Granting planning permission massively increases land values

[M II A II R II K]

Granting planning permission massively increases land values. Shouldn't the state get a share?


June 18, 2015

By David Fagleman



Read More: http://www.citymetric.com/politics/g...get-share-1154

PDF Report: http://www.respublica.org.uk/wp-cont.../Devo-Home.pdf

For many years, those in housing and planning have grappled with the issue of “development gain”. How can the substantial uplift in land value, resulting from the granting of planning permission, be captured in way that shares the wealth with the community but does not discourage development?

- Around Cambridge, agricultural land with no planning permission was worth around £18,500 a hectare in 2010; residential land was worth £2.9m. Around Belfast, agricultural land was assessed at an average value of £24,000 per hectare, compared with residential at £1.25m. --- Of course, the windfall will not always be so large – and a proportion does goes towards the cost of development. But it makes the point that planning permission granted by the state can reap big financial gains for developers.

- There are two reasons why it’s important that this gain is captured (a friendlier way of saying ‘taxed’). Firstly, the rise in the value of land is usually a result of public investment in the surrounding area: it’s therefore a windfall the landowner has done little to earn. --- Secondly, new homes will increase the demand on the surrounding infrastructure. Improving and expanding it should be at least part-funded by the gain, or it will fall on the state to do so. Even in times of plenty, this isn’t the ideal situation.

- New homes must be accompanied with the development of social and economic infrastructure. Schools, hospitals, public spaces, transport, energy and communication links and more are all essential to create places where people want to live and can reach their full potential. And as we’re in the middle of an affordability crisis (the average house price is now 10 times the average wage; in London, it’s 14), it’s also crucial to build genuinely affordable homes.

- Recent attempts to ensure this happens have come in the form of Section 106 agreements and the Community Infrastructure Levy (CIL). Both have drawbacks; councils that have introduced the CIL have seen a 49 per cent drop in planning applications for new homes. Section 106 has been criticised for failing to provide infrastructure investment and social housing proportionate to levels of private development. They can also produce a clash between the aims of local authorities and those of developers. The former are keen to secure a level of affordable homes, the latter keen to maximise return (generally speaking).

- In our latest report, Devo Home, we argue for the creation of a set of new local bodies dedicated to housebuilding and place-making. What we call “Local Place Partnerships” will be coordinated by local authorities and bring together all the parties involved in this process: private developers, housing associations, residents, civil society and local business. We think this will speed up the building process by offering a single point of delivery, and act as a forum within which the competing and often opposing interests of the parties in the development process can be resolved.

- Under this model we propose a new mechanism to capture the value of land, one that can be instigated by local authorities through the use of Local Development Orders (LDOs). Using LDOs, councils can unlock sites and support developers in securing planning consent by establishing the parameters for housing on brownfield sites. They can relate to the size and numbers needed, as well as the design and the provision of infrastructure, thus helping developers work up suitable schemes to get work started in brownfield sites quicker.

- Local authorities know how many affordable homes are needed, as well as the location of essential infrastructure services; they know the potential value of new development. If they were to introduce LDOs on specific sites that require infrastructure, or a specific level of affordable housing, they would be able to capture the value of that site and set a bespoke levy, paid by the developer, which would contribute to the cost.

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[llamaorama]

Ummmm...the planning policies are the direct cause of the price differential in the first place? I hate to be cynical, but maybe restrictive zoning has pent up demand?

[scalziand]

And doesn't the government get that value back over time through taxes?

[C.]

Originally Posted by scalziand

And doesn't the government get that value back over time through taxes?

This and there is also a tool called "Tax Incremental Financing" which allows the increase in property taxes to go towards a specific purpose... such as community development or transit improvements.

https://en.wikipedia.org/wiki/Tax_increment_financing

I wonder if there is any communities out there that just straight up sell developable rights/FAR increases.

[Jasonhouse]

Originally Posted by scalziand

And doesn't the government get that value back over time through taxes?

No. What's lost is lost.

What can happen is if the new development is efficient enough, there will be a net gain over time between what it cost to support the development when it started in net to the community, and what it costs in net later when it's mature.

[C.]

Originally Posted by Jasonhouse

No. What's lost is lost.

What can happen is if the new development is efficient enough, there will be a net gain over time between what it cost to support the development when it started in net to the community, and what it costs in net later when it's mature.

I don't understand what you mean by this? Are you talking about property taxes that are generated by new development and the costs to provide city services? There are numerous studies on this topic. There are usually two main factors cited: density and value of the property. The higher the property values and the higher the density, the net revenue it will bring in for the city. Moderately valued single-family homes and high density low-income apartments tend to cost more to service than the property taxes they generate. Commercial and industrial development also contribute more in property tax revenue than it costs to service.

I don't have the studies handy, but could try googling them later.