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Will communities ever get their fair share from uplifts in land value?

24 February 2016 Author:


Source: Department for Transport

The unearned increment resulting from the rise in land values resulting from change in use of land, from public investment or decision, or due to the general growth of the community must be subject to appropriate recapture by public bodies (the community).

- UN Habitat, 1976

We believe attempts to solve the housing crisis should not be reduced to a discussion of housing numbers at the cost of wider socio-economic considerations. It isn’t just about about building houses, it’s about place creation, which means delivering social, environmental and physical infrastructure alongside housing, and using front-loaded infrastructure to drive development.

The windfall in value which goes directly to private landowners when public investment in infrastructure is made seems a reasonable place to look for funding this infrastructure. It is often public investments that produce this unearned increment in land value, so a more equitable distribution of this uplift between landowners and the community could be a fair way of funding the housing and infrastructure the country needs.

But it is not just fairness that Land Value Capture (LVC) has going for it; it also scores points for efficiency and effectiveness. The success of Tax Increment Financing (TIF) in funding the Northern Line Extension, and the use of a Business Rates Supplement to fund Crossrail, along with a glut of other international examples (see the map below) are a good indication of the latent public good land owners are sitting on.



Source: Capturing Value, London 2050.

There is a distinction between using LVC to recover the cost of infrastructure investments, and using it to capture a share of the unearned increment in private land values as considered by the UN’s Vancouver Action Plan above (VAP, quoted at the start of this post). The funding mechanisms used for the Northern Line Extension and Crossrail are focused on recovering the cost of specific infrastructure. But the intent of the VAP is to enable the community to share in any private wealth created by public or community action. Both objectives are legitimate policy goals, but are not afforded the same priority.

This distinction is the locus of contemporary debates in England about developer contributions, originally enshrined under Section 106 (s106) of the Town and Country Planning Act, with this system concerned more with recovering the cost of infrastructure but also used to deliver other public goods related to the development.

The Community Infrastructure Levy (CIL) was introduced five years ago to make the system of developer contributions a “faster, fairer, more certain and transparent means of collecting developer contributions to infrastructure”. However, five years on it seems that this new optional system of securing planning obligations hasn’t yet quite achieved what was intended, because, like the s106 system, concerns about speed, transparency and viability, although improved, seem to have remained.

[I]n the longer-term, if we are to pull the system of developer contributions in the direction of the [Vancouver Action Plan] model, then stakeholders need to be convinced that they are part of the overall wider picture of place-making.

In gathering evidence for our response to the CIL review questionnaire, we found that although enthusiasm with regards to uptake for this new system is down to a number of factors, an important one is land values; for some authorities adopting a CIL schedule is not a financially viable option, with bespoke s106 agreements still a better way of securing necessary contributions to infrastructure.

There is still significant concern over the way viability assessments are conducted, and the RTPI is playing its part to increase understanding of these issues by providing training for its members in order that the right discussions can be had.

We know that CIL is not the golden ticket to infrastructure delivery and may not fit the mould of the intention of the VAP, but in the current system it helps. In the short-term we want to see the pooling restrictions on s106 lifted and a more sensible approach to incentivising authorities to adopt CIL. This is because in the scenarios mentioned above, where CIL is untenable, planning authorities are now seeing a three-way squeeze on their ability to deliver infrastructure; central funding cuts, unviability of CIL and restrictions on S106.

But in the longer-term, if we are to pull the system of developer contributions in the direction of the VAP model, then stakeholders need to be convinced that they are part of the overall wider picture of place-making, which ultimately makes economic sense, because good places attract investment, raise land values and ultimately make the wider area more viable to build on. In the mean time, we will continue to look at land value capture issues and their importance for good planning.