ao link
Twitter
Facebook
Linked In
Twitter
Facebook
Linked In

You are viewing 1 of your 1 free articles

CPO powers are just part of a much bigger picture on land value capture

In response to a call for ‘fairer’ CPO powers for councils, Professor Tony Crook calls for bigger thinking

Linked InTwitterFacebookeCard
Picture: Getty
Picture: Getty
Sharelines

CPO powers are just part of a bigger picture – we need to capture development value secured by all, writes Professor Tony Crook #ukhousing

“If we focus only on development values we miss a potentially bigger prize in terms of land value capture,” writes Professor Tony Crook #ukhousing

Fairer CPO powers for councils risk “creating unfairness between owners whose land is compulsorily purchased and others selling land for new homes on the private market,” writes Professor Tony Crook #ukhousing

Land for new housing outside London costs roughly £2m a hectare, assuming planning consent.

Agricultural and industrial land cost £21,000 and £0.5m per hectare respectively.

Owners selling their farms or factories for new homes secure significant development value but these prices make building genuinely affordable new homes difficult.

Those compulsorily purchasing land for new housing must pay market value. If the land has planning consent or is allocated in an adopted local plan, this is likely to be close to the average market value of £2m a hectare.

And even if the land has neither consent nor plan allocation (the ‘no scheme’ provisions in legislation) the courts have held (the leading case is Myers) that, given the discretionary nature of our planning system, account must be taken of the probability of a future housing allocation. Thus some ‘hope value’ is paid on top of existing use value.

“To be fair to all landowners we must think of how to capture the development value secured by them all.”

Earlier this month Lord Andrew Adonis argued in Inside Housing that local authorities need ‘fair’ compulsory purchase order (CPO) powers and that local authorities should pay only existing use value, bringing land costs down, allowing more homes to be built and fostering more affordable rents.

Fair enough, but this risks creating unfairness between owners whose land is compulsorily purchased and others selling land for new homes on the private market and getting higher prices.

It also risks breaching human rights laws because the lack of financial equivalency may breach public interest and proportionality tests.


READ MORE

Land value capture: an idea whose time has come?Land value capture: an idea whose time has come?
Councils need fair compulsory purchase order powersCouncils need fair compulsory purchase order powers
We need to capture land development value for the public goodWe need to capture land development value for the public good

To be fair to all landowners we must therefore think of how to capture the development value secured by them all.

As Lord Adonis reminded us, the 1947 legislation was designed to place those who had their land compulsorily acquired and those developing it themselves on the same footing. The former got existing use value and the latter paid a 100% charge (ie tax) on development value. But when development charges were abolished in the 1950s, CPO compensation was left unchanged creating a significant unfairness between owners. Compulsory purchase compensation was later changed to current market value.

It would be unfair to again allow local authorities to compel owners to sell at existing use value unless we also devise fair ways of taxing development values of all other owners.

Although later post-war attempts to explicitly tax development value were unsuccessful, capturing it via planning obligations and the community infrastructure levy (CIL) has worked better.

More than £6bn in contributions were agreed in 2016/17 in England, defrayed mainly by developers paying landowners less.

As a result, greenfield site owners now keep only half their development value. The state takes the rest – about 30% via planning obligations and CIL (for local investment, including affordable housing) and about 20% via capital gains and stamp duty land taxes (for public expenditure generally).

We could capture more, although not at the cost of eliminating development incentives.

National taxes have a poor track record but more widespread adoption of good practice in agreeing planning obligations and eliminating exceptions and exemptions from CIL will help.

Crucially better coverage of local plans, specifying where and where not development can occur and setting out obligations policies (including affordable housing), will shape land prices.

And the recent court judgement in Parkhurst helps, stating that what the local plan required in planning obligations was determinative of what should be provided, not what developers paid for the land.

“Land values increase for all sorts of reasons of which the granting of planning permission is only one.”

As a result we can lower development values on all sites provided we have good and up-to-date plans in place.

Finally if we focus only on development values we miss a potentially bigger prize in terms of land value capture.

Land values increase for all sorts of reasons, of which the granting of planning permission is only one.

New infrastructure (think Crossrail 1 in London) and greater prosperity works through to higher property prices, including existing homes, yet these go largely or poorly taxed.

We need to think of better ways to tax these, such as removing homeowners’ exemption from capital gains taxes and reforming council tax by more regular revisions of values.

If we do this, the extra revenue will help to finance the affordable homes we so urgently need.

Professor Tony Crook, deputy chair, Orbit Housing Group

Linked InTwitterFacebookeCard
Add New Comment
You must be logged in to comment.