Hey let’s get Joan Armatrading on the Walkman. We’re going back – way back…
The Levelling-up and Regeneration Bill had its first reading in the House of Commons over a year ago on 11 May 2022. It’s not just intervening political chaos which has caused this slow-moving caravan of disparate policy notions to lurch from side to side with occasional abrupt halts Along the way additional bright notions have been loaded onto it, impeding progress still further.
One of those notions is the old chestnut of community land auctions. Clauses 127 to 137 were added to the Bill in November 2022 without prior consultation, once Michael Gove became Secretary of State, so as to allow community land auctions to be piloted for ten years.
CLAs are of course catnip to many political types and economists, for instance supported by Policy Exchange (see eg Alex Morton’s 2013 paper A Right To Build) and the YIMBY Alliance, as part of the wider thinking on land value capture (see eg my 20 May 2017 blog post Money For Nothing? CPO Compensation Reform, Land Value Capture). My conclusion remains that the introduction of community land auctions would inevitably be harmful to the principled operation of the planning system – it’s just too darned complicated – and to the delivery of development in the right places – for instance it introduces a huge conflict of interest for the local planning authority as between whether to plan for the best places or the best returns. In my view primary legislation to allow for a pilot is premature. If there are excess unearned gains for the state (in addition to what is already extracted via the planning system), why not just openly tax them rather than embark on this three cup trick?
“A “community land auction arrangement” means an arrangement provided for in CLA regulations under which—
(a) a local planning authority is to invite anyone who has a freehold or leasehold interest in land in the authority’s area to offer to grant a CLA option over the land, with a view to the land being allocated for development in the next local plan for the authority’s area,
(b) any CLA option granted under the arrangement ceases to have effect if the land subject to the option is not so allocated when that plan is adopted or approved (unless the option has already been exercised or been withdrawn or otherwise ceased to have effect), and
(c) the local planning authority may—
(i) exercise the CLA option and dispose of the interest in the land to a person who proposes to develop the land,
(ii) exercise the CLA option with a view to developing the land itself, or
(iii) dispose of the CLA option to a person who proposes to exercise it and then develop the land.”
Clause 128: “Power to permit community land auction arrangements
(1) This section applies where—
(a) the Secretary of State directs that a local planning authority which is to prepare a local plan may put in place a community land auction arrangement in relation to that plan,
(b) the local planning authority resolves to do so (and that resolution has not been rescinded), and
(c) the community land auction arrangement has not come to an end.
(2) The local plan may only allocate land in the authority’s area for development—
(a) if the land is subject to a CLA option or a CLA option has already been exercised in relation to it, or
(b) in circumstances which are prescribed by CLA regulations.
(3) Any financial benefit that the local planning authority has derived, or will or could derive, from a CLA option may be taken into account—
(a) in deciding whether to allocate land which is subject to the option, or in relation to which the option has been exercised, for development in the local plan;
(b) in deciding whether the local plan is sound in an examination under Part 2 of PCPA 2004.
(4) CLA regulations may make provision about how, or to what extent, any financial benefit may be taken into account under subsection (3) (including provision about how any financial benefit is to be weighed against any other considerations which may be relevant to whether the land should be allocated for development in the local plan or to whether the plan is sound).”
Receipts are to be used to support development in an area by funding infrastructure and paying for the administration of the community land auctions process.
The provisions were debated in House of Lords Committee on 18 May 2023 (the relevant part of the debate starts from amendment 364B) and it might put some flesh on the bones to see how a Government minister, Earl Howe, explains how it is all intended to work:
“Community land auctions are an innovative process of identifying land for allocation for development in a local planning authority’s area in a way that seeks to optimise land value capture. Their aim is to introduce transparency and certainty by allowing local planning authorities to know the exact price at which a landowner is willing to sell their land. The crux of our approach is to encourage landowners to compete against each other to secure allocation of their land for development in the local plan by granting a legally binding option over their land to the local planning authority.
The competitive nature of community land auction arrangements incentivises landowners to reveal the true price at which they would willingly part with their land. If the land is allocated in the local plan upon its adoption, the local planning authority can sell the CLA option, keeping the amount that the successful bidder has paid and capturing the value that has accrued to the land as a result of the allocation. The successful bidder must then pay the price set out by the original landowner in the option agreement to purchase the land. The detailed design of community land auction arrangements will be set out in regulations that will be subject to the affirmative procedure.”
“…sustainable development remains at the heart of our approach. Piloting authorities will decide which land to allocate in their emerging local plans by considering a range of factors, which the Government will set out in guidance. Unlike conventional local plans, when allocating sites, local planning authorities will be able to consider the financial benefits that they are likely to accrue from each site. How, and the extent to which, financial benefits may be taken into account will be determined in regulations. Importantly, the existing requirement to prepare local plans, with the objective of contributing to the achievement of sustainable development under Section 39 of the Planning and Compulsory Purchase Act 2004, will remain.
We are not altering the existing local plan consultation and examination process. Piloting authorities will still be required to consult on the proposed land allocations in their draft local plans, before they are submitted and independently examined in public in accordance with the local plan preparation procedures, as modified by Schedule 7 to the Bill.
… the Secretary of State is required to lay a report before each House of Parliament on the effectiveness of the pilot within the timeframe set out in Clause 134(2). There is a requirement to publish this report, which means that it will be publicly accessible and available to any combined authority that was involved in the pilot.
The noble Baroness, Lady Taylor, asked about whether there had been prior consultations. We will consult on community land auctions shortly, and taking part in the pilot will be voluntary for local authorities. We need the powers in the Bill to enable the pilot to happen.
I appreciate the thought behind my noble friend’s Amendment 366. However, as community land auctions are a new and innovative process for identifying land for allocation for development, our view is that it is right that the Bill makes provision for them to be piloted on a strictly time-limited basis.
If community land auction arrangements are deemed successful, and if there is ambition to extend the approach, further primary legislation would be required to implement them on a permanent basis. As we do not have the evidence about their effectiveness yet, we think it right that the Bill does not include provisions that could make CLAs a permanent fixture. Instead, the Government will take a decision at the relevant point in the future, based on the evidence.”
“The simplest way I can describe this is that community land auctions will be a process of price discovery. In the current system, local planning authorities have to make assumptions about the premium required by a reasonable landowner to release their land for development. For Section 106 agreements, this manifests itself through viability negotiations between the local planning authority and a developer. As these can be negotiated, there is a higher risk that, in effect, higher land prices lead to reduced developer contributions, rather than contributions being fully priced by developers into the amount that they pay for land.
For the community infrastructure levy and the proposed infrastructure levy, a levy rate is set for all development within certain parameters. When setting rates, the local planning authority has to calculate how much value uplift will occur on average, and has to make assumptions about landowner premiums and set a levy rate on that basis. The actual premium required by individual landowners will not be available to local planning authorities and will vary depending on individual circumstances. If the local planning authority makes an inaccurate assumption about landowner premiums, they may either make a lot of sites unviable by setting too high a levy rate, or else they will collect much less than they might have done otherwise by setting too low a levy rate.
Under the CLA process, landowners bid to have their land selected for allocation in an emerging local plan, as I have described, by stating the price at which they would willingly sell their land to the LPA for development. The offer from the landowner, once an option agreement is in place with the LPA, becomes legally binding. The LPA can either exercise it themselves, thereby purchasing the land, or auction it to developers. The competitive nature of CLAs incentivises landowners to reveal the true price at which they would willingly part with their land. If they choose to offer a higher price, they risk another piece of land being allocated for development, in which case they will not secure any value uplift at all.”
But if you’re regularly involved in local plan making and/or the promotion of land for development, obvious points arise, none of which are addressed in the above – or anywhere as far as I can see:
the nature, terms and timing of these “options”. They would need to be investment-grade binding commitments on the owner (or owners – many potential allocations are a patchwork of interests knotted together by land promoters) and the owner’s successors in title, with all those with relevant interests (eg mortgagees, tenants) having consented, legally binding for a very long period of time, until drawdown which would be way past local plan adoption, with no get out if any owner changes its plans.
The above means heavy-duty conveyancing input on the part of the owner but also on the part of the local authority, all within the necessary local plan preparation window. Given the number of sites proposed in any local authority’s “call for sites” this is a truly massive amount of work to be resourced by the authority, even with terms as standardised as possible.
The proposed option price by the land owner is going to be influenced by whether best values are to be achieved (1) blind via this route, (2) by in some way bringing forward a scheme outside the process (if this is ruled out the system is utter nationalisation and state control of development – if that’s what you voted for, fine, but I suspect it’s not) or (3), as has happened with other forms of development land tax, by just waiting it out for a less restrictive regime.
Say two pieces of land are put forward as alternative locations for the expansion of a town, one less sustainable than the other (eg it may be greenfield rather than brownfield, remote from public transport connections). The owner of the less sustainable site may offer to make its land available for a lower price. To what extent can or should the authority take into account the additional monies to be extracted from on-sale of the less sustainable site in deciding which to allocate? My early years as a planning lawyer were in the out of town supermarket wars, where the common situation was the local authority seeking to promote a supermarket on its own, worse, site in opposition to better proposals by others, for obvious reasons that at the time of course had to remain unspoken because having regard to the authority’s potential financial returns was obviously verboten. Just think how this would play out under what is proposed – and with much of the decision making inevitably taking place behind closed doors due to inevitable commercial confidentiality.
How is commercial and mixed used development to be approached and dealt with in valuation terms? Is this how we are going to allocate land for major logistics or industry? It’s a cookie cutter approach as presented: housing, housing, housing.
The local authority is envisaged to be the ring master and banker of the whole processes. Whilst this may be welcome in some ways, capacity building would be required on a huge scale.
In any event, the current system already minimises land values, and will increasingly do that if relatively recent changes to the viability process are allowed to bed down. Every time development comes forward with less affordable housing than required by policy, that is because the authority, or inspector on appeal, has been satisfied, on the basis of valuation advice, that no more affordable housing could be extracted and the scheme still proceed, based on an appraisal that doesn’t feed in the price the developer may actually have paid for the land but, usually, just existing use value with a premium set at the minimum that the valuers agree would have been necessary to persuade the owner to sell. I would like to see an explanation of why the option price offered by a land owner would be likely to be lower than EUV+.
Oh and there’s nothing “community” about it.
That’s just the outcome 15 minutes’ thought at the kitchen table on a Saturday morning with Joan Armatrading on in the background.
Some people seem to think that the planning system can be used as a sandbox for trying out these over-complicated, theoretical constructs. I set out my brief thoughts on the infrastructure levy last week and see also the “no hope value” thinking. We’re barking up the wrong tree folks. Drop the pilot. We don’t have the time. Get the existing system to work, now, with more resources and less complexity, better guidance and – perish the thought – some political consistency. Use the local plans system for planning and the tax system for taxation rather than creating something which sounds more like a complicated board game. In my humble opinion.
Simon Ricketts, 19 May 2023
Personal views, et cetera
The phrase to “drop the pilot” means to abandon a trustworthy adviser. This 1890 Punch cartoon depicts the dismissal of Otto von Bismarck from the Chancellorship of the German Empire by Wilhelm II.
There has been much consternation in some circles about DLUHC’s 6 June 2022 consultation paper Compulsory purchase – compensation reforms: consultation which, amongst other things, proposes introducing an amendment to the Levelling-up and Regeneration Bill so as to “to allow acquiring authorities to request a direction from the Secretary of State that, for a specific scheme, payments in respect of hope value may be capped at existing use value or an amount above existing use value where it can be shown that the public interest in doing so would be justified.”
Key passages from the consultation paper:
“29. An option for the framework of seeking a direction might be as follows:
a. Before a public sector acquiring authority:
a. makes a CPO; or
b. applies for other types of Order seeking compulsory purchase powers,
it may apply for a direction from the Secretary of State in relation to a specific scheme.
b. The direction sought may, in relation to the proposed scheme, have the effect of:
a. taking no account of AAD [appropriate alternative development] in a valuation; or
b. limiting the payment of any effect of AAD to no more than a specific percentage over the existing use value.
c. In seeking a direction from the Secretary of State, the authority would need to:
a. identify the scheme;
b. provide details of the estimated land value that would be captured as a result of issuing a direction for the scheme; and
c. evidence how that land value would be applied to the scheme for the public benefit and/or how certainty over the level of compensation payments in respect of prospective planning permission will benefit the scheme.
d. In considering an application for a direction then Secretary of State may appoint a person with requisite expertise to make a recommendation as to whether to issue a direction.
e. Any disputed compensation that relates to AAD would be settled by the Upper Tribunal (Lands Chamber) on the basis of the terms of the direction.”
“…we would welcome views as to whether the proposals set out should go further and look to cap or remove hope value generally or in relation to specific types of schemes. “
“Should the government decide, following consideration of the consultation responses, to take forward this proposal, our intention is for the power to make such directions to be introduced as an amendment to the Levelling-up and Regeneration Bill.”
Land owners, wherever their land is in England and Wales, may find that it can be compulsorily acquired at less than market value. And, on the subject of market value, what effect will that risk have on the value attributed to land in the first place (above existing use value)?
I can certainly see that care is needed to ensure that:
• the use of the procedure by acquiring authorities is procedurally fair, transparent and justified in public policy terms by the benefits thereby unlocked that could not otherwise have been achieved
• the sheer risk that the procedure may be used, anywhere, will not spook lenders.
“The Government agrees that there is scope for central and local Government to claim a greater proportion of land value increases. The Government’s priority is delivery, in line with the Housing Minister’s commitments to provide more higher quality housing more quickly.
Changes to land value capture systems can have profound impacts on the land market in the short term, even where they are sensible for the longer term. Accordingly, the Government’s priority is to evolve the existing system of developer contributions to make them more transparent, efficient and accountable. It will of course continue to explore options for further reforms to better capture land value uplift, providing it can be assured that the short-run impact on land markets does not distract from delivering a better housing market.”
“To further incentivise councils to build, the Conservatives also intend to reform compulsory purchase rules to allow councils to buy brownfield land and pocket sites more cheaply. At the moment, councils must purchase land at “market value”, which includes the price with planning permission, irrespective of whether it has it or not. As a result, there has been a more than 100% increase in the price of land relative to GDP over the last 20 years and the price of land for housing has diverged considerably from agricultural land in the last fifty years. Between 1959 and 2017, agricultural land has doubled in value in real terms from £4,300 per acre to £8,900 per acre, while land for planning permission has increased by 1,200%, from £107,000 to just over £1,450,000. Local authorities therefore very rarely use their CPO powers for social housing, leaving derelict buildings in town centres, unused pocket sites and industrial sites remain undeveloped.”
The proposals have grown over time – this is no longer simply about brownfield land and “pocket sites”.
What do we think? Will this be a workable tool that might enable authorities to secure development with reduced land costs such that affordable housing and other essential social and physical infrastructure can be provided? Or a proposal that will give rise to more heat (litigation) than light and that interferes unacceptably with the rights of land owners as against the rights of society more generally?
There are so many angles to this: political, economic, commercial and legal. Which make this an ideal topic for our next clubhouse session: 5pm on Wednesday 15 June 2022. We will have an array of well-known commentators, including Rebecca Clutten QC, Caroline Daly, Raj Gupta, Colin Cottage, Henry Church and Richard Asher. Link here.
And if you missed our webinar last week “Will the Bill deliver more or less housing? Yes or no?” featuring Simon Gallagher (Department of Levelling Up, Housing and Communities), Zack Simons (Landmark Chambers), Kathryn Ventham (Barton Willmore now Stantec) Meeta Kaur and myself, there’s a youtube link here.
Simon Ricketts, 11 June 2022
Personal views, et cetera
Extract from photo by Valeria Fursa courtesy of Unsplash
When I saw a limelon for the first time yesterday (some recently marketed lime/melon hybrid since you ask, and tangy and refreshing it is indeed), I naturally thought of the proposed combined infrastructure levy: what on earth is it?
Planning For The Future is of course work in progress and it may be churlish for us to expect it to have all the answers. After all, it is up to us to provide cogent responses to the current consultation process.
But the sections in the document on infrastructure contributions are very light indeed, given the central role that section 106 and the community infrastructure levy play in the current system and the obvious complexity of arriving at a system for a combined infrastructure levy that on the one hand does not choke off various forms of development in some areas by making it unviable and that on the other hand both (1) raises sufficient monies to secure the delivery of necessary social (e.g. affordable housing) and physical infrastructure and also (2) ensures for the benefit of both communities and developers that the infrastructure will actually be provided in the right place, at the right time.
•Update the evidence on the current value and incidence of planning obligations
• Investigate the relationship between CIL and S106
• Understand negotiation processes and delays to the planning process
• Explore the monitoring and transparency of developer contributions
• Understand the early effects and expectations for the changes to developer contributions brought in by the revisions to the NPPF
Chapter 3 (The value of Planning Obligations and the Community Infrastructure Levy) sets out some interesting findings:
“• The estimated value of planning obligations agreed and CIL levied in 2018/19 was £7.0 billion. This valuation is premised upon the assumptions identified in the appendix, corresponding to survey validity, respondent representation and the distribution of values.
• When adjusted to reflect inflation the total value of developer contributions in real terms is £500 million higher than in 2016/17, £300 million higher than in 2007/08.
• 67% of the value of agreed developer contributions was for the provision of affordable housing, at £4.7 billion; this is the same proportion as in 2016/17 and is the joint-highest to date.
• 44,000 affordable housing dwellings were agreed in planning obligations in 2018/19. This is a reduction since 2016/17, but the value of this housing has increased over the same period due to an increase in house prices in many areas with higher developer contributions.
• The value of CIL levied by LPAs was £830 million in 2018/19, with a further £200 million levied by the Mayor of London.
• The geographic distribution of planning obligations and CIL is weighted heavily towards the south of England. The South East, South West and London regions account for 61% of the total value. However, the value of developer contributions exacted in London has fallen since 2016/17 – down from 38% to 28% of the total aggregate value.”
There is nothing in the white paper that explicitly draws from the findings of that report in order to arrive at the wholly new mechanism that is proposed.
Some people seem to have picked up the message that the white paper means the end of the community infrastructure levy – a cause for celebration in some parts. But the white paper’s proposal for a combined infrastructure levy to my mind is CIL writ large, potentially just as complex, with a whole new set of rate setting, liability, payment and spending mechanisms and with the express objective of raising more monies than the current system. It warrants its own focus at this point, away from the noise of the other proposals in the white paper.
How to begin to unpick what is proposed in relation to CIL and section 106 planning obligations (and what the proposals in relation to section 106 mean for the delivery of affordable housing in particular)? I wrote down for myself five basic questions:
1. How will planning obligations work under the new system?
2. What will happen to CIL?
3. How will the new Combined Infrastructure Levy be set?
4. What requirements will there be on local authorities as to how they apply combined infrastructure levy receipts?
5. Under the new system, how can local planning authorities set requirements for affordable housing and seek to ensure that they are delivered?
In order to try to answer them (in a way which would have to work in relation to all of the proposed consenting routes: DCO, outline planning permission in plan, PiP (if different from outline permission in plan, not sure!), traditional planning permission, PD), then I cut and pasted the relevant passages from the white paper in their entirety (only leaving out the detail of some of the “alternative options” floated and leaving out the questions raised in the consultation). It is easy to read summaries and think “well there must be more detail in the document itself”. It is worth reading these passages to see the totality of the proposals.
After these passages I then see how far we can get in answering my questions.
“The process for negotiating developer contributions to affordable housing and infrastructure is complex, protracted and unclear: as a result, the outcomes can be uncertain, which further diminishes trust in the system and reduces the ability of local planning authorities to plan for and deliver necessary infrastructure. Over 80 per cent of planning authorities agree that planning obligations cause delay. It also further increases planning risk for developers and landowners, thus discouraging development and new entrants.”
“1.19. Fourth, we will improve infrastructure delivery in all parts of the country and ensure developers play their part, through reform of developer contributions. We propose:
• The Community Infrastructure Levy and the current system of planning obligations will be reformed as a nationally-set value-based flat rate charge (‘the Infrastructure Levy’). A single rate or varied rates could be set. We will aim for the new Levy to raise more revenue than under the current system of developer contributions, and deliver at least as much – if not more – on-site affordable housing as at present. This reform will enable us to sweep away months of negotiation of Section 106 agreements and the need to consider site viability. We will deliver more of the infrastructure existing and new communities require by capturing a greater share of the ulpift [sic] in land value that comes with development.
• We will be more ambitious for affordable housing provided through planning gain, and we will ensure that the new Infrastructure Levy allows local planning authorities to secure more on-site housing provision.
• We will give local authorities greater powers to determine how developer contributions are used, including by expanding the scope of the Levy to cover affordable housing provision to allow local planning authorities to drive up the provision of affordable homes. We will ensure that affordable housing provision supported through developer contributions is kept at least at current levels, and that it is still delivered on-site to ensure that new development continues to support mixed communities. Local authorities will have the flexibility to use this funding to support both existing communities as well as new communities.
• We will also look to extend the scope of the consolidated Infrastructure Levy and remove exemptions from it to capture changes of use through permitted development rights, so that additional homes delivered through this route bring with them support for new infrastructure.
“4.5. Securing necessary infrastructure and affordable housing alongside new development is central to our vision for the planning system. We want to bring forward reforms to make sure that developer contributions are:
• responsive to local needs, to ensure a fairer contribution from developers for local communities so that the right infrastructure and affordable housing is delivered;
• transparent, so it is clear to existing and new residents what new infrastructure will accompany development;
• consistent and simplified, to remove unnecessary delay and support competition in the housebuilding industry;
• buoyant, so that when prices go up the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements.
4.6. The Government could also seek to use developer contributions to capture a greater proportion of the land value uplift that occurs through the grant of planning permission, and use this to enhance infrastructure delivery. There are a range of estimates for the amount of land value uplift currently captured, from 25 to 50 per cent. The value captured will depend on a range of factors including the development value, the existing use value of the land, and the relevant tax structure – for instance, whether capital gains tax applies to the land sale. Increasing value capture could be an important source of infrastructure funding but would need to be balanced against risks to development viability.”
“4.7. We propose that the existing parallel regimes for securing developer contributions are replaced with a new, consolidated ‘Infrastructure Levy’.
Proposal 19: The Community Infrastructure Levy should be reformed to be charged as a fixed proportion of the development value above a threshold, with a mandatory nationally-set rate or rates and the current system of planning obligations abolished.”
“4.8. We believe that the current system of planning obligations under Section 106 should be consolidated under a reformed, extended ‘Infrastructure Levy’.
4.9. This would be based upon a flat-rate, valued-based charge, set nationally, at either a single rate, or at area-specific rates. This would address issues in the current system as it would:
be charged on the final value of a development (or to an assessment of the sales value where the development is not sold, e.g. for homes built for the rental market), based on the applicable rate at the point planning permission is granted;
• be levied at point of occupation, with prevention of occupation being a potential sanction for non-payment;
• include a value-based minimum threshold below which the levy is not charged, to prevent low viability development becoming unviable, reflecting average build costs per square metre, with a small, fixed allowance for land costs. Where the value of development is below the threshold, no Levy would be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold ; and
• provide greater certainty for communities and developers about what the level of developer contributions are expected alongside new development.
4.10. The single rate, or area-specific rates, would be set nationally. It would aim to increase revenue levels nationally when compared to the current system. Revenues would continue to be collected and spent locally.
4.11. As a value-based charge across all use classes, we believe it would be both more effective at capturing increases in value and would be more sensitive to economic downturns. It would reduce risk for developers, and would reduce cashflow difficulties, particularly for SME developers.
4.12. In areas where land value uplift is insufficient to support significant levels of land value capture, some or all of the value generated by the development would be below the threshold, and so not subject to the levy. In higher value areas, a much greater proportion of the development value would be above the exempt amount, and subject to the levy.
4.13. To better support the timely delivery of infrastructure, we would also allow local authorities to borrow against Infrastructure Levy revenues so that they could forward fund infrastructure. Enabling borrowing combined with a shift to levying developer contributions on completion, would incentivise local authorities to deliver enabling infrastructure, in turn helping to ensure development can be completed faster. As with all volatile borrowing streams, local authorities should assure themselves that this borrowing is affordable and suitable.
4.14. Under this approach the London Mayoral Community Infrastructure Levy, and similar strategic Community Infrastructure Levies in combined authorities, could be retained as part of the Infrastructure Levy to support the funding of strategic infrastructure.
4.15. In bringing forward the reformed Infrastructure Levy, we will need to consider its scope. We will also consider the impact of this change on areas with lower land values.”
Alternative options proposed: “The Infrastructure Levy could remain optional and would be set by individual local authorities”. “Alternatively, the national rate approach could be taken, but with the aim of capturing more land value than currently, to better support the delivery of infrastructure”
“Proposal 21: The reformed Infrastructure Levy should deliver affordable housing provision
4.20. Developer contributions currently deliver around half of all affordable housing, most of which is delivered on-site. It is important that the reformed approach will continue to deliver on-site affordable housing at least at present levels.
4.21. Affordable housing provision is currently secured by local authorities via Section 106, but the Community Infrastructure Levy cannot be spent on it. With Section 106 planning obligations removed, we propose that under the Infrastructure Levy, authorities would be able to use funds raised through the levy to secure affordable housing.
4.22. This could be secured through in-kind delivery on-site, which could be made mandatory where an authority has a requirement, capability and wishes to do so. Local authorities would have a means to specify the forms and tenures of the onsite provision, working with a nominated affordable housing provider. Under this approach, a provider of affordable housing could purchase the dwelling at a discount from market rate, as now. However, rather than the discount being secured through Section 106 planning obligations, it would instead be considered as in-kind delivery of the Infrastructure Levy. In effect, the difference between the price at which the unit was sold to the provider and the market price would be offset from the final cash liability to the Levy. This would create an incentive for the developer to build on-site affordable housing where appropriate. [Footnote: As above, a Section 106 planning obligation could still be used to secure a covenant on the land, where necessary. However, the value would be captured through the Infrastructure Levy, rather than Section 106. ] First Homes, which are sold by the developer direct to the customer at a discount to market price, would offset the discount against the cash liability.
4.23. Under this approach we recognise that some risk is transferring to the local planning authority, and that we would need to mitigate that risk in order to maintain existing levels of on-site affordable housing delivery. We believe that this risk can be fully addressed through policy design. In particular, in the event of a market fall, we could allow local planning authorities to ‘flip’ a proportion of units back to market units which the developer can sell, if Levy liabilities are insufficient to cover the value secured through in-kind contributions. Alternatively, we could require that if the value secured through in-kind units is greater than the final levy liability, then the developer has no right to reclaim overpayments. Government could provide standardised agreements, to codify how risk sharing would work in this way.
4.24. We would also need to ensure the developer was incentivised to deliver high build and design quality for their in-kind affordable homes. Currently, if Section 106 homes are not of sufficient quality, developers may be unable to sell it to a provider, or have to reduce the price. To ensure developers are not rewarded for low standard homes under the Levy, local authorities could have an option to revert back to cash contributions if no provider was willing to buy the homes due to their poor quality. It is important that any approach taken maintains the quality of affordable housing provision as well as overarching volumes, and incentivises early engagement between providers of affordable housing and developers. Local authorities could also accept Infrastructure Levy payments in the form of land within or adjacent to a site. Through borrowing against further Infrastructure Levy receipts, other sources of funding, or in partnership with affordable housing providers, they could then build affordable homes, enabling delivery at pace.
4.25. Alternative option: We could seek to introduce further requirements around the delivery of affordable housing. To do this we would create a ‘first refusal’ right for local authorities or any affordable housing provider acting on their behalf to buy up to a set proportion of on-site units (on a square metre basis) at a discounted price, broadly equivalent to build costs. The proportion would be set nationally, and the developer would have discretion over which units were sold in this way. A threshold would be set for smaller sites, below which on-site delivery was not required, and cash payment could be made in lieu. Where on-site units were purchased, these could be used for affordable housing, or sold on (or back to the developer) to raise money to purchase affordable housing elsewhere. The local authority could use Infrastructure Levy funds, or other funds, in order to purchase units.”
“Proposal 22: More freedom could be given to local authorities over how they spend the Infrastructure Levy
4.26. It is important that there is a strong link between where development occurs and where funding is spent. Currently, the Neighbourhood Share of the Community Infrastructure Levy ensures that up to 25 per cent of the levy is spent on priorities in the area that development occurred, with funding transferred to parish councils in parished areas. There are fewer restrictions on how this funding is spent, and we believe it provides an important incentive to local communities to allow development in their area. We therefore propose that under this approach the Neighbourhood Share would be kept, and we would be interested in ways to enhance community engagement around how these funds are used, with scope for digital innovation to promote engagement.
4.27. There is scope for even more flexibility around spending. We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met. In addition to the provision of local infrastructure, including parks, open spaces, street trees and delivery or enhancement of community facilities, this could include improving services or reducing council tax. The balance of affordable housing and infrastructure may vary depending on a local authority’s circumstances, but under this approach it may be necessary to consider ring-fencing a certain amount of Levy funding for affordable housing to ensure that affordable housing continues to be delivered on-site at current levels (or higher). There would also be opportunities to enhance digital engagement with communities as part of decision making around spending priorities. Alternatively, the permitted uses of the Levy could remain focused on infrastructure and affordable housing, as they are broadly are at present. Local authorities would continue to identify the right balance between these to meet local needs, as they do at present.”
“ 5.19. If a new approach to development contributions is implemented, a small proportion of the income should be earmarked to local planning authorities to cover their overall planning costs, including the preparation and review of Local Plans and design codes and enforcement activities.”
Back to my questions:
1. How will planning obligations work under the new system?
It is said in the paper that the “current system of planning obligations under Section 106 should be consolidated under a reformed, extended ‘Infrastructure Levy’.” There will no longer be “months of negotiation of Section 106 agreements”. “Section 106 planning obligations [will be] removed”.
The proposals seem to assume that section 106 is simply a mechanism for securing provision of affordable housing and other “developer contributions”. Whilst that is its main role at present, it is a mechanism for a wide range of commitments – see this table from the accompanying study:
The joy of section 106 is its flexibility to circumstances and policy, enabling the applicant commit to commit, in a way that binds successors in title, to all necessary mitigation measures that cannot be secured by way of planning condition and which are necessary to overcome what would otherwise be reasons not to allow the proposed development to proceed. On more complex developments it is the only tried and tested way in which appropriate mechanisms can be arrived at to make sure that, for instance, necessary infrastructure comes forward at the right time and by way of a sensible process, bespoke to the circumstances of the development, agreed between the parties. There is no proposal in the paper (although it has previously been floated by some) that the role of planning conditions could be expanded.
Where financial contributions are paid to a local planning authority under a section 106 agreement they can only be used for the specified purposes, whereas the proposals in relation to the consolidated infrastructure levy appear to be more loose: “We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met.”What is meant by “core infrastructure obligations”? The core infrastructure obligations necessary to make a particular development acceptable? If so, then a document will need to be drawn up which surely will be as complex as a section 106 agreement – when will the school come forward, using the developer’s infrastructure levy contribution, how, where and when? Local employment and training measures, provision and maintenance of open space and play areas, carbon reduction commitments, commitments to specified transport improvements and the formulation and implementation of transport plans – are all these to be swept away? If so, the document needs to explain either why this is acceptable and desirable or how these matters will otherwise be addressed.
Additional confusion arises when these bold statements as to the removal of section 106 obligations are then contrasted with the footnote to paragraph 4.22: “As above, a Section 106 planning obligation could still be used to secure a covenant on the land, where necessary. However, the value would be captured through the Infrastructure Levy, rather than Section 106”. What does that mean? What would the “covenant on the land” and if the only point is to make sure that the infrastructure levy binds successors in title, why not leave that for the legislation itself?
Is anyone out there clearer at this stage ?
2. What will happen to CIL?
The community infrastructure levy will be replaced by the consolidated infrastructure levy, which will work in various significantly different ways to the current system. For instance:
• It will be a “nationally-set value-based flat rate charge”. I try to unpick this in my answer to question 3 below.
• It will be “levied at point of occupation”.
• “Revenues would continue to be collected and spent locally.”
• “we would also allow local authorities to borrow against Infrastructure Levy revenues so that they could forward fund infrastructure. Enabling borrowing combined with a shift to levying developer contributions on completion, would incentivise local authorities to deliver enabling infrastructure, in turn helping to ensure development can be completed faster.” [If a developer needs specific infrastructure to be delivered in order to enable development to proceed, how will this be documented? What if, as is usually the case, the developer would prefer to deliver the infrastructure, e.g. build the school?]
• The “London Mayoral Community Infrastructure Levy, and similar strategic Community Infrastructure Levies in combined authorities, could be retained as part of the Infrastructure Levy to support the funding of strategic infrastructure” [Is this retained as in retained under the current CIL system so that in London CIL would continue to operate alongside the new levy, or is this retained as in “rolled into”?]
• “We will also look to extend the scope of the consolidated Infrastructure Levy and remove exemptions from it to capture changes of use through permitted development rights” [This is odd – development pursuant to PD rights is not exempt from CIL at the moment. Is this flagging more widely that exemptions will be removed? That would have been a sensible, simplifying, approach were CIL levels to be reduced, but here we are faced with an increased Infrastructure Levy…]
3. How will the new Combined Infrastructure Levy be set?
• It will be a “nationally-set value-based flat rate charge, set nationally, at either a single rate, or at area-specific rates”. [Clearly this can’t in any circumstances mean a nationally-set flat rate charge of x per square metres but must mean a nationally-set proportion of (I assume) gross development value.]
• There will be “a value-based minimum threshold below which the levy is not charged, to prevent low viability development becoming unviable, reflecting average build costs per square metre, with a small, fixed allowance for land costs. Where the value of development is below the threshold, no Levy would be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold”. [When would the developer have certainty that the threshold was not exceeded, or indeed as to what the value (and therefore charge) is considered to be, through what procedure and with what rights to appeal against the valuation? Is the valuation a notional one, applying a formula, or an actual valuation?]
• “buoyant, so that when prices go up the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements.” [the timing of the valuation date will be critical, as will how to deal with phased and revised schemes and so on].
• “It would aim to increase revenue levels nationally when compared to the current system” [so more than £7bn, on the basis of the findings in that study – in a way which will need not to disincentivise owners and developers from carrying out development].
That’s all I can glean from the document. It seems to me that local planning authorities will lose much flexibility, for instance in the setting of differential rates for different types of floorspace (the document does focus to a significant extent on residential development – what rate would be set for, say, offices, logistics or retail, particularly given the weaker relationship between non-residential uses and the delivery of affordable housing, and what about not for profit development – will we need to reintroduce a number of the current CIL exemptions?
4. What requirements will there be on local authorities as to how they apply combined infrastructure levy receipts?
• “With Section 106 planning obligations removed, we propose that under the Infrastructure Levy, authorities would be able to use funds raised through the levy to secure affordable housing”. I try to unpick this in my answer to question 5 below.
• “We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met. In addition to the provision of local infrastructure, including parks, open spaces, street trees and delivery or enhancement of community facilities, this could include improving services or reducing council tax.” [So, infrastructure levy surplus receipts (after delivery of “core infrastructure”) become unhypothecated tax receipts – the less the authority spends on infrastructure, the lower it can keep its council tax, hmm…]?
• “If a new approach to development contributions is implemented, a small proportion of the income should be earmarked to local planning authorities to cover their overall planning costs, including the preparation and review of Local Plans and design codes and enforcement activities.”
5. Under the new system, how can local planning authorities set requirements for affordable housing and seek to ensure that they are delivered?
• “We will be more ambitious for affordable housing provided through planning gain, and we will ensure that the new Infrastructure Levy allows local planning authorities to secure more on-site housing provision”.
• “This could be secured through in-kind delivery on-site, which could be made mandatory where an authority has a requirement, capability and wishes to do so. Local authorities would have a means to specify the forms and tenures of the onsite provision, working with a nominated affordable housing provider. Under this approach, a provider of affordable housing could purchase the dwelling at a discount from market rate, as now. However, rather than the discount being secured through Section 106 planning obligations, it would instead be considered as in-kind delivery of the Infrastructure Levy. In effect, the difference between the price at which the unit was sold to the provider and the market price would be offset from the final cash liability to the Levy. This would create an incentive for the developer to build on-site affordable housing where appropriate. First Homes, which are sold by the developer direct to the customer at a discount to market price, would offset the discount against the cash liability.” [So presumably the developer could net-off the costs of on-site delivery from its infrastructure levy liability. How is this to be documented? Who adjudicates on the obvious valuation issues arising?]
• “Under this approach we recognise that some risk is transferring to the local planning authority, and that we would need to mitigate that risk in order to maintain existing levels of on-site affordable housing delivery. We believe that this risk can be fully addressed through policy design. In particular, in the event of a market fall, we could allow local planning authorities to ‘flip’ a proportion of units back to market units which the developer can sell, if Levy liabilities are insufficient to cover the value secured through in-kind contributions. Alternatively, we could require that if the value secured through in-kind units is greater than the final levy liability, then the developer has no right to reclaim overpayments. Government could provide standardised agreements, to codify how risk sharing would work in this way” [How to safeguard against misuse?]
• “To ensure developers are not rewarded for low standard homes under the Levy, local authorities could have an option to revert back to cash contributions if no provider was willing to buy the homes due to their poor quality.”
• “Local authorities could also accept Infrastructure Levy payments in the form of land within or adjacent to a site.” [Back to ensuring a robust valuation process].
Again, maybe it’s just me but I’m left scratching my head. This is a wholly different approach to extracting contributions for affordable housing and for ensuring that they are delivered. Basic questions:
• How will the requirements (quantum, tenure mix, size] be set at policy stage and determined at application stage (in advance of valuations) such that there can be confidence that development will not be stalled through lack of viability?
• Are we moving to a system where all affordable housing is delivered by a local authority nominated housing provider, with less ability for the developer to seek to improve viability?
• How can there be any confidence that this mechanism will result in more on-site affordable housing than at present?
Again, thoughts welcome – it’s not that the proposals can’t be made to work, it’s just that much more input is required and, in my view, a cautious approach needs to be taken so as to guard against the inevitable unintended consequences.
The deadline for consultation responses is 29 October. We are likely to be collating a Town response, if only on specific issues such as this. If you would be interested in feeding in your thoughts, then please let me know, although, health warning, we are not in the business of designing fruit by committee!
I’m conscious that these posts (this is the 149th) sometimes don’t age well – they try to capture a point in time and I don’t go back to change them unless I’ve got something really wrong or, worse still, there’s a misplaced apostrophe (they’re written on an ipad, on a train or at the kitchen table, as fast as my two fingers can move, so bear with).
So I thought I’d take the opportunity to note a few post-post updates…
CIL
Since my 15 December 2018 CIL Life post, the claimant in Giordano has applied to the Court of Appeal for permission to appeal, having been refused it by Lang J. Will 2019 see the Court of Appeal grapple for the first time with the joys of CIL liability?
As well as delivering on the proposals announced in October 2018 (I assume – I haven’t yet worked through some of the algebraic amendments), the draft regulations exempt starter homes from the levy, where the dwelling is sold to individuals whose total household income is no more than £80,000 (£90,000 in central London). The draft regulations also make a number of other clarifications to address various glitches.
The Trinity One litigation
My 8 September 2018 What If? The Trinity One Case post commented on a situation where a developer had sought to resist a claim for an affordable housing commuted payment on the ground that the basis for calculating the payment, the Total Cost Indicator figures previously published by the Housing Corporation, had ceased to exist. I mentioned that the position could change as a result of separate litigation underway in relation to the developer’s attempt to reduce its section 106 liability by way of the section 106BA/BC procedure.
Well, the position did indeed then change as a result of R (City of York Council) v Secretary of State (Kerr J, 22 October 2018). The case is of little general interest now given that it concerns the mechanism whereby developers could apply for modification or discharge of affordable housing obligations in a section 106 agreement on the basis that modification or discharge was required to achieve an economically viable development, which mechanism was brought to an end on 30 April 2016. But it will have been immense interest to the parties. Kerr J accepted Trinity One’s position that (1) its appeal against refusal of its section 106BA application was not out of time because it was sufficient for the application to have been made by 30 April 2016 and (2) the application could be made even after the development had been completed.
Land value capture
My 31 August 2018 Market Value Minus Hope Value = ? post was written whilst the House of Commons Communities and Local Government Select Committee was taking evidence in relation to its land value capture inquiry. The committee reported on 13 September 2018 and the Government’s response was published on 29 November 2018.
The Committee urged that the Government should consider appropriate mechanisms:
“Our view is that 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.”
However, the response is a classic straight bat:
“The Government agrees that there is scope for central and local Government to claim a greater proportion of land value increases. The Government’s priority is delivery, in line with the Housing Minister’s commitments to provide more higher quality housing more quickly.
Changes to land value capture systems can have profound impacts on the land market in the short term, even where they are sensible for the longer term. Accordingly, the Government’s priority is to evolve the existing system of developer contributions to make them more transparent, efficient and accountable. It will of course continue to explore options for further reforms to better capture land value uplift, providing it can be assured that the short-run impact on land markets does not distract from delivering a better housing market.”
Raynsford Review
My 9 June 2018 Judicious Review post commented on the interim report published by the Raynsford Review. The final report was published on 19 November 2018.
Plenty happened in planning law in 2018, despite much political focus being away from domestic issues. What will 2019 bring? Feel free to subscribe to this blog to get one quick take a week on what seems interesting to me at least. (And, shameless plug, do subscribe as well to Town Legal’s weekly updates of planning law cases and/or of Planning Inspectorate appeal decision letters).
Sajid Javid had given Sir Oliver Letwin the following terms of reference for his review into the “build out of planning permissions into homes” that was announced in the Autumn 2017 budget.
“The Review should seek to explain the significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand, and make recommendations for closing it. The Review should identify the principal causes of the gap, and identify practical steps that could increase the speed of build out. These steps should support an increase in housing supply consistent with a stable housing market in the short term and so that over the long-term, house prices rise slower than earnings. The review will provide an interim report to the Chancellor of the Exchequer and the Secretary of State for Housing, Communities and Local Government in time for Spring Statement 2018 and a full report for Budget 2018.”
Has Letwin’s final report (published alongside the budget on 29 October 2018) twisted itself away from the examination question that he was set? In my view, read as a set along with the previous two stages of his work, it is pretty clear how his thinking has developed. But he has ended up making a surprisingly radical and, to my mind, impractical, set of recommendations that surely will not find traction with this Government and which on any reflection would surely not increase the “speed of build out“. Perhaps due to the deadline he was set, the recommendations in the final report are not accompanied by any evidence. They are also set out in some detail (see for example the tables embedded in a later part of this blog post) at the expense of any commentary on, for example, the proposals to encourage timely delivery that were set out in the February 2017 white paper.
Dear Philip and Sajid
There have been three stages to his work. In his 9 March 2018 letter to the Chancellor and Secretary of State he provided this initial analysis:
“The fundamental driver of build out rates once detailed planning permission is granted for large sites appears to be the ‘absorption rate’ – the rate at which newly constructed homes can be sold into (or are believed by the house builder to be able to be sold successfully into) the local market without materially disturbing the market price. The absorption rate of homes sold on the site appears, in turn, to be largely determined at present by the type of home being constructed (when ‘type’ includes size, design, context and tenure) and the pricing of the new homes built. The principal reason why house builders are in a position to exercise control over these key drivers of sales rates appears to be that there are limited opportunities for rivals to enter large sites and compete for customers by offering different types of homes at different price-points and with different tenures.
When a large house builder occupies the whole (or even a large part) of a large site, the size and style (and physical context) of the homes on offer will typically be fairly homogeneous. We have seen examples of some variation in size, style and context on some large sites; but the variations have not generally been great. It has become apparent to us that, when major house builders talk about the absorption rates on a large site being affected by “the number of outlets”, they are typically referring not only to the physical location of different points of sale on the site, but also and more importantly to differences in the size and style (and context) of the products being offered for open market sale in different parts of the site. Even these relatively slight variations are clearly sufficient to create additional demand – and hence additional absorption, leading to a higher rate of build out.
It is also clear from our investigation of large sites that differences of tenure are critical. The absorption of the ‘affordable homes’ (including shared ownership homes) and of the ‘social rented housing’ on large sites is regarded universally as additional to the number of homes that can be sold to the open market in a given year on a given large site. We have seen ample evidence from our site visits that the rate of completion of the ‘affordable’ and ‘social rented’ homes is constrained by the requirement for cross-subsidy from the open market housing on the site. Where the rate of sale of open market housing is limited by a given absorption rate for the character and size of home being sold by the house builder at or near to the price of comparable second-hand homes in the locality, this limits the house builder receipts available to provide cross-subsidies. This in turn limits the rate at which the house builder will build out the ‘affordable’ and ‘social rented’ housing required by the Section 106 Agreement – at least in the case of large sites where the non-market housing is either mixed in with the open market housing as an act of conscious policy (as we have frequently found) or where the non-market housing is sold to the housing association at a price that reflects only construction cost (as we have also seen occurring). If freed from these supply constraints, the demand for ‘affordable’ homes (including shared ownership) and ‘social rented’ accommodation on large sites would undoubtedly be consistent with a faster rate of build out. And we have heard, also, that the demand for private rented accommodation at full open market rents (the scale of which is at present uncertain) would be largely additional to, rather than a substitute for, demand for homes purchased outright on the open market.”
The interim report
His interim report in June 2018 then focused on three issues:
• what the build out rate on large sites in areas of high housing demand actually is;
• why the rate of build out on these sites is as it is; and
• which factors would be most likely to increase the rate of build out on these sites without having other, untoward effects.
The interim report is a solid document with strong analysis and a variety of conclusions, one of which being that “if either the major house builders themselves, or others, were to offer much more housing of varying types, designs and tenures (and, indeed, more distinct settings, landscapes and street-scapes) on the large sites and if the resulting variety matched appropriately the desires of the people wanting to live in each particular part of the country, then the overall absorption rates – and hence the overall build out rates – could be substantially accelerated. The policy levers required to bring this about without damaging the economics of individual sites or the financial sustainability of the major house builders are topics for the second phase of my work, on which I shall report at the time of the Budget.”
The final report
And this is precisely what he has sought in part to do in his final report, published alongside the budget on 29 October 2018. I say in part, as there is no real analysis as to whether his proposed policy levers would or would not damage “the economics of individual sites or the financial sustainability of the major house builders“.
Underlying his conclusions seems to be his scepticism as to whether the encouragement in the NPPF for “residential developments to have a mix of tenures, types and sizes which reflect local housing demand (as well as emphasising the importance of good design)“, together with the 2018 NPPF’s requirement for local authorities to encourage the sub-division of large sites, is sufficient to lead to less homogenous development or “the prospect of significant increases in the rapidity of build out on such sites“.
He gives no evidence for this assumption. Even the 2012 NPPF (as now revised) is, after all, still working through into plans and permissions.
Instead of trying to work with the grain of the existing system, he recommends that “the Government should adopt a new set of planning rules specifically designed to apply to large sites. The purpose of these rules should be to ensure that all sites in areas of high housing demand whose size exceeds a certain threshold are subject to an additional form of planning control that requires those owning such sites to provide a diversity of offerings on the site which are able to address the various categories of demand within the local housing market. This, in turn, should ensure that houses can be built at a greater rate than at present on such sites, because the absorption rate for each category of housing will be complementary, yielding, overall, a greater absorption of housing by the local market as a whole in any given period.”
Ahead of a new legislative structure (both primary and secondary legislation) and an annex to the NPPF (I suspect it would take more than an annex – he’s driving a coach and horses through the thing as far as large housing sites are concerned), he envisages that the new rules could first be brought in by a written ministerial statement, secondary legislation and the policy annex. “If, for example, the Government decides to adopt my recommendations at the end of 2018, I suggest that it should be made clear to the owners of existing large sites in areas of high housing demand, and to those who are taking such large sites through the current planning system before commencing works, that the new rules governing planning permission for large sites will come into force at the start of 2021, and will therefore govern any permissions granted for large sites on or after that date.”
The primary legislation would:
” • define large sites both in terms of a size threshold (which might, for example, be set initially at 1,500 units2) and in terms of boundaries (to ensure that a site which is allocated as a single entity in a local development plan qualifies, even if it benefits from a number of different outline planning permissions);
• require local planning authorities, when granting allocations, outline permissions or final planning permissions for any large site or any part of a large site in areas of high housing demand, to comply with the new secondary legislation and the new planning policy relating to large sites – and, in particular, to include within all outline planning permissions for large sites in areas of high housing demand a requirement that ‘housing diversification’ on such sites should be a ‘reserved matter’; and
• establish the principle that all permissions for reserved matters granted in relation to such large sites should contain diversi cation requirements in accordance with the new secondary legislation and the new planning policy for large sites.”
The secondary legislation would:
” • amend the Town and Country Planning (Development Management Procedure)(England) Order 2015 to include type, size and tenure mix (alongside the current provision for prescription of access, appearance, landscaping, layout and scale) as characteristics that can be prescribed as reserved matters for large sites in areas of high housing demand; and
• require any applicant making an outline planning application for a large site or an application for final permission for a phase of a large site in an area of high housing demand to prepare a diversification strategy, specifying the types of diversity that will be exhibited on that site or in the part of the site to which the application refers.”
The new planning policy document would set out the diversification principles that are to apply to such large sites in areas of high housing demand in the future. By diversification, he means, for example, “housing of varying types, designs and tenures including a high proportion of affordable housing“, as well as “more distinctive settings, landscapes and streetscapes“. By all means strengthen the NPPF if further strengthening is needed (is it?) but how much of this is specific to schemes of 1,500 homes plus.
Then it really starts to get weird. Because there will be “scope for disagreement about whether a particular applicant has made a genuine effort to provide sufficient diversity to address multiple markets simultaneously and hence to increase the overall absorption rate and build out rate. Accordingly, in order to minimise recourse to appeal or litigation, I recommend that the Government should establish a National Expert Committee.
The primary purpose of this Committee should be to arbitrate on whether any application that causes a disagreement between the local planning authority and the applicant (and consequently comes to appeal) satisfies the diversification requirement, and is therefore likely to cause high build out rates.
The secondary purpose of the Committee would be to offer informal advice to any developer or local planning authority that was considering a large site application. I recommend that the Housing Secretary should guide local planning authorities to consult the National Expert Committee before approving any such large site application in an area of high housing demand.”
Why on earth would a new quango such as this be created?
For sites that will already have an outline planning permission before 2021, Letwin recommends that there should be financial incentives (ie government funding) for house builders to accept changes to their existing site plans. Developers would enter into a section 106 agreement to document their continued commitment to the diversity requirements. Letwin says that he has taken legal advice and is confident that the “voluntary transaction” that he proposes will prove to be lawful – perhaps, but it would certainly be unusual. Would the local planning authority be a party? Who would enforce?
One Step Beyond
He then goes “one step further” in relation to “large sites that have yet to be allocated within a local authority’s local plan“. He recommends “that the Government should, as part of the new primary legislation, introduce a power for local planning authorities to designate particular sites within their local plans as sites which can be developed only as single large sites and which therefore automatically become subject to the new planning rules for large sites. In addition, I believe that the local planning authority should be empowered to specify, at the time of designation, strong master-planning requirements including a strict design code as well as landscaping and full and specific infrastructure requirements.”
This in part appears to be a device to ensure that “the land value of those sites is not raised as far above the alternative use value as would be the case if a site were allocated in a local plan and subsequently obtained outline permission under our current rules“. But this can already be done by local planning authorities for good planning reasons, where comprehensive development is required for reasons of, for instance, sustainability or viability. Is Letwin going further than that?
What if there is no good planning reason why the site could not be sustainably be built out in parts? And what is indeed a single development? This will all prove hugely contentious. Particularly given that he goes on to indicate that to “ensure that a reasonable balance is struck between promoting the public interest through increased diversity and faster build out rates on the one hand, and proper recognition of the value of the land on the other hand, I recommend that the Housing Secretary (when issuing updated viability guidance alongside the new planning framework) should guide local planning authorities towards insisting on levels of diversity that will tend to cap residual land values for these large sites at around ten times their existing use value.”
No evidence is given as to why the level above which land values would be expropriated by the state without compensation (which, after all, would be the effect of the proposal) is set at 10 x EUV.
Letwin recognises that significant support will be needed from Homes England: “planning rules are by their nature passive and reactive. They can prevent things from happening (if they are properly enforced); but they can only do a very limited amount to encourage applicants to follow the spirit of the rules and hence to achieve fully the outcomes the rules have been created to achieve.”
He then goes on to visualise local authorities being empowered to bring forward sites themselves via a development vehicle, in one of two ways:
“(a) the local authority could use a Local Development Company (LDC) to carry out this development role by establishing a master plan and design code for the site, and then bringing in private capital through a non-recourse special purpose vehicle to pay for the land and to invest in the infrastructure, before “parcelling up” the site and selling individual parcels to particular types of builders/providers offering housing of different types and different tenures;”
(b) the localauthority could establish a Local Authority Master Planner (LAMP) to develop a master plan and full design code for the site, and then enable a privately nanced Infrastructure Development Company (IDC) to purchase the land from the local authority, develop the infrastructure of the site, and promote a variety of housing similar to that provided by the LDC model described above.”
He sees local authorities that use these vehicles being given “clear” compulsory purchase powers over the large sites that the authorities allocate and indicates that “it would also make sense to consider the possibility of giving local authorities such CPO powers in relation to large sites that have been allocated in their local plan in the past but which have not obtained outline permission after a long period has elapsed.”
Even when compulsory purchase compensation values have been reduced by the mechanisms requiring build out as a single site (query how that is defined in practice) and by increasing the required diversity until the 10 x uplift on EUV is not exceeded, will development (with the required diversity) be viable for a local authority to bring forward? Will any authority have the resources for the task? Will non-recourse lending really be available to the extent that would be required? Why would anyone start on the process of promoting a large site for development when it can be snaffled as part of a larger “single site” in this way?
The notions in the report could be read as moving to the public sector the role of strategic land promotion companies, which I suspect (for all that they are maligned) to be responsible for a high proportion of the major housing sites that do come forward at present. So, to misappropriate Kit Malthouse’s recent analogy that he applied to Homes England, we would lose some WD40 in the system: the companies with the incentive to identify sites, assemble them, identify and overcome infrastructure constraints, devise a viable and acceptable form of development, pursue allocation and permission, open up land with strategic infrastructure and dispose of parcels to house builders. And, going back to the original terms of reference, this will “increase the speed of build out“?
I appreciate that this report was delivered to a deadline, which it achieved, but (unlike the previous stages of Sir Oliver’s review) it seems to me to lack any robust evidential basis at all to justify the wholly new structure that it proposes for allocating, permitting and delivering schemes with 1,500 or more dwellings. Nor does the review interest itself with any more practical nudges that could be introduced into the current system. If it just goes on the “nice but radical ideas” shelf, another year will have been wasted, without any real progress towards making practical improvements that might improve build out rates. After all, Homes England is already playing a hugely positive role in unlocking large-scale housing development and indeed on 30 October 2018 published its strategic plan for 2018/2019 – 2022/2023, setting how it intends to go much further to use its “land, money, powers and influence to increase the pace, scale and quality of delivery“. When the Government responds to the Letwin report in early 2019 I will be looking to see whether any measures that are to be taken forward will pragmatically assist Homes England’s practical work – they are the ones rolling up their sleeves on all this.
Lastly, if as a consequence of implementation of these proposals we were to see the private sector focusing its attention on smaller sites, in preference to these sites which can really make a difference in terms of delivering at scale, that would in my view be inconsistent with the brief that was set.
Stick or twist?
Simon Ricketts, 3 November 2018
Personal views, et cetera
PS No sooner had I finished this post and poured some strong coffee than I saw this morning’s announcement that the Secretary of State has appointed Professor Sir Roger Scruton to chair a ‘Building Better, Building Beautiful’ Commission – no-one could criticise the current build out rate of MHCLG when it comes to reports and reviews.
The clamour continues for Parliament to revise the principles of compulsory purchase compensation, currently set out in section 5 of the Land Compensation Act 1961.
None of the clamourers have, as far as I know, set out precisely what amendments they would make to section 5, but the concern appears to be that the principles allow land owners to benefit unduly from a windfall, by allowing them in part to be compensated for the hope that planning permission would have been granted for a valuable form of development on the land being acquired, were it not for the compulsory acquisition, and that this is unfair; goes beyond what might be considered to be “market value”, and/or is holding back the development of new homes.
This isn’t a new song. In my 20 May 2017 blog post, Money For Nothing? CPO Compensation Reform, Land Value Capture, I tried to read between the lines of what was being said in the February 2017 housing white paper and in the May 2017 Conservative manifesto on the question of reforming the compulsory purchase compensation process.
But the volume is getting louder.
The issue is being considered by the House of Commons Communities and Local Government Select Committee in its land value capture inquiry, the final session of which is on 5 September 2018, with evidence to be given at that final session by planning minister Kit Malthouse.
A pan-political coalition of 16 NGOs including Shelter, the National Housing Federation, the TCPA, CPRE and Crisis wrote an open letter to the Secretary of State on 18 August 2018 calling for reform. It was reported in absurd terms on the Sun that day:
A little more (but not much more) detail is set out in Shelter’s blog post An unlikely coalition for land reform (21 August 2018). Shelter has been lobbying on this issue, from the time that its head of policy and housing development was Toby Lloyd, now Theresa May’s housing adviser within Number 10.
I hesitated before writing this blog because the response is so obvious.
The law does not operate at all in the way that these people assume. No real life examples are given. Indeed, there is no indication that any practising CPO surveyor or lawyer has assisted with either the Shelter-led group’s work or the IPPR’s work. Show of hands?
The law is as set in, for example:
⁃ the written evidence submitted to the Select Committee inquiry by the Compulsory Purchase Association. The evidence includes examples of claims made following the Olympic Park CPO.
⁃ Richard Harwood QC’s article (August 2018) (with his April 2018 paper given to the Compulsory Purchase Association on Land Value Capture a useful more detailed and wide ranging read).
It’s odd how the pendulum slowly swings. The refrain always used to be that the compensation system, providing the land owner with equivalence and nothing above that to reflect the compulsory nature of the acquisition, encouraged elongated objections and disputes in a way that apparently was not the case in, for example, France. Parliament (under a Labour Government), sought to address that in the Planning and Compulsory Purchase Act 2004 by introducing home loss payments, for qualifying residential occupiers, amounting to 10% of the market value of their interest up to £61,000 and, for qualifying property investors and business owners, basic loss payments amounting to up to 7.5% of the market value of their interest up to £75,000, together with additional occupier loss payments amounting up to 2.5% of the market value of their interest up to £25,000. In retrospect, the numbers were probably not large enough materially to affect the behaviour of those faced with compulsory purchase but the principle is perfectly logical given the monies to be saved by the public purse in removing or reducing objections to compulsory purchase.
It’s not rocket science to deduce that threatening to acquire land at less than market value (ie less than what the owner could have received for the land if he or she had chose to sell it on the open market – albeit of course the last thing he or she usually wants is to sell it!) would lead to:
⁃ owners being even more likely to hold out against compulsory acquisition in whichever way they can.
⁃ if the hope of securing permission for development is to be ignored (accepting that a land owner can never claim compensation for any value generated by the scheme underlying the compulsory acquisition – we are only talking about the prospect of development in the no scheme world), land owners and promoters of development not risking their own money in the promotion of land for development. Why would they, if the acquiring authority is going to be able to step in and effectively take the benefit of that work for free?
Maybe the problem is one of terminology. Do people think that “hope” value is something that is just that, hope, rather than a forensic examination of whether, and if so, what, development would have been likely to be approved if the scheme underlying the CPO had been cancelled on the valuation date? Maybe they should read some decisions of the Lands Chamber of the Upper Tribunal (the Lands Tribunal, in old money) or of the courts, for instance last year Bridgend County Borough Council v Boland (Court of Appeal, 14 July 2017). Do they think that the Tribunal has ever been over-generous to a claimant in reaching its determination as to what might have been approved in the no scheme world? Examples would at least take the debate forward.
The IPPR paper points to Germany by way of example, where the German zoning system obviously largely removes the concept of hope value – you’re zoned or you’re not. But that is not at all our UK planning system. Should it be? Well that’s another interminable debate and shall we get Brexit out of the way first before, er, we move towards a continental planning system?
Of course, the idea might work as part of a system where all major development is promoted by a public body, whether or not backed by a private sector development partner. But that is a world away from where we are, is alien to our market based economy and likely to lead to long bottle-necks given the lack of suitable resources at present within most local authorities, as well as lead to questionable outcomes in terms of procurement and in terms of sustainable, economically efficient, development. The public sector does not even have the resources to allocate the right land for development without massive input from the private sector in promoting specific sites (terminology problem again – “promoting” isn’t about PR but about spending, at risk, large amounts of money on preliminary technical work, to a significant level of detail, to ascertain constraints, infrastructure requirements and capacity).
And of course, there may be political arguments for acquiring land compulsorily at less than market value. But let’s be clear that such an exceptional political intervention would need to be justified. If the current clamour is in truth a clamour for the state to be able to dispossess people of their property for less than what it is worth, be brave enough to say so, explain why it is necessary in the public interest and then we can have the debate on that footing.
But if the idea is indeed to pick up land at or near existing use value, conceptually that really isn’t difficult under the present system. Be a brave authority by allocating land for a new settlement, covering land in as many ownerships as is necessary, making clear that of course it has to be developed in its entirety to be sustainable and that piecemeal development will not be acceptable. Be clear in your policy making that recourse will be had to compulsory purchase powers where necessary. Set out the extent to which the development is dependent on new infrastructure. Make clear where the new infrastructure would not be coming forward were it not for the new settlement proposal. The practical difficulty lies more with the fact that, for compulsory purchase to be a credible delivery mechanism such that the local plan policy can be shown to be “sound”, most local authorities would need private sector backing and most private sector participants would not underwrite significant compensation liabilities without being pretty certain that there will be planning permission. This is the scratch in the record that you don’t get past. Here’s where you need to lift the stylus and move it on a bit, whether that’s a role for Homes England funding or by allowing significant new settlements to be promoted as an NSIP so that the necessary planning and compulsory purchase steps can take place at the same time.
The frustrating thing is that the compulsory purchase compensation process is far from perfect and much could be done to reduce uncertainty for acquiring authorities and their private sector partners (usually fully underwriting the authority’s liability by way of an uncapped CPO indemnity agreement). The areas where the risk of significant compensation liability can discourage use of compulsory purchase are not questions of what hope value can be attributed to the prospect that the land might have been developed for other valuable purposes in the no scheme world (where the situation arises – not often – the position is usually well documented and can largely be quantified). In my experience the scary risks, where large and unpredictable compensation numbers can in fact arise, are more in such areas as:
⁃ does the land being acquired hold, in the no scheme world, a ransom value over other adjoining land which might have been developed in the no scheme world?
⁃ where business premises are being acquired, is the business likely to claim disturbance compensation on the basis of total extinguishment (by demonstrating that there is not a reasonable relocation opportunity open to it)? If so, the acquiring authority will often have little feel for what the ultimate justifiable compensation figure will be due to lack of access to information that is confidential to the business, other than published accounts.
But my basic pleas are:
⁃ for the Government to take a careful look at how the present system works in practice before making any amendments to section 5.
⁃ for those seeking to justify changes to the system to be more precise about their concerns, based on real examples, and as to what changes they are seeking.
⁃ for Parliament one day to have time to review properly and consolidate compulsory purchase legislation.
Oh and, obviously, the answer to the question was that Market Value minus Hope Value = < Market Value.
It is financially, legally and politically challenging to deliver new communities but without them the gap will continue to widen as between the quantity – and quality – of homes that the country needs and those that are built.
Credit should be given to the Government for continuing to push. Are its efforts too diffuse and/or insufficiently strategic, in terms of being within a clear framework, or is it simply being pragmatic in encouraging locally-supported proposals without specifying locations or indeed the process for delivery? That is for others to judge but this blog post is intended to serve as a reminder of where we stand by way of ministerial statements, and particularly focuses on where we are with the Cambridge-Milton Keynes-Oxford arc.
NPPF
The July 2018 NPPF continues, by way of paragraph 72, to support locally-led new settlements, with a change from the March 2018 draft in the reintroduction of the reference from the 2012 NPPF to garden city principles:
“The supply of large numbers of new homes can often be best achieved through planning for larger scale development, such as new settlements or significant extensions to existing villages and towns, provided they are well located and designed, and supported by the necessary infrastructure and facilities. Working with the support of their communities, and with other authorities if appropriate, strategic policy-making authorities should identify suitable locations for such development where this can help to meet identified needs in a sustainable way. In doing so, they should:
a) consider the opportunities presented by existing or planned investment in infrastructure, the area’s economic potential and the scope for net environmental gains;
b) ensure that their size and location will support a sustainable community, with sufficient access to services and employment opportunities within the development itself (without expecting an unrealistic level of self-containment), or in larger towns to which there is good access;
c) set clear expectations for the quality of the development and how this can be maintained (such as by following Garden City principles), and ensure that a variety of homes to meet the needs of different groups in the community will be provided;
d) make a realistic assessment of likely rates of delivery, given the lead-in times for large scale sites, and identify opportunities for supporting rapid implementation (such as through joint ventures or locally-led development corporations); and
e) consider whether it is appropriate to establish Green Belt around or adjoining new developments of significant size.”
Garden Communities Prospectus
MHCLG published on 15 August 2018 its Garden Communities prospectus, inviting “bids for ambitious, locally supported, proposals for new garden communities at scale. In return for tailored assistance to help design and deliver the vision for these places, we expect local areas to deliver significant housing and economic growth. We will look to assist as many as we can, in locations where there is sufficient demand for housing.”
Bids are due by 9 November 2018. The prospectus sets out the necessary criteria as follows:
Scale
The Government “will prioritise proposals for new Garden Towns (more than 10,000 homes), but will consider proposals for Garden Villages (1,500-10,000 homes) which are particularly strong in other aspects. For instance, demonstrating exceptional quality or innovations, development on predominantly brownfield sites, being in an area of particularly high housing demand, or ability to expand substantially further in the future.”
Strategic fit
“All proposals must demonstrate how the new garden community fits with the housing need for the housing market area, including expected future population growth. We will prioritise proposals which respond to housing need in high demand areas. We also particularly welcome proposals which release more land through local plans to meet local housing need, and / or go above local housing need.
All proposals should demonstrate how the new garden community fits with wider strategies to support economic growth and increase productivity. We expect to see ambitious proposals which create a variety of new jobs and the timely delivery of infrastructure necessary to underpin this.”
Locally-led
“Strong local leadership is crucial to developing and delivering a long-term vision for these new communities. All proposals should have the backing of the local authorities in which they are situated, including the county council in two-tier areas. We are particularly interested in proposals which demonstrate collaboration across local authority boundaries. To ensure that the potential local growth benefits have been considered, it will be desirable for proposals to have the support of the Local Enterprise Partnership, where the area has one.
Proposals should set out how the local community is being, or will be, engaged and involved at an early stage, and strategies for continued community engagement and involvement. We are clear that local communities – both current and future residents – must have a meaningful say in developing the proposal from design to delivery.”
Garden community qualities
“High quality place-making is what makes garden communities exemplars of large new developments, and all proposals must set out a clear vision for the quality of the community and how this can be maintained in the long-term, for instance by following Garden City principles.”
Deliverability and viability
Proposals should address:
⁃ delivery models and timescales
⁃ infrastructure requirements
⁃ opportunities to capture land value
⁃ access to finance and private sector investment
(NB this post is not intended to be an update to my 20 May 2017 blog post Money For Nothing? CPO Compensation Reform, Land Value Capture. However, I would note first the specific advice in the new NPPF that local planning authorities’ role in identifying and helping to bring forward land for development should “include identifying opportunities to facilitate land assembly, supported where necessary by compulsory purchase powers, where this can help to bring more land forward for meeting development needs and/or secure better development outcomes” and secondly the open letter, Sharing land value with communities dated 20 August 2018 from 16 campaign groups to the Secretary of State, which included the request that Parliament “should reform the 1961 Land Compensation Act to clarify that local authorities should be able to compulsorily purchase land at fair market value that does not include prospective planning permission, rather than speculative “hope” value.” It is interesting to see the broadness of consensus between a variety of organisations but these issues are not at all straight-forward! More in due course.)
Delivery timescales and accelerated delivery
“We will prioritise proposals that offer a strong prospect of early delivery and a significant acceleration of housing delivery. They should consider the scope for innovative ways to deliver new homes, such as off-site construction, custom build and self-build, as well as providing opportunities for a diverse range of house builders. Priority will be given to proposals that can demonstrate how build out will be achieved at pace, whilst maintaining quality.”
In terms of delivery vehicles, the prospectus says this:
“Whilst we are not prescribing any particular model, for proposals at scale, a Development Corporation may be an appropriate vehicle to consider. We have taken action to enable the creation of new locally accountable New Town Development Corporations. These vehicles can help provide long-term certainty to private investors, resolve complex co-ordination challenges, invest directly in infrastructure that unlocks development, and use compulsory purchase powers to help lay out a new town.”
(The reference to “new locally accountable New Town Development Corporations” is a reference to the new mechanism available for designating new towns by way of the New Towns Act 1981 (Local Authority Oversight) Regulations 2018 which were made and came into force on 23 July 2018. Guidance as to their operation was published in June 2018.)
Who can apply?
The support of the relevant local planning authority or authorities is a prerequisite:
“Proposals are invited from local authorities and private sector partners (such as master developers or land owners). Proposals submitted by private sector partners must be expressly supported by the local authority.
We particularly welcome joint proposals from one or more local authorities, as well as proposals which demonstrate support from developers and / or landowners.”
Cambridge-Milton Keynes-Oxford corridor
There is specific paragraph in relation to the CaMKOx corridor (or whatever we are meant to call it):
“For proposals within the Cambridge – Milton Keynes – Oxford corridor, Government will continue to work with local partners to consider how the delivery of new homes and settlements can best support the overarching vision for the axis. This includes the contribution these places can make to the National Infrastructure Commission’s finding that up to 1 million homes will need to be built in the corridor by 2050, if the area is to maximise its economic potential.”
CaMKOx
There are a number of related Government-sponsored initiatives in relation to the Cambridge-Milton Keynes-Oxford corridor.
“The Cambridge-Milton Keynes-Oxford arc must be a national priority. Its world-class research, innovation and technology can help the UK prosper in a changing global economy. But success cannot be taken for granted. Without urgent action, a chronic undersupply of homes could jeopardise growth, limit access to labour and put prosperity at risk.
The Commission’s central finding is that rates of house building will need to double if the arc is to achieve its economic potential. This requires a new deal between central and local government – one which aligns public and private interests behind the delivery of significant east-west infrastructure and major new settlements, and which seeks commitment to faster growth through a joined-up plan for jobs, homes and infrastructure. Any deal must give local areas the certainty, freedoms and resources they need to create well-designed, well-connected new communities.”
Two significant transport infrastructure projects were seen by the NIC as critical to unlocking development: the East West Rail scheme connecting Oxford and Cambridge by rail and the Oxford-Cambridge Expressway road proposal. But the report also makes important recommendations as to necessary governance, seeking
• “New powers giving councils greater certainty over future investments, and allowing them to fund and raise finance for major infrastructure improvements that deliver new homes
• A jointly agreed plan for new and expanded housing settlements, supported by New Town Development Corporations and new infrastructure design panels
• New statutory spatial plans and investment strategies for each sub-region should be developed, as part of a 50-year vision for the arc as a whole”
The Government’s vision states:
“1.7 The government welcomes the NIC’s finding that up to 1 million homes will need to be built in the corridor by 2050, if the area is to maximise its economic potential.
1.8 The government has agreed a housing deal with Oxfordshire, committing to a target of 100,000 homes in the county by 2031 in return for a package of support for infrastructure and economic growth, which could include supporting the growth of employment sites across the county such as Science Vale, one of the most successful science and technology clusters in the UK. This rate of housing delivery would be consistent with a corridor-wide ambition for 1 million new homes by 2050.
1.9 The government pledges to build on the Oxfordshire deal by working with the central and eastern parts of the corridor in 2018, to realise its housing ambitions.
1.10 As the NIC has recommended, the government will also consider opportunities for one or more major new settlements in the corridor. It will do so by bringing together public and private capital to build new locally-proposed garden towns, using appropriate delivery vehicles such as development corporations. The government will work closely with the Homes and Communities Agency and local partners to explore such opportunities further.”
In terms of governance:
“1.15 The government invites local partners to work with it through 2018 to agree a long term vision for the whole corridor up to 2050. This will set out how jobs, homes and infrastructure across the corridor will be planned together to benefit existing and new residents, while balancing economic growth with the protection and enhancement of the area’s historic and environmental assets.
1.16 The government believes this long-term vision should be underpinned by a series of joint statutory plans across the corridor which would deliver the vision through the planning system. As a first step, Oxfordshire has agreed, through its housing deal with government, to bring forward for adoption a joint statutory plan across the whole county. The government urges other areas in the corridor to propose how they will work together with a view to adopting a small number of joint statutory plans at the earliest opportunity to ensure that planning for business and housing is coordinated with the delivery of strategic and local infrastructure.”
In terms of capturing increases in land value:
“1.18 The government will be consulting on changes to the mechanisms currently available to local authorities (the Community Infrastructure Levy (CIL) and Section 106 agreements) to make them easier to use and more flexible. This will enable local authorities to capture land value uplift taking place in the corridor more effectively. For example, the government will consult on changes to CIL that would make it easier for authorities to capture land value increases around new railway stations.
1.19 As a starting point, the government expects authorities and delivery bodies in the Cambridge – Milton Keynes – Oxford corridor to use existing mechanisms of land value capture, and the potential new mechanisms announced at Autumn Budget 2017 (subject to consultation) to capture rising land values from the additional public investment in a fair way, having regard to the announcements made at Budget 2017.
1.20 The government will also encourage authorities to explore the introduction of a Strategic Infrastructure Tariff, in addition to CIL, supported by appropriate governance arrangements. These approaches will require developers to baseline their contribution towards infrastructure into the values they pay for land.”
East West Rail
Network Rail made an application to the Secretary of State for Transport for a Transport and Works Act Order in relation to phase 2 of its East West Rail scheme on 27 July 2018, which is the central section of the line, including track and signalling upgrades between Bicester, Bedford, Aylesbury and Milton Keynes, including the reinstatement of a ‘mothballed’ section of railway between Bletchley and Claydon Junction. The deadline for representations is 7 September 2018. Phase 1, the western section between Oxford and Bicester, is already complete.
Oxford-Cambridge Expressway
Highways England is expected to announce its preferred route for the Oxford-Cambridge Expressway this Autumn. The three potential corridors are:
– Option A – southern, via Aylesbury, linking to the M1 south of Milton Keynes
– Option B – central, following the east-west rail corridor
– Option C – northern, roughly following the existing A421 to the south of Bicester and via Buckingham to the east of Milton Keynes
The local authorities and communities affected of course all have differing views as to the route that should be selected. A critical (you might guess from its title) piece about the project by George Monbiot, This disastrous new project will change the face of Britain, yet no debate is allowed was published by the Guardian on 22 August 2018. The scheme will be promoted in due course as a Nationally Significant Infrastructure Project. Given that the selected route will not be the subject of a Planning Act 2008 national policy statement it is inaccurate to suggest that “no debate is allowed“, although of course, as with other elements of the planning for CaMKOx, it has been iterative, without any form of Government framework that might be argued to require strategic environmental assessment.
Given the 9 November 2018 deadline for bids in the Garden Communities Prospectus, it is curious to note that Planning minister Kit Malthouse wrote to local authorities across the Cambridge-Milton Keynes-Oxford corridor on 26 July 2018, inviting them “to bring forward ambitious proposals for transformational housing growth, including new settlements” with a much earlier deadline of 14 September 2018:
“The National Infrastructure Commission has stated that realising its full potential as a world class economic hub would require delivery of up to 1 million new homes here by 2050. The Government welcomes this ambition. Last year, we set out a significant programme of investment in infrastructure, housing and business to support it.
Realising the ambition of 1 million homes here will require additional action from central and local partners. This action includes Government’s planning reforms, our national programmes such as the Housing Infrastructure Fund, the forthcoming national prospectus inviting proposals for locally-led new garden communities, and further work to understand the potential for housing growth across the corridor.
Government will also soon begin detailed analysis to explore potential locations for new settlements across the corridor, their alignment with transport infrastructure, and any environmental considerations.”
The precise choreography as between these calls for proposals, a decision as to the final route the Oxford-Cambridge Expressway (which in itself will be relevant to the identification of potential sites) and what local planning authorities should be doing in the meantime in relation to their emerging and submitted plans is also causing some concern within affected local authorities, if the letter dated 14 August 2018 from the leader of Vale of White Horse District Council, in response to the Malthouse letter, is anything to go by. And is the one million homes in addition to authorities’ current growth proposals?
In promoting what will be significant change for many in the Cambridge-Milton Keynes-Oxford arc and what will be of vital importance to the country as a whole (in terms of the potential that is there to be unlocked in terms of homes and economic growth) the Government is treading a fine line. Its strategy appears to be not to go down the route of one set-piece consultation document (along the lines of the much maligned HS2 white paper) but rather to promote (without the commitments to a fast-track through the planning system that were so controversial in relation to the ecotowns programme) a range of interventions, some ostensibly voluntary (hold up your hands if your authority wants growth – against the backdrop of likely combined authorities and joint plans), some inevitably less so.
Will local planning authorities and communities rise to the challenge? The notion of new community NSIPs appears to remain off the table, probably for good reason given the practical good sense in successful proposals being locally driven. But what if that one million homes figure is simply unachievable on a locally led basis?
The draft revised NPPF itself says very little on developer contributions, CIL and viability.
On contributions, paragraph 34 of the draft (headed, in contrast to the “developer contributions” document, “development contributions” – consistency of terminology would be good!) states:
“Plans should set out the contributions expected in association with particular sites and types of development. This should include setting out the levels and types of affordable housing provision required, along with other infrastructure (such as that needed for education, health, transport, green and digital infrastructure). Such policies should not make development unviable, and should be supported by evidence to demonstrate this. Plans should also set out any circumstances in which further viability assessment may be required in determining individual applications.”
On viability:
“58. Where proposals for development accord with all the relevant policies in an up-to- date development plan, no viability assessment should be required to accompany the application. Where a viability assessment is needed, it should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available.”
The Developer Contributions consultation document (responses sought by 10 May) addresses both contributions by way of section 106 planning obligations and by way of CIL. The document is accompanied by a research report commissioned from the University of Liverpool, The Incidence, Value and Delivery of Planning Obligations and Community Infrastructure Levy in England in 2016-17 which has some interesting statistics, underlining for me the scale of monies already being secured from development, over £6bn in 2016/2017:
It is clear from the consultation document that we are still on a journey to an unknown destination: “The reforms set out in this document could provide a springboard for going further, and the Government will continue to explore options to create a clearer and more robust developer contribution system that really delivers for prospective homeowners and communities accommodating new development.
One option could be for developer contributions [towards affordable housing as well as infrastructure] to be set nationally and made non negotiable. We recognise that we will need to engage and consult more widely on any new developer contribution system and provide appropriate transitions. This would allow developers to take account of reforms and reflect the contributions as they secure sites for development.
The proposals in this consultation are an important first step in this conversation and towards ensuring that developers are clear about their commitments, local authorities are empowered to hold them to account and communities feel confident that their needs will be met.”
First step in a conversation?? Contributions via section 106 planning obligations
The document sets out perceived disadvantages of relying on section 106 planning obligations, including:
– delays (but there is no mention of how these could easily be reduced by prescriptive use of template drafts and more robust guidance and the Government’s previous proposal for an adjudication process to resolve logjams in negotiations has been dropped)
– the frequency of renegotiations, most frequently changing the type or amount of affordable housing (but with no analysis of why this is so – often in my experience for wholly necessary reasons, often linked to scheme changes or reflection of changed government affordable housing priorities or funding arrangements)
– a concern that they may “only have captured a small proportion of the increase in value” that has occurred over the time period covered by the University of Liverpool research report (but, aside from where the scale of contributions has been depressed from a policy compliant position due to lack of viability, why is this relevant? Planning obligations should be about necessary mitigation of the impacts from development, not about capture of uplifts in land value ).
– lack of transparency.
– lack of support for cross boundary planning.
Despite these criticisms, the document does not propose significant changes to the section 106 process (or provide any timescale for the further review it alludes to) save for proposing to remove the pooling restriction (Regulation 123 of the CIL Regulations 2010) in areas:
* “that have adopted CIL;
* where authorities fall under a threshold based on the tenth percentile of average new build house prices, meaning CIL cannot feasibly charged;
* or where development is planned on several strategic sites”
The Government is consulting on what approach should be taken to strategic sites for this purpose, the two options being stated as: “a) remove the pooling restriction in a limited number of authorities, and across the whole authority area, when a set percentage of homes, set out in a plan, are being delivered through a limited number of large strategic sites. For example, where a plan is reliant on ten sites or fewer to deliver 50% or more of their homes;
b) amend the restriction across England but only for large strategic sites (identified in plans) so that all planning obligations from a strategic site count as one planning obligation. It may be necessary to define large strategic sites in legislation.”
I would prefer to see the pooling restriction dropped across the board. If authorities choose not to adopt a CIL charging schedule but to rely on section 106 planning obligations to make contributions towards infrastructure then why not let them, subject to the usual Regulation 122 test? I thought we wanted a simpler system?
There are sensible proposals for summaries of section 106 agreements to be provided in standard form (although we do not yet have the template), so that information as to planning obligations can be more easily made available to the public, collated and monitored. Contributions via CIL
The Government’s thinking on CIL continues along the lines set out alongside the Autumn 2017 budget and summarised in my 24 November 2017 blog post CIL: Haven’t Found What I’m Looking For ie wandering dangerously away from the CIL review panel’s ideas of a simpler, more uniform but lower charge regime. The proposed ability for authorities to set different CIL rates based on the existing use of land is inevitably going to make an overly complex system even worse, introducing another uncertainty, namely how the existing use of the land is to be categorised. The Government recognises that risk:
“Some complex sites for development may have multiple existing uses. This could create significant additional complexity in assessing how different CIL rates should be apportioned within a site, if a charging authority has chosen to set rates based on the existing use of land.
In these circumstances, the Government proposes to simplify the charging of CIL on complex sites, by:
* encouraging the use of specific rates for large strategic sites (i.e. with a single rate set for the entire site)
* charging on the basis of the majority use where 80% of the site is in a single existing use, or where the site is particularly small; and
* other complex sites could be charged at a generic rate, set without reference to the existing use of the land, or have charges apportioned between the different existing uses.”
One wonders how this would play out in practice.
It seems that the requirement for regulation 123 lists (of the infrastructure projects or types of infrastructure which the authority intends to fund via CIL – and which therefore cannot be secured via section 106) is to be removed, which is of concern since regulation 123 lists (the use of which should be tightened rather than loosened) serve at least some degree of protection for developers from being double-charged.
The Government is proposing to address one of the most draconian aspects of the CIL process – the current absolute requirement for a commencement notice to be served ahead of commencement of development, if exemptions and the right to make phased payments (where allowed by the authority) are not to be lost, is to be replaced by a two months’ grace period. However, this does not avoid all current problems as any exemptions would still need to be secured prior to commencement.
A specific problem as to the application of abatement provisions to pre-CIL phased planning permissions is to be fixed. These flaws in the legislation continue to emerge, a function of the complexity and artificiality of the whole edifice, which the panel’s proposals would significantly have reduced. In the meantime, we are some way away from actual improvements to the system we are all grappling with day by day, with no firm timescale for the next set of amending Regulations. Viability
The thrust of the draft planning practice guidance for viability is understood and reflects what had been heralded in the September 2017 Planning for the right homes in the right places consultation document – focus viability consideration at allocation stage, standardise, make more transparent – but there are some surprising/interesting passages:
– Is the Government contemplating review mechanisms that don’t just ratchet upwards? Good if so:
“It is important that local authorities are sufficiently flexible to prevent planned development being stalled in the context of significant changes in costs and values that occur after a plan is adopted. Including policies in plans that set out when and how review mechanisms may be included in section 106 agreements will help to provide more certainty through economic cycles.
For all development where review mechanisms are appropriate they can be used to amend developer contributions to help to account for significant changes in costs and values over the lifetime of a development. Review mechanisms can be used to re- apportion or change the timing of contributions towards different items of infrastructure and affordable housing. This can help to deliver sites that would otherwise stall as a result of significant changes in costs and values of the lifetime of a development.”
– Review mechanisms are appropriate for “large or multi phased development” in contrast to the ten homes threshold in draft London Plan policy H6 (which threshold is surely too low).
– The document advises that in arriving at a benchmark land value, the EUV+ approach (ie existing use value plus premium) should be used. The London Mayor will have been pleased to see that but will then have choked on his cornflakes when the Government’s definition of EUV+ is set out. According to the Government, EUV is not only “the value of the land in its existing use” (reflecting the GLA approach) but also “the right to implement any development for which there are extant planning consents, including realistic deemed consents, but without regard to other possible uses that require planning consent, technical consent or unrealistic permitted development” (which is more like the GLA’s approach to Alternative Use Value!).
Then when it comes to assessing the premium, market comparables are introduced:
“When undertaking any viability assessment, an appropriate minimum premium to the landowner can be established by looking at data from comparable sites of the same site type that have recently been granted planning consent in accordance with relevant policies. The EUV of those comparable sites should then be established.
The price paid for those comparable sites should then be established, having regard to outliers in market transactions, the quality of land, expectations of local landowners and different site scales. This evidence of the price paid on top of existing use value should then be used to inform a judgement on an appropriate minimum premium to the landowner.”
I am struggling to interpret the document as tightening the methodologies that are currently followed, or indeed introducing any material standardisation of approach.
The EUV+ position is covered in more detail by George Venning in an excellent blog post.
– There is a gesture towards standardisation in the indication that for “the purpose of plan making an assumption of 20% of Gross Development Value (GDV) may be considered a suitable return to developers in order to establish viability of the plan policies. A lower figure of 6% of GDV may be more appropriate in consideration of delivery of affordable housing in circumstances where this guarantees an end sale at a known value and reduces the risk.” However, there is no certainty: “Alternative figures may be appropriate for different development types e.g. build to rent. Plan makers may choose to apply alternative figures where there is evidence to support this according to the type, scale and risk profile of planned development.”
More fundamentally, I am sceptical that viability-testing allocations at plan-making stage is going to deliver. At that stage the work is inevitably broad-brush, based on typologies rather than site specific factors, often without the detailed input at that stage of a development team such that values and costs can be properly interrogated and without an understanding of any public sector funding that may be available. If the approach did actually deliver, significantly reducing policy requirements, so much the better, but that isn’t going to happen without viability arguments swamping the current, already swamped, local plan examination process.
Indeed, as was always going to be the case with the understandable drive towards greater transparency, the process is becoming increasingly theoretical (think retail impact assessment) and further away from developers opening their books to demonstrate what the commercial tipping point for them is in reality, given business models, funding arrangements, actual projected costs (save for land), and actual projected values. “Information used in viability assessment is not usually specific to that developer and thereby need not contain commercially sensitive data“.
The document contains more wishful thinking:
“A range of other sector led guidance on viability is widely available which practitioners may wish to refer to.”
Excellent. Such as?
Topically, this week, on 6 and 7 March, Holgate J heard Parkhurst Road Limited’s challenge to the Parkhurst Road decision letter that I referred to in my 24 June 2017 blog post Viability & Affordable Housing: Update. The challenge turns on the inspector’s conclusions on viability. Judgment is reserved.
We also should watch out for Holgate J’s hearing on 1 and 2 May of McCarthy and Stone & others v Mayor of London, the judicial review you will recall that various retirement living companies have brought of the Mayor of London’s affordable housing and viability SPG.
The great thing about about writing a planning law blog is that the well never runs dry, that’s for sure. (Nothing else is).
Simon Ricketts, 10 March 2018
Personal views, et cetera
“Nothing was delivered/And I tell this truth to you/Not out of spite or anger/But simply because it’s true” (Bob Dylan)
It was the first meeting on 5 February of the prime minister’s housing implementation taskforce. The subsequent press statement summarises the event as follows:
“Today the Prime Minister chaired the first meeting of the Housing Implementation Taskforce at Downing Street.
She stressed the integral role all Government departments have in helping to fix the broken housing market and deliver 300,000 additional homes by the mid-2020s.
The taskforce discussed the steps Government has already taken, including further investment at the Budget, planning reform, releasing land faster, the Housing White Paper and building more affordable housing. They emphasised the key role of Homes England in driving forward change, and also focused on the supply of new housing, public sector land sales, land banking, house-building skills and building the infrastructure needed for new housing developments.
The Prime Minister reiterated that a step change was needed right across Government and that all departments needed to think creatively about how they can contribute to building the homes the country needs.”
That “300,000 additional homes by the mid-2020s” reference is an interesting one, reflecting the Government’s previous 11 January 2018 announcement of the creation of Homes England:
“Homes England will play a major role in fixing the housing market by helping to deliver an average of 300,000 homes a year by the mid-2020s.”
This is surely a tactical step back from the Conservative party’s 2017 manifesto commitment, with no longer any pre-2022 election target:
“We will meet our 2015 commitment to deliver a million homes by the end of 2020 and we will deliver half a million more by the end of 2022.”
A significant proportion of the country’s homes will need to come forward in London – the Mayor of London’s draft London Plan sets a target of around 65,000 homes a year, a significant increase from the previous plan figure of 42,000.
These figures are only going to be achieved with a large degree of consensus between central government, the Mayor, boroughs and local communities. If I were prime minister (perish the thought) I would be worrying that in many areas, but particularly in London, there is increasing “spite or anger” (in the words of Mr Dylan). Inevitably, in any year with borough elections, planning becomes politicised but this year, with the repercussions of the Grenfell tragedy, the predictions of Conservative council losses and the internal battles within the Labour party, this is particularly so. EG has tracked the number of refusals in London up to the end of 2017. It makes for uncomfortable reading and the position will only be worsening.
Against that background, is there a crisp appeals process? Not at all. The Planning Inspectorate’s performance statistics are still poor:
Anecdotally, many developers and authorities are keeping politically controversial decisions away from committees until the other side of the 3 May local government elections, even though the formal purdah rules, summarised in a useful Local Government Association guide, largely allow for statutory processes to carry on.
The politically charged atmosphere in many boroughs isn’t just leading to refusals of permission against officers’ recommendations – leading in turn to officers having to spend time defending appeals, with inevitable repercussions for capacity to cope with other applications in the system – but it’s impeding the work of boroughs that seek to achieve housing development, particularly in relation to estate regeneration schemes, without which those London numbers are not going to be met.
Progress on the Haringey Development Vehicle initiative, brought forward by Haringey Council with private sector joint venture partner Lendlease, has now been halted by leader councillor Claire Kober, with no further decisions to be taken before purdah commences on 26 March until after the 3 May local election. Given that, following sustained pressure over the project, she announced on 30 January that she will not be standing for re-election, its long term future may be in doubt. This was a strategy to bring about widespread development on sites in the council’s ownership, including the proposed delivery of up to 6,400 homes. The HDV would in due course formulate development proposals for sites and make planning applications, applications which would be assessed as against planning policy, with the power for the Mayor to intervene in the usual way, but plainly in Haringey even the nature of the vehicle to be used to bring about development, presumably because of the role to be played in it by a private sector developer, was seen by objectors as unacceptable.
There is room for debate in a democracy as to the form that regeneration should take and the extent and types of affordable housing to be provided but if the HDV is not to happen, what will? In current political and financial reality, my fear is that an opportunity to increase housing at scale, including affordable housing, will be lost. It is vital that affordable housing, with tenures to meet needs, is provided. Will the collapse of the HDV render this more or less likely? What’s the alternative? What’s the objectors’ plan? To continue this position until a 2022 general election?
Whilst the politics played out, unpleasantly according to Councillor Kober’s account, Ouseley J was writing his judgment in Peters v London Borough of Haringey. This was a crowdfunded judicial review that had been brought on behalf of campaign group Stop HDV, seeking to establish that the council had acted outside its powers in proceeding with the project. The hearing had taken place over two days in October 2017 but Ouseley J’s judgment, over 50 pages long, was only handed down on 8 February 2018.
The main ground of challenge was a legalistic one if ever one there was: that the council had acted outside its powers in establishing with Lendlease a limited liability partnership as the vehicle to take forward its strategic aims, on the basis that section 4(2) of the Localism Act 2011 provides that where “a local authority does things for a commercial purpose, the authority must do them through a company“. The judge rejected the argument:
“To my mind, there is no doubt but that the Council’s purpose in entering into the arrangements setting up the HDV and governing its operation, including the relationship between the two partners, cannot be characterised as “a commercial purpose” within the scope of the Localism Act. Even more clearly is its dominant purpose not commercial. Any commercial component is merely incidental or ancillary, and not a separate purpose.”
“…the phrases to which Mr Wolfe took me do not show a separate commercial purpose, whether minor or not. It is important to examine why this is all being done. The purpose behind the Council’s entering into the HDV and associated arrangements is not that of a property investor, simply seeking to make a profit or to achieve a return on development or improved rentals. The purpose of the Council is to use and develop its own land to its best advantage so that it can achieve the housing, employment and growth or regeneration objectives that it has laid down. In order to achieve as much as it can, it has to achieve the best consideration on any disposal of its land; and it must be in other respects financially prudent, to produce returns in various ways which can be used to further its policy objectives. Achieving the return is neither the activity nor its purpose of itself.”
“The acquisition of other land in the context of regenerating a large estate is a commonplace, and, backed by compulsory purchase powers, it demonstrates not one whit that a separate activity of property development is being undertaken.”
In any event, the judge considered that the challenge in relation to this ground and others (lack of consultation, Equality Act) had been brought out of time. I understand that the claimant is likely to seek permission to appeal.
In another part of London, progress is still slow on another regeneration project that has been to the High Court and back, the Aylesbury Estate. I covered in my blog post Regeneration X: Failed CPOs the decision of the Secretary of State to decline to confirm Southwark Council’s CPO based on his concern as to the effects of acquisition on leaseholders, a decision which was subsequently quashed by consent following a challenge brought by the council. A second inquiry that has been taking place into the order was adjourned on 31 January 2018 to resume for a further two weeks on 17 April. Judging from a ruling by the inspector prohibiting further filming at the inquiry it has been a lively event so far.
According to the council’s statement of case:
“The acquisition of the Order Land will enable demolition of the existing buildings in order to replace the 566 existing units of social and privately owned housing with a mixed tenure development comprising 830 homes. Of these, 304 will be social rent, 102 will be intermediate (affordable homes available as shared ownership or shared equity) and 424 will be private (of which 48 will be for open market rent and the remainder for sale). Included in the social rent homes are 50 extra care units and 7 units for people with learning difficulties.”
Inevitably, whatever the gains in housing numbers to be achieved (and indeed the affordable housing of all tenures to be provided), there will be legitimately held concerns on the part of residents directly affected. The Mayor announced on 2 February 2018 “mandatory ballots of residents for schemes where any demolition is planned as a strict condition of his funding“.
Meanwhile, elsewhere in Southwark, Delancey has continued to face resistance in relation to its proposed redevelopment of the Elephant and Castle centre. At a committee meeting on 16 January, members overturned an officer’s recommendation to grant planning permission. A final decision has now been deferred, following a revised offer as to affordable housing and other commitments reportedly made by the developer.
Delivery of the right schemes, in a way which maximises the potential for affordable housing and the wide range of other requirements set out in the draft London Plan will not be easy. How will land owners and developers respond? Will the Mayor continue to intervene to direct refusal where the affordable housing proportion offered is considered to be less than the maximum reasonably achievable? Will he use his call-in powers where boroughs unreasonably withhold permission for schemes which would deliver homes at scale? The Government had proposed back in 2015 reducing the threshold above which the Mayor could intervene on planning applications from 150 to 50 homes but unless the Mayor is seen as using his existing powers regularly and proactively to increase housing delivery, this may remain on the Government’s to-do list.
The housing numbers that the Government is targeting will not be achieved without an active and engaged private sector. What if land owners choose not to release their land? There is a remarkable degree of consensus between the Conservative and Labour parties as to the desirability of using compulsory purchase powers. I covered the Conservative party’s manifesto thinking in my blog post Money For Nothing? CPO Compensation Reform, Land Value Capture (20 May 2017), in which I tried to set out some of the complexities arising from any proposal to change CPO compensation principles so as to strip out planning “hope” value (as opposed to just being smarter about using CPO powers in a way that hope values haven’t arisen in the first place). There was much publicity this month arising from an announcement from Labour shadow minister John Healey reported in the Guardian on 1 February that “Labour is considering forcing landowners to give up sites for a fraction of their current price in an effort to slash the cost of council house building“.
“Landowners currently sell at a price that factors in the dramatic increase in value when planning consent is granted. It means a hectare of agricultural land worth around £20,000 can sell for closer to £2m if it is zoned for housing.
Labour believes this is slowing down housebuilding by dramatically increasing costs. It is planning a new English Sovereign Land Trust with powers to buy sites at closer to the lower price.
This would be enabled by a change in the 1961 Land Compensation Act so the state could compulsorily purchase land at a price that excluded the potential for future planning consent.”
I haven’t seen any more detailed analysis of the proposal or indeed any fleshing out of the idea of an English Sovereign Land Trust. Personally I would prefer to see Homes England grasp the nettle, with their existing wide compulsory purchase powers, to acquire sites at a scale which would be difficult to achieve without compulsory purchase, thereby minimising “no scheme world” values. Labour’s English Sovereign Land Trust concept sounds very rural in concept and not a substitute for facing up to difficult challenges about maximising use in cities of public sector land, about densifying suburbs and about effective approaches to estate renewal.
And given the supposed cross-party support for increasing housing delivery, wouldn’t it be good to try to depoliticise the process where we can, rather than demonise the participants whether from public or private sector? I’ve previously blogged about the multiplicity of reviews being undertaken, to which list can now be added the CLG Commons Select Committee’s land value capture inquiry, for which the deadline for evidence is 2 March 2018). What scope can we find for consensus, about priorities, about the respective roles of the public and private sector, about funding of social housing and about the appropriate use of compulsory purchase?
Simon Ricketts, 10 February 2018
Personal views, et cetera
So now we know. We will all be continuing to scratch our heads over CIL.
My 25 March 2017 blog post CIL: Kill Or Cure? summarised the main October 2016 (but only published February 2017) recommendations of the CIL review team: “the replacement of the current system with a more standardised approach of Local Infrastructure Tariffs (LITs) and, in combined authority areas, Strategic Infrastructure Tariffs (SITs). LITs would supposedly be set at a low level calculated by reference to a proportion of the market value per square metre of an average three bedroom property in the local authority area…For developments of ten dwellings or more, there would be a return to the flexibility of section 106 for provision of site-specific infrastructure (netting off LIT liability) and of course abolition of the pooling restriction.”
The team’s brief had been: “Assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to recommend changes that would improve its operation in support of the Government’s wider housing and growth objectives.”
In February, the Government promised to respond to the team’s recommendations alongside the Autumn 2017 budget. Here we are, two years on from when the CIL review team’s work was commissioned in November 2015. The Autumn budget policy paper published on 22 November 2017 does indeed respond to the team’s recommendations, in the following terms:
Going through the proposals:
Removal of section 106 pooling restrictions, recommended by the CIL review team, is to be welcomed. Of course that should not be a green light for authorities in relation to a development proposal to revert to blanket tariff type section 106 requirements which would fail the regulation 123 test and wider principles recently set out by the Supreme Court in the Aberdeen case (see my 28 October 2017 blog post). Speeding up the process of setting and revising CIL, also recommended by the CIL review team, needs greater care in my view. It made sense as part of the review team’s concept of lower rates, arrived at in a more mechanistic manner than is currently the case. But there is no hint of lower rates in the Government’s proposal. Accordingly, close scrutiny is required. It is difficult enough as it is to have a meaningful influence on the process. The indication that higher zonal CILs could quickly be introduced to seek to capture land value uplifts around stations for instance is interesting but such interventions will need to be introduced with care if they are not in fact to discourage land owners from making their property available. Allowing authorities to set rates that better reflect the uplift in land values between a proposed and existing use was not a proposal that was considered by the CIL review team. It adds a further degree of complexity to the process. Charging schedules will have more categories. Precise floorspace calculations will be required not just of the proposed development but of the building that is to be replaced. Unintended consequences will inevitably arise and influence development strategies. A change of the indexation basis to house price inflation from build costs was not recommended by the CIL review team and will marginally complicate the process of calculating indexation, given that different areas will be experiencing differing inflation rates. And why is house price inflation relevant to non-residential floorspace? Allowing combined authorities and planning joint committees with statutory plan-making functions the option to levy a Strategic Infrastructure Tariff was recommended by the CIL review team but that was against the backdrop of CIL being replaced with a lower “local infrastructure tariff”. Any additional net cost to owners and developers will directly affect viability, ie reduce the amount of affordable housing that schemes could otherwise afford. If the ability to rely on viability arguments is to be reduced, as the Government separately proposes, this is definitely going to impede delivery. Furthermore, why does affordable housing always lose out to infrastructure, particularly when charging authorities are proving very slow in spending the CIL monies that they have so far collected?
The proposals make no mention of the CIL Review team’s proposal, widely supported, of allowing infrastructure to be delivered via section 106 agreements in connection with larger developments, recovering the flexibility and opportunities for efficiency that the CIL system has removed. What next?
There will be detailed consultation on these and other changes, ahead of or possibly alongside the draft revised NPPF (rumoured now to have slipped to April 2018) before regulations are made which would probably now not come into force until early 2019. Earlier regulations are expected to deal with the specific ambiguity within regulation 128A affecting section 73 applications (highlighted in the VOA ruling mentioned in my CIL: Kill Or Cure blog post and since challenged by way of judicial review by the charging authority, Wandsworth) – but the transitional provisions within those regulations, and the extent to which the clarification should have retrospective effect, will need careful thought.
For my part I find it incredibly disappointing that this whole process has been so slow and that the considered recommendations of the review team appear to have been cherry picked, destroying any internal coherence in what is proposed. Aside from correcting some obvious flaws, there appears to be nothing that will reduce CIL’s complexity, the problems arising from the multiplicity of exemptions, the straitjacket that it imposes in relation to more complex schemes and the high rates that are being set with little real scrutiny – indeed quite the reverse. The Government may have answers to these criticisms but simply relying on one paragraph in the budget policy paper really isn’t good enough.
Simon Ricketts, 24 November 2017
Personal views, et cetera
SIMONICITY 