Summary

A grant of planning permission for housing on previously agricultural land creates a huge uplift in value. This post is about how some of that uplift might be captured to pay for additional infrastructure.

Introduction

Ever since I arrived in Devizes in 1989, to work for the old Kennet DC, people have been complaining that the pace of development is too fast, the infrastructure isn’t keeping pace with development and that the town is choking on traffic and needs a by-pass. I had sympathy with many of these comments, but I also had to work within the system of law and regulation that makes up the planning system.

The growth of Devizes has, despite the pretensions of the planning system and the planners (including me) largely been incremental and at least in part driven by the needs of developers. The system works by limiting the numbers of houses that can be built. This means that if a developer can tie up the best sites, they will effectively create a monopoly in land. They can develop it themselves, or they can sell on a portion of the site, no doubt also making a profit on the transaction. In the term ‘developer’ I’m including here the major landowners, like The Merchant Venturers.

It seems obvious that limiting the supply of land drives up the price. The higher the land cost, the less is available for infrastructure, especially beyond that needed for the development proper like drainage, play areas etc. In addition, the process of securing a monopoly position, drives land values up even more, before any development ever gets planning permission.

During my 30 years working as a planner, I saw this process at work first hand. Eventually, after many discussions with developers, researchers and others, I became personally convinced that the only way to avoid pressure on existing infrastructure was for the additional requirements to be funded from development. Doing that would require an agreed mechanism that identified the additional demand created by any new development, work out how much these would cost to provide, and set a fee per house. This is legally possible in terms of the existing system, this is the purpose of s106 agreements, but is by no means guaranteed. Often, developers take things to appeal, leading to inconsistent outcomes.

Previous attempts

The idea of the state (including local government) receiving at least some of the increase in value generated by its actions was central to the 1947 Town and Country Planning Act. That provision was, however, swiftly removed by the Conservative Government. Another attempt was made by the Community Land Act of 1975, although the mechanisms were cumbersome and never very successful. This act was also repealed by the following Conservative Government. Another, much more limited, approach was included in what became s106 agreements under the 1990 Town and Country Planning Act (in earlier Acts it was s52) and the Community Infrastructure Levy (CIL). A term formerly used was ‘planning gain.’ Neither s106 agreements nor the CIL are aimed at capturing any of the increase in value. They relate only to securing funding for infrastructure, and that is defined very narrowly.

Objections to the principle

One of the arguments often made against the idea of capturing at least part of the increase in land value is that it is interference in the market. This is of course true, but the uplift in value only exists because of the planning system, itself a major intervention in the market. Few people suggest doing away with planning entirely – especially if it means the development of the fields next door or in the Green Belt!

The first response from developers is to argue that this puts up the price of housing. This is true, but only because the price they have agreed for the land largely assumes only very limited provisions. However, if infrastructure costs were known before developers begin negotiations to buy land, those costs would be built into the negotiations. Of course, the landowners would lose out, but only to the extent that they would not make the profits they do now – which can be huge.

Uplift in value of land

A book published in 1973, “The Containment of Urban England” by Peter Hall and others, estimated that in some cases the effect of the planning system was to increase the value of agricultural land 100fold. A report into ‘Land Value Capture,’ published in 2018 by the Commons Select Committee on Communities and Local Government, said:

According to Government statistics published in February 2015, the average figure for England (excluding London) is that agricultural land with planning permission for residential use, would, on average, increase in value from £21,000 per hectare to £1.95 million per hectare. … However, while estimates of average increases can be helpful as a guide, it is important to note that the range of value increases is extremely broad. Some sites will see only very limited increases in value, while other increases will be much more substantial, distorting the mean averages cited in Government figures.

(from https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/766/76605.htm)

The updated data for 2019 does not show an average figure for England. However, for Wiltshire it shows an average increase in value from £25,000 per ha to £1.9m. To provide further context, this report from Savills, suggests the average rural land value for the whole of the southwest is about £7,500/acre or £3,000/ha (https://www.savills.co.uk/landing-pages/rural-land-values/rural-land-values.aspx)

All these figures are very broad brush, but they all lead to the same conclusion. The granting of planning permission by the local authority creates huge windfalls for a very small number of landowners. So, using the 2019 figures (the latest available) a farmer selling say 25 ha of land for agricultural purposes would receive £625,000. With planning permission, they bring in around £47.5m. Even if infrastructure costs per ha were say, £1m (which is high), the landowner would still receive £45m, a very substantial uplift. This was recognised in the Select Committee Report.

Increases in the value of land arising from the granting of planning permission and the provision of new infrastructure are largely created by the state. It is fair, therefore, that a significant proportion of this uplift be available to national and local government to invest in new infrastructure and public services.

In my next post, I will look in more details at ways to capture some of that increase for the local community. Some of these are available via the current system, others would require legislation.