Increases in land value must benefit local communities, not just developers, say MPs

LOCAL communities should see some benefit from the increased land value that occurs once planning permission has been granted for development, says a committee of MPs.

Extra funding for new infrastructure and affordable housing could be raised from such increased value, according to the Housing, Communities & Local Government Committee; if reforms to “capture” some of this are implemented.

Clive Betts MP
Clive Betts MP, chair of the Housing, Communities & Local Government Select Committee.

“Land value capture is fundamentally about fairness and necessity,” said committee chair, Clive Betts MP. “Fairness, because the current system allows landowners, through no effort of their own, to make multi-million pound profits from the substantial increases in land value that arise from public policy decisions, such as the granting of planning permission.

“As these increases are significantly created by the actions of the State, it is right that a significant proportion of this should be shared with the local community.

“Necessity, because if the Government is to meet the challenge of providing enough new homes over the coming years, then they will also need to find the funds for improving the surrounding infrastructure.”

Government statistics cited by the committee show that agricultural land, which is granted planning permission for residential use, would, on average, increase in value from £21,000 per hectare to £1.95 million per hectare. The committee’s report on land value capture makes the case for local authorities and central government to capture a ‘significant proportion’ of this increaased value to invest in new infrastructure and public services.

The committee argues that there is scope for raising additional revenue from reforms to existing taxes and charges, consideration of new mechanisms for land value capture, and reform of the way local authorities can compulsory purchase land.

Also highlight in the report is the success of the first generations of New Towns, which acquired land at, or near to, existing use value, and captured uplifts in land value to invest in new infrastructure. It calls for reform of such powers – through amendment of the Land Compensation Act 1961 – which would lead to a ‘much-needed’ boost to housebuilding

Among the main recommendations are:

  • Reform of the Land Compensation Act 1961, to give local authorities the power to purchase land at a fairer price. This reform – which has growing political support – would provide a powerful tool for local authorities to build a new generation of New Towns, as well as extensions to, or significant developments within, existing settlements
  • Further simplification of the CPO process, to make it faster and less expensive for local authorities, whilst not losing safeguards for those affected
  • Reform of the Community Infrastructure Levy (CIL) to remove complexity and the extensive range of exemptions that currently limit its effectiveness
  • More resources for local authorities to ensure they are able to negotiate robustly with developers to secure the appropriate level of planning obligations
  • Securing the maximum value for new infrastructure and public services from public land put forward from residential development, with much to be learned from Germany and the Netherlands in this respect

Our proposed package of reforms to taxes and charges will ensure a fair proportion of the increase in value arising from public policy decisions can be used by national and local government to invest in new infrastructure and public services,” Betts added.

“In particular, there is a growing consensus that the Land Compensation Act 1961 requires reform. The present right of landowners to receive ‘hope value’ is distorting land prices, encouraging land speculation and reducing revenues that could be used for affordable housing, infrastructure and local services.

“Ensuring local authorities have the power to compulsorily purchase land at a fairer price will provide a powerful incentive to build a new generation of New Towns and the extra homes that we so desperately need.”

The report was welcomed by the Local Government Association’s housing spokesman, Councillor Martin Tett.

“We have long–called for reforms to land compensation and compulsory purchase laws and are pleased that the Committee has called for the Government to implement several of our recommendations,” he said.

“Rising land prices is one of the most influential contributors to our housing crisis – it means less homes are built, they are less affordable, they are built more slowly, there can be compromises on quality, and there is not enough funding left over for vital local infrastructure and services that communities need to back development.

“There are therefore huge gains for communities, economies and public services in allowing councils being able to capture potentially billions of pounds worth of land value increases to invest in the very infrastructure and services that generate those increasing values.

“We are also pleased the Committee recommends that government provides extra support to councils, through the LGA, to help give local authorities a strong hand in negotiations with developers.

“Government action on these recommendations would have a significant impact in building more homes with the right infrastructures and places that people want to live and work.”



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