Thursday, 13 September 2018

Let's value our land

There are dramatically wide differences in the value and price of land in the UK.
Of course, some variations are bound to reflect geography, geology, access and demand. But the single biggest variable relates to the land’s development value. Can the land only be used for looking at or walking on or agriculture, or is there permission for development for industry, warehousing, retail units, offices or housing?
The English planning system had its roots in the agricultural and industrial revolutions of the 1700s.
In the nineteenth century, local authorities gradually took responsibility for providing clean water, securing the removal of sewage and refuse, and ensuring new and rebuilt housing had adequate drainage, toilet facilities and an ash pit.
Modern urban planning began when builders had to submit details of these provisions to the local authority before they started development.
The dramatic spread of urbanisation, with unplanned suburbs and the sprawl into countryside provoked much public debate, both about how it should be stopped and about how towns and cities could become better places in which to live.
The Garden City movement demonstrated how things might be done differently and provided the inspiration for the 1909 Housing and Town Planning Act.
In the 20 years after WW1, more than 4 million new homes were built – mainly on green fields – spawning legislation in the 1930s which recognised the need for countrywide rural planning and the need to stop unregulated urban sprawl.
After WW2, there was effectively a wide-ranging political consensus about the need for a pro-active planning system… addressing land use and development and a framework for securing permission.
Whilst the post-war Labour Government is credited with the founding of the National Health Service, I think that almost as important was the passing of the Town and Country Planning Act 1947.
Councils were required to complete a local plan, set out detailed policies and proposals for the development and use of land in a district.
The 1947 Act fundamentally remains the basis of today’s planning system, although legislation on the Green Belt, Structure Plans, the distinction between future planning and development control, regional spatial strategies and development frameworks, and the notion of sustainable development have all had an impact on the application of the original principles.
It is worth remembering that the 1947 Act provided that all development values (ie the increase in value arising from a change in planning permissions) were vested in the state, with £300 million set aside for the compensation of landowners. A subsequent Conservative government ditched these provisions and, although there have been other attempts to capture land values in this way since then, currently these are non-existent.
Since 2010, a rash of legislation – the Localism Act, the National Planning Policy Framework and more recent guidance, and the Growth and Infrastructure Act – have all changed the relative balances in the planning process.
And planning is all about balances. Balancing the various interests that need to be taken into account to develop vibrant, sustainably economic, social and environmental communities in the short-, medium- and long-term. Balancing the interests of neighbouring land-owners and -users. One person’s bright, airy home extension or boundary leylandii can often be a neighbour’s loss of light.
Although a number of commentators have suggested that the shortage of land with planning permission for development for housing is responsible for the housing crisis – despite housing developers having a record amount of land with planning permission – it is clearly the case that the increased price being paid for housing land is making its own contribution to housing price inflation.
What is also the case is that owners of land, whose development capability has changed, can have become very rich indeed, whilst developers and the community at large pick up the bill for the necessary infrastructure – from highways to schools – to turn the buildings in to a viable and functioning community.
It was in this context that the all-party Housing, Communities and Local government Select Committee, which I chair, set off earlier this year in our inquiry in to Land Values. We have received a large amount of written evidence and held oral evidence sessions.1
Now, we have published our report and recommendations.2
This is a summary of what we said.
Land values increase for many reasons—not least from economic and demographic growth—but some of the most significant increases arise from public policy decisions, in particular the granting of planning permission and the provision of new infrastructure. While there is considerable variation in land value uplifts dependent upon location and previous land use, landowners currently retain a very large proportion of the increase in land value arising from the granting of planning permission.
History has shown that attempts to capture land value increases have had mixed success. Governments have struggled to strike the right balance between capturing fair values for the community, without undermining incentives for private sector participation in the market, and in a way that is politically acceptable to all major parties. There have also been tensions between central and local government as to how revenues are spent.
However, it is widely accepted that the first generations of New Towns had considerably more success. This was made possible by the ability of Development Corporations to acquire land at, or near to, existing use value. Uplifts in land value were then captured to fund the infrastructure needed for the new developments.
Political interest in land value capture has re-emerged in recent years. Our inquiry has sought to contribute to this renewed debate and consider how land value might be more fairly and efficiently captured in the future.
The key conclusions and recommendations from our report are as follows:
  • There is scope for central and local government to claim a greater proportion of land value increases through reforms to existing taxes and charges, improvements to compulsory purchase powers, or through new mechanisms of land value capture.
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.
  • Compulsory Purchase Order (CPO) powers can be especially important in enabling the development and provision of necessary infrastructure on large sites particularly where ownership is fragmented. This could facilitate completely new developments, extensions to existing communities, or the build out of large schemes within urban areas.
  • The CPO process should be further simplified, to make it faster and less expensive for local authorities, whilst not losing safeguards for those affected.
The Government should build on its recent reforms to the CPO process. For example, we heard that the requirement for the Secretary of State to confirm CPO submissions causes unnecessary delays. Such decisions should be made locally.
  • There is an urgent need for local planning authorities to agree up-to-date local plans.
A well-defined local plan with clear objectives and requirements for which the developer must pay, would inherently be reflected in, and would create, lower market land values.
  • The Land Compensation Act 1961 requires reform so that local authorities have the power to compulsorily purchase land at a fairer price.
The present right of landowners to receive ‘hope value’—a value reflective of speculative future planning permissions—serves to distort land prices, encourage land speculation, and reduce revenues for affordable housing, infrastructure and local services. We do not believe that such an approach would be incompatible with human rights legislation, as there would be a clear public interest and proportionality case to do so.
  • The compensation paid to landowners should reflect the costs of providing the affordable housing, infrastructure and services that would make a development viable, as well as capturing a proportion of the profit the landowner will have made.
Reform of the Land Compensation Act 1961 will 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.
  • Where public land is put forward for residential development, it is important to ensure that the maximum value is captured for new infrastructure and public services. This may not always equate to selling public land to the highest bidder.
  • The compulsory purchase reforms we have recommended, such as reform of the Land Compensation Act 1961, would give greater powers to local authorities to assemble land and, in so doing, achieve a higher level of control over developments in their areas.
The Government and local authorities own tens of thousands of acres of land across the UK and there is much that can be learned from Germany and the Netherlands with regard to capturing increases in value from publicly-owned land.
  • We believe that the Government has made several important changes through the revised National Planning Policy Framework (NPPF), in particularly around transparency in the viability process—something we have called for repeatedly in the past.
These changes, alongside recent court judgements, should give assurance to local authorities that developers cannot avoid their local plan obligations by claiming that the price they paid for the site means that this would not be viable. However, further reforms will be necessary if Section 106 is to provide the infrastructure and affordable housing that this country needs:
  • The Government should work with the Local Government Association (LGA) to provide additional resources, training and advice to local planning authorities to ensure that they are able to negotiate robustly with developers and that local authorities are consistently able to contract for the appropriate level of planning obligations.
  • Local authorities should consider using their existing CPO powers to enforce Local Plan policies, in particular in relation to affordable housing, where some developers seek to use viability assessments to avoid their obligations.
  • The Government should give further consideration to the future implementation of a Local Infrastructure Tariff.
  • If the Community Infrastructure Levy (CIL) is to become an effective mechanism for capturing development value for the provision of local infrastructure, it requires considerable reform.
  • The Government is right to explore how Strategic Infrastructure Tariffs can be extended across the country.
CIL is far too complex and the extensive range of exceptions need to be removed. Importantly, there has to be greater certainty that the infrastructure associated with development is actually delivered at the appropriate time, sometimes in advance of development commencing.
  • The Government should commission a cross-departmental project to consider how to capture land value increases on existing properties.
A truly efficient and equitable system of land value capture should not focus solely on new developments but should also address how existing properties benefit from development and particularly from public investments in local infrastructure.

I am sure that our recommendations are likely to spark a lively debate in the media and amongst various interested groups – from professionals to developers and land-owners. However, the really important test is how the implementation of proposals such as these will impact upon families who want homes and upon communities which want sustainable futures.
We await with interest to see how the government responds.

Wednesday, 12 September 2018

Trust me, it’s not down the back of the sofa

Search down the back of any chair or sofa and you’re almost certain to find a coin hiding amongst the dust. That is unless you’ve consciously gone searching for a coin, in which case you’ll only find a broken pencil and an unwrapped boiled sweet in the detritus.
However, it is estimated that there are more than a million children born between September 2002 and December 2010 who, with a little searching, might find more than a coin or two. But, it’s definitely not down the back of the sofa.
Cast your mind back to 2002. Gordon Brown, then Chancellor of the Exchequer, was determined to give an incentive to encourage parents to start saving for their children’s futures. Given the size of deposits to rent, let alone buy, a home, this seems to have been extremely prescient.
Every child received a £250 voucher (£500 if the family was in receipt of Child Tax Credit) to put in a Child Trust Fund. Even if parents – or other relatives and friends – have not added a single penny saving in the interim, those who received the higher amount, because of growth and interest, might find that their accounts are worth as much as £2000 today.
Gordon Brown was very keen that children would establish a savings habit and build up a financial cushion to help them manage their money in adult life. Taking stock today, you can see how important that initiative was and how foolish it was for the Coalition government to end the scheme.
The share of income UK households save is now at its lowest 2017 since records began, as expenditure outstripped inflation-eroded pay over recent years. Earlier this year, the Office for National Statistics reported that the full-year household “saving ratio” fell to just 4.9 per cent in the year, down from 7 per cent in 2016, the lowest since 1963.
Meanwhile, the total household debt-to-income ratio rose again to 133 per cent and is still rising. The ratio had fallen steadily in the wake of the financial crisis, after peaking at 150 per cent in 2007, but has been rising again since 2015.
The Joseph Rowntree Foundation reports that six in 10 of the poorest fifth of households had no savings at all, while a further one in nine had savings less than £1,500. In other words, a relatively small thing – like the washing-machine breaking down and needing to be replaced – could be the genesis of real financial difficulties for a family. Without a small financial cushion to fund the essential replacement, families would be forced to resort to ludicrous-interest ‘payday’ loans or in to the arms of retailers and catalogue companies charging exceptionally-high interest rates.
Back to Child Trust Funds (CTF). More than 6 million accounts were opened, but official figures show that almost a million accounts are now classed as ‘addressee gone away’, meaning they’ve been forgotten about.
The amount in each account varies from about £320 to more than £2000, but it is known that a high proportion of the forgotten accounts had the higher initial deposit.
Luckily, it is fairly easy to track down your CTF. You have to make a request to HMRC via the website. This means you need a ‘government gateway’ ID, which can take a few days to set up, then you can submit your request. You should hear back within 15 days.
Once you’ve found your child’s CTF you have options, dependent on your child’s age. After 16, the child controls what happens, although they can’t withdraw it until they are 18. After 18, it is entirely up to the child to decide what to do.
Probably, the best advice you can give is for them not to go and blow it on a big party, although a small toast to Gordon might be appropriate.
Better to place it in a safe place - that’s not down the back of the sofa – providing the best return you can find and keep it there for use on that inevitable rainy day, preferably adding to it on a regular basis.