Is the end nigh for development land values?

Throughout history, the requisition of land for the benefit of the state has caused civil war and revolution. An equitable principle of land law is that no person should be deprived of their property unless it is in the public interest and on payment of adequate compensation for their loss. This is the simple basis of the law of compulsory purchase. In reality though, compulsory purchase statute and case law has been described over time as one of the most complex and impenetrable areas of law. The government has already taken steps to reform it in the Neighbourhood and Planning Act 2017.

The debate now taking place is fascinating in that a few years ago, the prospect of taking someone’s land without paying “open market value” would be derided. But that is what some sections of Parliament are now arguing should be considered. The debate has been triggered by the Communities and Local Government Commons select committee conducting an inquiry into the effectiveness of current land value capture methods. In other words, is the Government taxing the uplift in land values through planning effectively?

The current taxation method (ignoring personal taxation) is to capture value through Community Infrastructure Levy and Section 106 Agreements. The former is a direct land tax based on the area of development and is fixed at a point of time. The latter is more arbitrary and based on local planning policies, the viability of the scheme and the ability of the developer to negotiate a package of payments, infrastructure and land, with Council planners.

Labour shadow housing secretary John Healey has opened the debate, suggesting that an “English Sovereign Land Trust” should be set up with powers to buy sites at their current open market value, ignoring any development potential or “hope value”. The justification given for this is that landowners should not necessarily benefit from the increase in the value of their land as a result of new infrastructure, such as road and rail schemes, that have been paid for with public money.

Requiring landowners to sell land without adequate compensation is controversial. It would require an rewriting of the law of compulsory purchase and the basis of land valuations. Nevertheless, the principle of being able to deliver more homes cheaply, without compromising design and space standards, is likely to appeal to those who have been cut out of the housing market. The complexity is that much of the land with development potential is already in the hands of pension funds, who have accounted for the hope value already, so it won’t necessarily be the private landowner who will lose.

Delivering infrastructure through section 106 is established in planning law and policy. Community Infrastructure Levy as further taxation on development land was originally aimed at replacing s106 as a method of delivering value. However, the latter has failed in that objective and the result is a highly complex system of which a review is now a sensible step.

The inquiry has called for written evidence  with a deadline for written evidence of Friday 2 March 2018. This may lead to some change to the system, but the end is probably not nigh for development land values – this is just too complex an area for immediate and radical change.

For more on the land value capture inquiry, and to respond, click here.