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Magic Bullets? Why Value Capture Should Be Kept Simple

The House of Commons Housing Communities & Local Government Select Committee Land Value Capture Inquiry report is great, but dangerous. It is a welcome reminder that the planning system can, and should, do more to capture the cost of the infrastructure required to support development. It is also problematic because it suggests a range of new “toys”, including a review of CPO compensation provisions, that is politically unworkable, a distraction and unnecessary.

Right Price

The report is clear that landowners, and developers on their behalf, already make significant contributions towards infrastructure and affordable housing. The combination of planning obligations and CIL can work effectively. With more local authority resource, greater transparency and a stronger emphasis on the local plan, even more can be achieved. As the report indicates, proper planning requirements should be viability tested and reflected in planning policy and a reformed and simplified CIL. Those needs will then, perhaps slowly, be “hardwired” into land prices. Land will be “right priced”.

No end to hope

A number of witnesses, and the evidence, emphasise that using planning policy is not a panacea. It will not fund all infrastructure requirements.  It will not solve the housing market problem.  Markets in different parts of the country are very different. The planning system can be used to secure a full contribution to infrastructure in parts of the South East, in a way that is simply impossible in parts of the North West.  Local planning processes can reflect those differences better than any sweeping national change.  Similarly, right pricing also requires some market sensitivity and testing. The aim should be to maximise the contribution that landowners make to infrastructure, whilst still allowing the land market to function. That means developing policies in a way that still leaves a sensible market value.

In urban areas that market value will, often, reflect the existing use value plus a sensible margin and an incentive to bring land to the market. For greenfield sites, the market value will need to reflect an amount needed for landowners, or promoters, to bring forward development and recycle value themselves into infrastructure delivery and place-making. However, landowners need to recognise that any existing “hope value” is not a permanent or fixed part of market value. As the market, planning policy and CIL levels change hope value necessarily also has to adjust. Any balancing exercise should diminish, but not dash, hope.

Thin Ice

Perhaps the more important Select Committee issue is the suggestion that the 1961 Land Compensation Act should be changed. In broad terms, the Committee recommend that land being compulsorily acquired should be acquired at existing use value instead of market value. That would be resisted. It would create a two-tier land market – with different values applying to adjacent plots depending on whether it is being sold on the open market or being publicly acquired. How would that work? Would that meet one of the tests that the Committee set for itself – fairness?

It is also unnecessary. The Committee attributes the success of the first generation of new towns to there being a different CPO compensation code, and suggests that the same result would not be achieved today. That is just wrong.  If a site for a new town is compulsorily acquired, the valuation will disregard the “scheme”.  In most cases, that will mean the land is acquired at something close to the existing use value – most sites would not be developed in the absence of the new town proposal. Even if, in the absence of the new town proposal, there would a development value to the site then a properly constructed planning policy framework will require any new development to fund the necessary infrastructure and the cost of doing so will be reflected in the land value.

Keep it simple

Why is there a need to change legislation to do something that can, largely, already be achieved without burdening the system with more complexity and change? It should be a fundamental principle of CPO compensation that landowners receive a proper market value for their land. The Parkhurst Road case has made it clear, quite rightly, that market values should reflect planning policy. If that happens, then the hope value component of market value will, properly, be adjusted by the proper attribution of infrastructure costs.   If, after the proper deduction of those costs there is still a margin and a residual hope value, what is the justification really, for amending the compensation code to take that?  If there is a justification for taking that capital gain then the tax system should be used to do so rather than playing games with compulsory purchase compensation which are ultimately likely to slow down development and unhinge investment.

Compulsory Sales Orders: An aid to regeneration in Scotland?

A new Compulsory Sales Order (CSO) power could tackle the blight of abandoned buildings and parcels of vacant and derelict land in town centres and communities across Scotland, according to a report published by the Scottish Land Commission (SLC).

The proposed new power would provide planning authorities with a mechanism to bring sites and buildings that have been unoccupied and/or derelict for an undue period of time, and where this is having a detrimental impact on the surrounding community, back into productive use.

Communities and local authorities already have a number of policy instruments – including compulsory purchase orders – which can be used to help regeneration. However, these policies require a clear plan in place as to how the land or building in question would be used. In many cases, local authorities and communities do not have a specific end use in mind for problematic sites but simply wish to see them used for some productive purpose. Resource constraints may also deter local authorities from pursuing a compulsory purchase action.

Although recent right to buy legislation would provide a potential route for bringing sites back into productive use, restoring some sites would be complex and technically challenging and, often, there is no desire on the part of the local community to take on such a project (see our Real Estate’s team’s recent article).

Whilst the SLC’s suggestion is that CSOs could be part of a toolkit to bring unused land back into productive use, the report states that a CSO would be used as a power of last resort and that councils and land owners should work together to try and find solutions first. As a CSO would involve the state directly interfering with an individual’s property rights by forcing a sale of the relevant property, the public interest in doing so must clearly outweigh the cost to the individual. Examples of the types of sites that might be tackled using the new power include sites such as empty homes, abandoned shopping centres, derelict hotels, gap sites and abandoned or derelict commercial buildings.

The SLC suggests that the real strength of CSOs lies in the role they could play in facilitating constructive dialogue between local authorities and owners of problematic sites. Certainly, in some situations, the serving of a preliminary investigation notice in relation to a site could incentivise an owner to take action.

The Scottish Government has committed to bring forward CSOs during the course of the next parliament and the SLC report is intended to provide the Scottish Government with a robust framework to do so. Clearly, any mechanism which could facilitate the redevelopment of vacant or derelict brownfield sites is to be welcomed, but it remains to be seen how Scotland’s already under-resourced planning authorities would be able to deal with the new opportunities should the SLC proposals be introduced.

Planning TV: Compulsory Purchase Orders (CPO) and Urban Regeneration

The emergence of the Housing White Paper in February 2017 saw increased attention to the role of Compulsory Purchase Orders as a tool for regeneration.

Planning TV spoke to Michele Vas at Dentons to gain a picture of the legal context behind CPOs, the legislation that enables CPOs to happen, and CPO guidance set out the government, outlining proper justifications for the application of CPOs for redevelopment projects.

Tayo Araoye at Westminster City Council spoke to us about CPOs in the Local Authority context and the effective community consultation and engagement processes involved.

We discussed the role of CPO legislation in the NOVA Scheme in Victoria SW1 with Justin Black at Land Securities, a shared vision between Westminster and Land Securities, and how CPO negotiations facilitated engagement with the project.

Brought to you by Dentons and Citiesmode it draws on the knowledge of a core panel of experts from across the sector, supplemented with special guests hand picked for their particular expertise. From Greenbelt to Brownfield, national planning policy to local plan-making and everything in between, Dentons Planning TV provides a unique insight into the thoughts of those involved at the sharp end.

Planning and the General Election: keys to long term success

With the General Election drawing ever closer, planning forms the battleground for a several controversial issues close to voters’ hearts, such as fracking and safeguarding the greenbelt. In particular, persistent difficulties in delivering new housing and infrastructure unite the parties in a common cause. More homes are needed, quickly, together with greater certainty around delivery of supporting infrastructure.

The extent to which the next Government succeeds in solving these problems will be determined by its appetite to grapple with a host of underlying difficulties. These include devising an effective model for land value capture, making the CPO process fit for purpose and addressing the chronic shortfall in local authority resourcing.

Despite obvious distractions elsewhere during this campaign, housing delivery still sits atop the planning agenda, with the manifestos all setting targets and the broad route needed to reach them. The Conservatives will point to steps already taken along this long and winding road – most recently through the Neighbourhood Planning Act 2017 and its predecessor the Housing and Planning Act 2016. Similarly, the Housing White Paper affords us the rare luxury of a detailed annex to the aspirations commonly found in (deliberately) loosely drafted manifesto commitments. Whilst less “radical” than badged, it establishes a framework of policy changes aimed at speeding up housing delivery, through measures such as diversifying the market, getting local plans in place and holding the public and private sectors to account for delivery.

Housing delivery at scale is recognised as being paramount. This requires a commitment to supporting the growth of new towns and garden communities – where the worlds of housing and infrastructure collide most spectacularly. The Liberal Democrats propose at least 10 new garden communities whilst Labour also underline the need to start on a “new generation” of new towns. The current system already supports that drive with the introduction of a potentially significant power in the Neighbourhood Planning Act 2017 allowing Regulations to facilitate the designation of areas as new towns and for development corporations to be established.

Whichever party emerges victorious on 8th June, there is a sense that the keys to long-term success are not entirely in their hands. We are witnessing a shift in emphasis towards the increased role of the public sector as an enabler of development. The extent to which they are willing and able to embrace that role will go a long way towards determining whether the same issues – and proposed fixes – will remain on the planning agenda in 2022.

The new New Towns Agenda

The third reading of any Bill in the House of Lords is normally fantastically dull. That was not true of what is now the Neighbourhood Planning Act 2017. Lord Mathew Taylor introduced a new and apparently innocuous clause that allows a completely new and parallel way of bringing new towns forward. It authorises the rewriting of the existing new town legislation, by regulation, to allow local authorities, or groups of local authorities, to ask the Secretary of State to designate an area as a new town and for a development corporation to be set up.

If agreed by the Secretary of State, then the local authorities will, effectively, step into the role that the Secretary of State occupied in the old new towns. They will control the way in which their new town development corporation is governed, operates and delivers new communities.  They will be accountable for successes.  They will be responsible for failures. Some powers will, inevitably, be retained by the Secretary of State, at least in the short term – the power to confirm CPOs and to authorise Local Development Orders. In time, with true devolution, even these powers could be left to the parent authority.

What will this mean? Many authorities are already exploring the possibility of new towns and particularly garden communities. One of the real difficulties is educating landowners that the cost of developing the necessary community and social infrastructure up front is significant, and that the legacy costs of stewardship will eat into land values, as much as if not more than the traditional enabling costs. This means that the normal landowner model of a minimum land value + a share of net proceeds or overage does not really work.  There is also a need to ensure that all land is bound into the same broad vision and programme. If that is not the case then the allocation of costs can be unfair.  The first phases will have to bear significant infrastructure costs that then increase the value of the land in later phases. If the later phases choose to develop independently then it may be problematic making sure that they bear their fair share of the initial place-making investment. A development corporation model helps to solve this. It allows early and extensive acquisition. It also ensures that the underlying “scheme”, the new town, is more completely disregarded for valuation purposes.

In practice, development corporations should rarely be necessary. Local authorities already hold most of the appropriate powers. However, the use of, or the threat of the use of, a development corporation may well be a helpful bargaining tool. It should allow local authorities to reach agreements with reluctant landowners. It should ensure that all parties contribute and benefit equally. It should be a weapon of last resort.

A complex process

We look at the current approaches to assessing compensation in the context of CPOs. The promotion of nationally significant infrastructure projects such as HS2, Crossrail and garden cities, together with the recent (and continued) support in the housing white paper for the use of compulsory purchase to assist in delivering housing, confirms that the use of compulsory purchase orders (CPOs) will play an increasingly prominent role in the delivery of development. The inevitable requirement of exercising CPO powers is that those dispossessed of their land are entitled to appropriate and fair compensation.

Read the full article

This article was first published in Property Law Journal (April 2017) and is also available at http://www.lawjournals.co.uk/.

CPO – gentrification or regeneration?

The recent refusal by the Secretary of State to confirm Southwark Council’s CPO for the next phase of the Aylesbury Estate development demonstrates a meticulous adherence to  parts of the CPO Guidance which have largely been paid lip-service to in many previous CPO decisions.

The mantra that a compulsory purchase order should only be made in the “public interest” is often justified by the inevitable regenerative benefits of development projects.

And that should be good enough, should it not?  – when not a day goes by that the news is reminding us of our housing crisis, that our town centres are failing, of the social divides which exist within our local communities and, as we wait with bated breath, to see what long-term impacts Brexit will have on construction, funding and development, once that axe is finally swung.

Indeed, both the Secretary of State and Inspector agreed that the redevelopment of the Aylesbury Estate would provide social and economic benefits to the area.  However, it was concluded that these benefits were not so significant to justify the lawful interference with the Human Rights of those objecting to the Order.  This was largely based on the conclusion that existing leaseholders, without investing significant savings or taking out new mortgages, would not be able to afford to relocate into new properties provided by the redevelopment and therefore forced to move away from their local community.  He also reached the conclusion that not enough effort had been made to acquire the outstanding interests by agreement.

gentThe decision raises some real issues for the CPO industry.  It paints an uncomfortable picture of CPO being a tool of gentrification, driving residents and small businesses out of their communities on account of rising land values and rents; the polar opposite of what a CPO is intended to achieve, which should be to improve and restore vitality to a local area.

It also creates a real tension with the current reforms to CPO compensation, which essentially seeks to ensure that those subject to compulsory acquisition should not gain any benefit from any enhanced value created by the regeneration scheme underlying a CPO.

It raises the question of whether Council’s should wrestle back control from developers when seeking to engage with those affected by CPO.  Most CPOs are developer-led and their surveyors will be at the fore of seeking to negotiate acquisition of land by agreement, albeit with a duty of care to the Council.  This possibly creates the wrong perception that there is a lack of engagement by the Council.  Greater visibility of the Council promoting the CPO and a genuine strategy to engage will be important.

Whilst the decision is, in some respects, a breath of fresh air that reminds us the impact CPO and redevelopment can have on individuals and local communities must be given more careful consideration together with a thorough review of solutions which can be put in place to maintain the identity of the local community.  One does have to question how genuinely balanced the decision was when the majority of existing residents had raised no objection, the scheme was set to deliver over 800 new residential units and other benefits; yet the CPO failed on the back of only 8 outstanding objections.

Southwark Council has announced they will be judicially reviewing the decision; a sensible move given its ramifications.

Manifesto for Planning 2015: please don’t reinvent the wheel

However the new Parliamentary balance of power plays out, planning will be in the frontline of addressing housing needs. The Conservative manifesto remained focussed on Localism and subsidies for first time buyers/ landowners. Labour had proposed rent control, infrastructure investment, public sector housebuilding and delivery of the Lyons Review recommendations, including the doubling of housebuilding in five short years through a new generation of Garden Cities.

Our manifesto for progress on the ground is simple:

  1. No new planning legislation. There has been some helpful, and some genuinely radical, planning reform in the vast swath of legislative paperwork spawned by the Coalition (Localism Act 2011, Enterprise and Regulatory Reform Act 2013, Growth & Infrastructure Act 2013, Infrastructure Act 2015, and a set of CIL Amendment Regulations every year since 2010).  Please stop legislating, at least for one Parliamentary term. There is now insufficient public sector resource to do much with legislation as it stands, let alone more of it. (see 8, below)
  2. No changes to the Town and Country Planning Act. pic
  3. No changes to the NPPF. Broadly it works.
  4. CIL agreements for major sites. CIL breaks down when applied to big projects. It makes sense to put agreements entered into ahead of CIL setting and during the application process on a footing that prevents viability debates and creates certainty about land value and infrastructure delivery.
  5. A National Policy Statement for Housing which sets defined Broad Housing Market Areas and needs and a tiny change to the Planning Act 2008 to allow (but not require) DCOs for housing above the 5,000 units mark.
  6. Fiscal incentives for authorities to allocate land to meet needs. None of the manifestos tackle the issue that dogs what is meant to be a plan-led system – there are no local political incentives to plan for growth to meet needs. They are, in fact, usually perfectly aligned in the opposite direction. Failure to plan will be rewarded by re-election. A clearer relationship between land allocation and infrastructure planning and Government grants would clarify local decision making.  Funding that is tied to allocations, LDOs and authority-sponsored DCOs makes sense.
  7. A national template highways agreement and a national template planning agreement. So much time is wasted in unnecessary, cruel and unusual drafting that could be so much better spent on decisions about where, when and how we are going to build (not just approve) an extra 200,000 homes every year for the next Parliamentary term to meet the minimum of needs.
  8. Resourcing planning.  In many local authority legal departments the last person to leave has already switched off the lights and departed for a remotely operated shared services regime.  Planning officers are a endangered species. Highways teams have been outsourced en masse. Despite this there is some committed work done in challenging circumstances.  The development industry should look harder at how it can support the public sector.  Authorities in turn should recognise that delivery will now often require outsourcing to the most capable external advisers at developers’ cost, rather than holding onto what is seen as a revenue stream amidst unprecedented under-capacity.
  9. Sort out the CPO process.  It is too long winded and unfair.  The Law Commission did an excellent report on how it could be improved and that should be dusted off.  And allow the private sector to initiate the CPO process – after all if it is acceptable for CP powers to be given as part of the DCO process why cannot there be a similar ability to support housing and smaller scale development?
  10. Transparency and viability.  We need to make the viability assessment process less opaque and more open.  We also need to make sure that if viability is addressed as part of the local plan process then it should be rare for the policies to be challenged afresh application by application.  But where viability is raised as a reason for non-compliance with policy then the figures, in an appropriate form, should be available for the public to review.

Housing needs a must

At last there is a political consensus that there is a massive housing shortage in this country.   Three-quarters of the British public now agree. Only a minority of MPs believe that the solution is out of the Government’s hands – credible solutions to the shortage may well win votes.  This is the first in a series of posts that looks at the housing policy platforms of each main party, starting with Labour.

Lyons Roar

The NPPG has been a convenient tool to grab headlines for the Government.  The general thrust of most recent changes has been that so-called “red-tape” is being cut to facilitate housing delivery.  A couple of weeks ago, as some Councils grappled with how to calculate Vacant Building Credit and lamented the loss of affordable housing contributions, we learned more about the Labour proposals to deliver housing floated in the Lyons Review.

Labour want to recapture the post-war spirit for building new homes, matching that renewed ambition with a drive to build high quality homes and great places for new communities.  This has been a consistent message from the Shadow Housing Minister since she stepped into her role.  Easy to say, more difficult to deliver.  NIMBYs have not disappeared. Nevertheless Labour propose the construction of 200,000 new homes each year by 2020.  They propose doing this by:

  • Making tackling the housing crisis a national priority;
  • Giving local communities stronger powers to build the homes needed in the places people want to live;
  • Giving first time buyers priority access rights in new Housing Growth Areas;
  • Creating a major new role for local government in commissioning and delivering housing developments;
  • Building more affordable homes;
  • Increasing competition in the housing market and boosting small builders; and
  • Building a new generation of New Towns and Garden Cities.

Larger than local – mind the gap

No return to regional planning is proposed. In fact Labour see an increasing role for local government in assembling land, delivering infrastructure and commissioning housing development, with powers to prevent land banking.  Labour propose addressing the fall in housing delivery by small and medium size builders by providing access to low cost loans. Delivery of designated housing growth areas “at pace” and a new generation of new towns and garden cities are seen as the proposals most likely to deliver the significant housing numbers required.  Much of this builds on the Lyons Review, the most comprehensive recent review of the housing crisis and how to solve it.

Something still to give

Unfortunately, the announcements to date do not fully embrace all of the Lyons recommendations and it remains to be seen whether, for example, the measures on CPO and land value will be taken forward.  We will find out in May if Labour will get the opportunity to implement their plans.

With thanks to Janine Shaw for assistance with this blog

Difficulties of delivering major development

Delivering major development is difficult. One of the deterrents is often the need to assemble fragmented land ownerships. The availability of compulsory purchase powers is critically important to give developers some certainty that they will be able to deliver. The powers should be available and should be used more widely.

However, CPOs should only be used as a last resort. In some recent cases there appears to have been a move to treat negotiations and voluntary deals as an irritant rather than a requirement.  For example:

  • some CPOs are being made before any real approach to significant affected landowners by either the Council and/or the developer. Even if a CPO is inevitable, an early approach to those affected should be a pre-condition of the Order being made;
  • if negotiations have been started they have been pro-forma and tick box -designed mainly to ensure that there is a paper record of contact rather than because there has been a genuine effort to agree terms;
  • where efforts have been made to deal with landowners there is no real negotiation.  Too often sham terms are offered to landowners. They give, effectively, an option to the developer to acquire at a point in the future if the CPO is confirmed and they decide to proceed. That should never be acceptable. If a CPO is being sought, then the acquiring authority/developer should be willing to acquire the land now. After all, the land affected by the CPO is effectively blighted;
  • even worse, in some cases the “negotiations” have been limited to offering a present day fixed price for the land, to be paid only as and when the development commences.  No-one would accept that in a normal commercial arrangement so why is it thought to be acceptable in the context of a CPO?
  • sometimes the lack of negotiation may have, or may be seen to have, equalities complications.  Too often the evidence seems to suggest that some minority groups are not being dealt with properly.  All parties affected by CPOs should be dealt with equally.

These emerging practices are dangerous. If continued they risk undermining future support for CPOs. That would then undermine development. Everyone involved in a CPO process should treat it as imposing serious public law duties. Land should, if at all possible, be acquired privately; CPOs should, genuinely, be a last resort. Where it is needed those affected should be dealt with fairly and equally and on terms that are commercially sensible.