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Capital Gains

Dentons, together with URBED and Gerald Eve, were instructed by the Greater London Authority to look at international land assembly practices, to feed into recommendations on those conditions that would best support land assembly for house-building in London.  On 14 May the Deputy Mayor, James Murray, published ‘Capital Gains: A Better Land Assembly Model for London’ which brings together the research evidence and sets out 10 recommendations to support a shift in land assembly practice.

In London, the assembly of land is often seen as one of the main challenges to increasing build-out rates. The report identifies several barriers to land assembly in London, ranging from factors inherent in the sites, such as contamination, to factors associated with ownership, such as the extent of fragmentation and compensation expectations. The research evidence focussed on three European case studies – ZAC Claude Bernard in Paris, Freiburg in Germany and Amersfoort in The Netherlands – and a North American case study focussing on Toronto, Canada and Oregon, USA. The research identified policies, strategies and procedures that have been applied positively to facilitate land assembly and accelerate the pace of delivery. Those measures that we consider are the ‘best fit’ for London form the basis of the 10 recommendations.

A core recommendation is the introduction of a new planning designation termed ‘Land Assembly Zones’ (recommendation 1). These are strategic sites or areas where land assembly will be supported, through interventionist measures if required. The aim is to provide a focus and to encourage land owners to self-assemble, with a designation as a LAZ being accompanied by an ‘in principle’ resolution to exercise compulsory acquisition powers (recommendation 2). This would be a clear signal to landowners, and also an invitation to developers to bring forward proposals in the area.  The measures recognise that limited resources are available for public intervention and we expect the zones will be focused on those areas where housing density can be significantly increased if land is assembled into larger development parcels, where fragmented ownership is a real development constraint and, initially at least, in areas with good transport connections.  We recommend that land values are frozen for CPO compensation purposes on the date of designation, to crystallise the ‘hope element’ of the CPO compensation (recommendation 8).

The second core recommendation is the introduction of statutory land pooling. We recommend that the GLA prepare template documents to support the voluntary bringing together of land, drawing on the Dutch Building Rights model of sharing value uplift. In the longer term we recommend that this voluntary approach be underpinned by a new statutory mechanism (recommendation 7). We see that mechanism covering two scenarios: a private sector model, driven by landowners and a public-sector model led by the GLA or local authority.  In both scenarios the compensation paid to landowners would include part of the marriage value of the assembled site. Although not a formal recommendation in the body of the report we explore the possibility of “density bonuses” where land is masterplanned and assembled, potentially also delivering additional value and an incentive to self assemble.  We see this type of land pooling having application on all scales of site. We suggest the creation of a multi-disciplinary team to support boroughs and developers in tackling strategic and difficult sites, with the devolution of additional finance to support this (recommendation 10).

The report makes further recommendations regarding the acquisition of land, including allowing the confirmation of CPOs in the interests of ‘good planning’ ahead of planning consent being granted. Developers of large strategic sites need certainty at the start of a project that the entirety of the land will be available, even though it may not be built out for several years. Against that backdrop it is unrealistic to expect there to be a fully worked up scheme. We suggest that weight be given to the LAZ designation (which itself will be the subject of scrutiny) when considering whether the confirmation of the CPO is in the public interest (recommendation 4). In order to facilitate this we believe the power to confirm borough CPOs should be delegated to the GLA (recommendation 5).  This would assist in embedding ‘innovative’ approaches to the exercise of CPO powers. For example the introduction of a ‘use it or lose it’ approach to CPO land. If development on land which has been acquired compulsorily does not proceed the GLA or local authority should step in to hold that land, and any other land owned by the proposed developer, to ensure it is brought forward for development.

Mind the Gap – Letwin Review should take care to avoid policy overload

The Letwin Review is considering why there is a significant gap between the number of planning permissions being granted and the number of homes built.

Initial findings are due to be published with the Chancellor’s Spring Statement 2018 in March (with the final report in the Autumn Budget).  There are a few things to think about before engaging in another orgy of Plan-Shaming and policy overload.

Apples and Pears

There is a need to be careful about how sites are looked at in the first phase of the Review:

  • Treating outline consents as if they are, or should be, immediately implementable is wrong. Outline consents can require significant work to reach detailed approval, let alone readiness for mobilisation and delivery.
  • Care is needed too, on what is treated as ‘delivery’.  Site mobilisation (for example enabling infrastructure) takes time and pre-dates construction of homes.

Defining what delivery and success look like is therefore important to avoid categorising sites that are being invested in – but have not yet yielded homes – as dormant. This will be significant in the context of the emerging Housing Delivery Test, which should be a fundamental part of the Local Plan system.

90% of percentages are wrong…

Various figures are bandied around on how many consents are ‘unimplemented’. Even adopting the higher level figure of 423,000 unimplemented homes with consent:

  • that is a tiny proportion of total supply – roughly 12-14 months of planning approvals
  • it illustrates the need for a deeper stock of permissions to achieve the heroic build out rates the Government is now committed to.

A Local Plan system which made more (and more detailed) site allocations, with clarity about infrastructure requirements, would make a big contribution to closing the gap between in principle approval for development and the detail needed for delivery. Likewise, a Local Plan system that sniffed and snuffed out unrealistic assumptions on delivery rates when trajectories are being examined would help ensure the right number of consents are granted in the first place to create the stock needed.

Diversification

Businesses will generally develop at the rate they are best able to achieve and which reflects the overarching price/demand relationship.  Rather than blaming the private sector for the speed it can – prudently –  build at, it would be more productive to look at how to achieve an increase in direct delivery (or directed delivery) by public bodies which have historically made up at least 100,000 of the gap to the Government’s 300,000 homes per year commitment.

In some cases that will involve more assertive use of land assembly and policy tools in a way that creates greater certainty about land values up front so that builders can build and sell more quickly.

Planning blame-fest?

Evidence from the sector on the non-Planning constraints to delivery is important.  Is there a skills gap, what will Brexit do to it and if Government is sponsoring Brexit how will it sponsor the solution?

From the frontline, a few of the  Planning matters that do slow things down are:

  • Length of time taken to deal with highways works agreements. The absence of a standard template agreement is a real blight on the development process.
    Constant reinvention of the wheel and imposition of poorly drafted and unreasonable requirements does have a real impact on the site mobilisation process. Government could sponsor a standard form and issue guidance recommending its use.
  • The bloat and general time-soak associated with unnecessary use of planning obligations. Our ‘speeding tickets’ blog flagged ways to speed things up without scarce Parliamentary time being needed.

Deliverability vs Delivery – Court of Appeal confirms NPPF approach

The Court of Appeal has clarified the meaning of ‘deliverable sites’ in the key housing land supply provisions of Paragraph 47 NPPF (5YHLS).  As well as emphasising the need for pragmatism when applying the NPPF, the judgment confirms the need to get timing right if challenges are to be made to the assumed rate of housing delivery.

Supply test in question

In St Modwen v SoS CLG, the developer challenged the housing trajectory put forward by the authority to satisfy the NPPF 47 requirement to show specific deliverable sites sufficient to provide five years worth of housing against objectively assessed need. NPPF Footnote 11 confirms that ‘deliverable’ means available now, offer[ing] a suitable location for development now, and […] achievable with a realistic prospect that housing will be delivered on the site within five years and […] viable.

The Inspector disagreed that sites without permission should be excluded.  She accepted that the rate of consents was likely to increase in light of the draft plan.  She acknowledged a distinction between deliverability and likelihood of delivery: ‘…it may well turn out that not all allocations currently identified as deliverable will in fact be delivered’. The submitted HLS figures were robust, because ‘the assessment of supply is distinct from that for delivery’.

The Secretary of State accepted the Inspector’s finding that there was a 5 year HLS and dismissed the two linked appeals.

Courts insist on common sense

The High Court and the Court of Appeal dismissed the argument raised in seeking judicial review of the decision that the SoS had misunderstood and misapplied the concept of ‘deliverability’.  He should, it was claimed, have considered what would ‘probably be delivered’.

The Court of Appeal disagreed that Ouseley J’s judgment in the High Court suggested that assessment of ‘what probably would be delivered’ is part of, not separate from, the assessment of deliverability.

Ouseley’s judgment – that the assessment of “deliverability” … is an assessment of the likelihood that housing will be delivered. [It] does not require certainty that the housing sites will actually be delivered’ (emphasis added) – simply reflected the distinction between the HLS figure required under the first part of NPPF47 and the ‘expected rate of delivery’ required for the trajectory under the second part.

The Court of Appeal once again went out of its way to criticise ‘unreal’ arguments on the meaning of NPPF policy, holding that:

  • there is a consistent and intentional distinction in the NPPF between ‘deliverability’ and the ‘expected rate of delivery’;
  • deliverability in footnote 11 concern sites’ capability of being delivered – not the certainty/ probability of delivery;
  • the appeal decision was being taken in light of NPPF49, engaging the question of demonstrable 5YHLS, not a question about the ‘the expected rate of housing delivery’.

So what?

The judgment serves to emphasise that:

  • there need only be a ‘realistic prospect’ of delivery for sites to be relied in within the 5YHLS;
  • challenges to the assumptions around the expected rate of delivery generally need to be taken up at the Local Plan examination stage;
  • Local planning authorities do not control the housing market. The NPPF recognises that.’

The last point underlines the fact that LPAs play a critical role, but are only one part of the housing delivery jigsaw. It is also illustrates how important the Housing Delivery Test will be, as a sense check on assumptions and progress, if it is introduced as promised in the Housing White Paper.

The new New Towns Revolution

In May we wrote about Lord Matthew Taylor’s clause in what became the Neighbourhood Planning Act 2017 introducing provision for locally led new towns. The clause provided a skeleton framework.

Flesh is now being put on the bones. Draft regulations have been published by DCLG setting out the way in which local authorities will step into the place of the Secretary of State and oversee locally led new towns. With the exception of the power to confirm CPOs, local authorities will be responsible for guiding and monitoring the new New Towns.

Building on the experience of the old New Towns, local authorities will be required, from the outset, to plan for the long term stewardship of the assets of the new town for the benefit of the community. As described in the consultation paper this should ensure that the powers are used to create places “that are sustainable for the long term, with the resources to reinvest both in the renewal of the physical place and support a thriving and diverse community“.

The only false note in the draft regulations is a requirement for Treasury consent if the outstanding borrowing of a development corporation is in excess of £100 million. Almost any genuine new town will, at least potentially, need more debt than £100 million. The “risk” that the Treasury may refuse consent or impose conditions on it makes it far less likely that the development corporation model will be used. Having committed capital to acquire the land and provide infrastructure, no sensible local authority would want to take the risk of not being able to complete the development and secure a return on that investment.

Since the Chancellor explicitly endorsed the idea of five new towns, without financial recourse to the Treasury, it is assumed that this “hangover” from the old New Towns will be lifted.

Free-Standing Sustainable Development Assessment a Mistake

In Reigate and Banstead BC v SoS CLG [2017] EWHC 1562 (Admin), Lang, J quashed permission granted on appeal for development on greenfield land intended for release in the development plan only if needed to boost housing land supply (HLS).

The recently-adopted Local Plan provided for almost a 5 year HLS, constrained so as to be unable to meet full objectively assessed need (OAN). Despite its “urban area first” strategy, the Inspector worked on the basis that sustainable development should be approved in the absence of harm.  He found that there was not basis for dismissing it because the proposal would reduce the HLS shortfall against OAN over the plan period and would not significantly prejudice the spatial strategy given its scale (45 homes).

The authority challenged the decision on the basis that the Inspector had inverted the statutory requirement to determine the appeal in accordance with the development plan, subject to material considerations otherwise (s38(6) PCPA 2004).

The judgment identifies ten key propositions for NPPF14 cases, including:

  • The need to distinguish between local and national policies which describe what qualifies as sustainable development (e.g. NPPF 6, 7, 18 to 219) and policies that determine when a presumption in favour of such development arises.
  • That the NPPF 14 exhaustively defines when a presumption in favour of sustainable development can arise. There is no general presumption outside NPPF 14 (applying Trustees of the Barker Mill Estates v SoS CLG [2016] EWHC 3028 (Admin) and Cheshire East BC v SoS CLG [2016] EWHC 571 (Admin)). The Inspector could – in theory – have reached the same outcome by applying the s38(6) starting point but giving in efforts to close the OAN gap greater weight.  However, the judgment implies that in the absence of something significant – such as evidence that local housing stress had worsened substantially since the Local Plan was adopted – the decision would be have been doomed to the same fate.
  • One proposition seems out of kilter with the rest – that the NPPF14 presumption “does not extend to a proposal which conflicts with the development plan“. Although not relevant in Reigate, NPPF14 is explicit that the presumption does extend to such proposals where (1) the development plan is absent, silent or relevant policies are out‑of‑date and (2) any adverse impacts of granting consent would not significantly and demonstrably outweigh the benefits considered against NPPF policies in the round (and no specific restrictive NPPF policies apply – which should now include ‘related’ development plan policies following Suffolk Coastal District Council v Hopkins Homes Ltd & Onr [2017] 1 WLR 1865).

Viability Decisions – Care Needed on ‘Market Value’ Assumptions

The recent Parkhurst Road appeal decision emphasises the importance of understanding how  land value expectation (and so the price for land) should reflect planning policy requirements.

The appeal decision dismissed the 96-home proposals for the disused Territorial Army centre on Parkhurst Road, Holloway on the grounds that it would not provide the “maximum reasonable” level of affordable housing, as required by the council’s core strategy. The appellants offered ten per cent affordable provision, reflecting a purchase price of £13.25 million (which, in light of nearby sales data, was said to be the market value for the site). The Inspector accepted the authority’s approach, starting with the site’s established use value (EUV) and applying a significant premium, to reach an overall benchmark nearly half that put forward (at which 34% provision was feasible).

Caution is needed on whether the decision is really a game-changer or just a reminder of home truths.

Benchmark, not Landmark

The decision is a benchmark, of existing policy, rather than a landmark in terms of a new approach. It shows a willingness to take policy and guidance at its word and treat land value as genuinely residual to policy requirements (even where they are expressed to be ‘subject to viability’).  It does not junk the comparable approach, nor does it undermine the use of either a substantial premium to Existing Use Value  (EUV Plus) or use of Alternative Use Value where appropriate to reflect the need for an incentive to release land.  It is a reminder of the need to critically examine evidence of comparable values to weed out those which failed to comply with policy in the first place (i.e. are not truly comparable).

It also illustrates the role that the Mayor’s Housing Supplementary Planning Guidance (March 2016) will play in London in clarifying that the outcome should rarely be different whether either the EUV Plus or the RICS market value basis is used properly.

Context is everything

The backdrop to this particular decision also matters. In a previous (2015) appeal, the Inspector’s finding that the price paid was broadly reasonable in light of ‘market signals’ (competing bids and comparables) resulted in a letter from the Government responding to the threat of legal proceedings by Islington acknowledging that the PPG’sunambiguous policy position” is “in all cases land or site value … should reflect policy requirements and planning obligations…”.

The 2017 decision adopts a more critical approach to giving effect to that, but is not really that different to other appeal decisions through the years which reflect the same fundamental point already flagged in the PPG (look back, for example, at the 2013 Holsworthy Showground decision) discounting price paid as an overbid against true market value.

Technical Pointers

Both the 2015 and 2017 decisions acknowledge the appropriateness of a viability Review. A 24 month ‘grace period’ was acceptable to avoid a pre-implementation Review but seeking a 22% margin at the Review stage when the effective profit on the 10% AFH offered at appeal was 18% was – sensibly – rejected on the basis that the development risk is already rewarded by the preserved return of 18%.

It is also significant that a requirement not to leave the homes empty for more than 3 months (under its adopted Preventing Wasted Housing Supply SPD, July 2015) was rejected on the basis of doubts about both the justification for, and the enforceability of, the obligation. The latter point should be scrutinised as a proper consideration in judging the reasonableness of the obligation – not least because it would suggest that the kind of obligations required by the St Ives Neighbourhood Plan could never be given effect.

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.

Court of Appeal Confirms Full OAN Benchmark for Sensitive Area Developments

We commented on Knight Developments saga applying for 100 homes in the Ashdown Forest last year. Although upholding the High Court’s decision to quash the appeal permission, the Court of Appeal has confirmed that authorities resisting applications in National Parks and AONB will need to push the boat out on the duty to co-operate at the Local Plan stage to avoid being caught out on appeal.

Mitigation certainty

The High Court quashed an Inspector’s decision granting permission following errors in relying on recreational mitigation measures to offset traffic-related nitrogen deposition impacts on the Special Protection Area (SPA) and Special Area of Conservation (SAC).  The Court of Appeal agreed – by failing to identify any ‘solid’ S106 mitigation proposals, it was impossible to establish with reasonable certainty that the relevant mitigation, including heathland management, would actually be delivered for the purposes of applying the precautionary principle to assessing SAC/SPA harm.

Exceptional Circumstances

The High Court also rejected the Inspector’s approach to considering Objectively Assessed Needs (OAN) when applying the NPPF116, which states that (emphasis added):

“Planning permission should be refused for major developments in these designated areas except in exceptional circumstances and where it can be demonstrated they are in the public interest. Consideration of such applications should include an assessment of:

  • the need for the development, including in terms of any national considerations, and the impact of permitting it, or refusing it, upon the local economy
  • the cost of, and scope for, developing elsewhere outside the designated area, or meeting the need for it in some other way
  • any detrimental effect on the environment, the landscape and recreational opportunities, and the extent to which that could be moderated.

The Inspector dismissed the alternative sites put forward by the authority not because they were unsuitable, but because ” the existence of other sites, which collectively still fall short of the full OAN, does not amount to an alternative“. He therefore did not use the constrained version which the Core Strategy was designed to meet (taking the SAC/ SPA and other constraints into account).  The High Court judgment appeared to suggest that alternative sites must be considered in detail, regardless of whether they would meet the FOAN.

Clunking Fist of OAN

The Court of Appeal disagreed:

  • There is nothing in the NPPF requiring alternative sites to be looked at across the whole of a local planning authority’s administrative area, or to an area larger or smaller than that. The area of search will be fact specific.  As a matter of fact, the Inspector had looked at both the local and the wider District housing land supply position.
  • Because most of the district was within the AONB, there were few alternative sites suitable for housing development that were “not equally constrained” as the appeal site.  The view that such other available housing sites were unlikely to meet unconstrained OAN was a matter of planning judgment.

Although it upholds the High Court judgment on the SAC/ SPA mitigation point, the Court of Appeal judgment nonetheless expressly endorses the use of FOAN as the benchmark for considering the relevance of alternative sites in National Parks, the Broads and Areas of Outstanding Natural Beauty. Where up to date Local Plans are adopted to deliver a constrained OAN, these areas are still open to appeals where the level of housing need not being met through the duty to co-operate is less than the up to date FOAN (and the decision-maker is prepared to give meeting needs exceptional weight).

Valued Landscapes Must Be Something Special

In Forest of Dean District Council v Secretary of State for Communities And Local Government& Anor [2016] EWHC 2429 (Admin), the local authority failed to quash the grant of permission for 95 homes in the open countryside on appeal. The development was in an undesignated landscape area. The authority claimed it was ‘valued’ nonetheless (so engaging NPPF 109 – requiring a starting point of “protection and enhancement” rather than a planning balance).

Out of the ordinary

Valued landscape is that which is “out of the ordinary”, rather than designated or simply popular (Stroud District Council v Secretary of State for Communities and Local Government [2015] EWHC 488 (Admin)). The Inspector decided there were “no particular landscape features, characteristics or elements that demonstrate that the appeal site is in [landscape assessment] terms representative of the wider landscape i.e. a particularly important example which takes this site beyond representing anything more than countryside in general“. However he also concluded that  ‘valued landscape’ must mean a landscape that is considered to be of value because of particular attributes that have been designated through the adoption of a local planning policy document.

The Secretary of State accepted the claimant’s argument, that this was a misapplication of NPPF 109, but resisted quashing of the decision on the basis that the decision would have inevitably been the same. The developer fought back harder, on the basis that the Inspector properly found the landscape not to be valued because it lacked the necessary attributes, and so approached the NPPF 109 policy lawfully.

The claim was dismissed on the basis that while the Inspector’s phrasing was in places “less than optimal”, he had ultimately properly determined the issue having addressed the critical question of whether the landscape had extra-ordinary aspects taking it beyond ‘mere countryside’. The outcome would therefore have been no different.

The status and effect of valued but undesignated landscape is an increasingly common element of objections to greenfield housing schemes. Understanding whether there is any underlying objective basis for local perception of value is crucial to deal properly with these issues.