If an annual charge approach is not adopted then changes to the capital gain tax and inheritance tax regimes are needed to make sure that gains are properly taxed. In order to be effective there would need to be a separate taxation of the gain and a restriction on the reliefs that can be applied.

What lessons may be learned from past attempts to capture the uplifting value?

38                 The most important lessons from the experiments in 1945, 1967, 1973 and 1975/1976 is that any approach to value capture and right pricing needs to have cross-party support. Any hint that it is temporary in nature dooms it.

39                 The recent experience with CIL is an object lesson. It has survived a number of administrations. It has, broadly, been effective. However the "threat" to it as part of the CIL Review unfortunately slowed uptake. Uncertainty hurts.

March 2018