The Planning for the Future White Paper August 2020 identifies the Government’s intention to make the biggest changes to land value capture in 30 years. They are part of sweeping recommendations to fundamentally alter the planning process in England with the stated aim to “streamline and modernise the planning process, improve outcomes on design and sustainability, reform developer contributions and ensure more land is available for development where it is needed.” (MHCLG, 2020, p.4)

It is unsurprising that the government has reviewed the role of land value capture. There have been widespread and repeated calls to amend the existing mechanisms. There has been a pervasive argument in the public imagination that a significantly greater proportion of land value could be captured through the development process. This view has been perpetuated despite the limited evidence revealing what proportion of land value is actually captured across the various taxes and obligations. The White Paper suggests that between 20% and 50% of land values are currently captured, citing a range that was previously reported to the Commons Select Committee with the caveat that no one really knows. Whatever the proportion actually is, there have been repeated calls to capture more.

Our research for the RICS Research Trust on attitudes towards land value capture suggests that the house-building industry will welcome many of the changes identified in the White Paper. But the details of proposals will need significantly more development and nuance for “more, faster, better” to be realised.

From our research we can see four key issues in the White Paper:

1) Delaying developer contributions until completion
It is important to recognise how the White Paper understands land value capture and developer contributions. Interviewees argued for a transparent and consistent understanding of land value capture. The White Paper indicates a subtle transition in logic. Whilst the goal of developer contributions; chiefly affordable housing and contributions towards infrastructure, will be retained, there appears to be a transition from these front-loaded at the point of planning permission (where land values theoretically change through the granting of planning permission) towards occupation of the completed development (where development value is realised). It isn’t clear from the White Paper how this will occur, for example the paper says that “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.” (p.61) A levy at the end of the development process on development value is different to land value uplift through the granting of planning permission.

2) Contrasting purposes for land value capture
The house-building representatives we spoke to argued that there was a moral obligation on the state to identify the purpose of land value capture. “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.” (MHCLG, 2020. P.22) The Government has evidently set the ambition of collecting “more” through the changes, citing the work we undertook for MHCLG in 2018/19, that estimated £7bn was agreed in s106 and CIL. The White Paper identifies an increase in the delivery of affordable housing on-site through the new levy (in 2018/19 affordable housing agreed through s106 was valued at £4.7bn). Thus, the logic appears to be that more developer contributions are the goal. This is in contrast to the stated goals of s106 and CIL, which are both ostensibly to mitigate the impacts of the development at the site and local authority scale. It isn’t clear from the White Paper whether developments that mitigate their impact on site (through for example affordable housing and net zero carbon homes) with higher development costs and developments that meet the minimum standard will be required to make the same infrastructure levy payment.

3) The market disruption of navigating change
Greater certainty in obtaining planning permission and the total cost of the Infrastructure Levy required for a development (whilst flexing for market conditions) will make land acquisitions and options easier to value for house builders. Whilst this will be beneficial for many developers, the broader changes to the planning process and zoning will introduce a period of transition that will require house builders to adapt and probably produce a greater impact on the land market in the short term than the transition to a development tax. As previous planning and land value capture policies have shown, the response of the land market is crucial to implementing reform.

4) Unequal infrastructure funding across local authorities
Enabling local authorities to borrow against the Infrastructure Levy will enable some authorities to make significant investments in infrastructure (consider how MCIL has worked in London). Our interviewees indicated a clear preference for up-front infrastructure provision by the state, minimising developers’ risk. Enabling local authorities to borrow to deliver infrastructure will work for authorities that have high value developments. In lower value areas the funding gap for new infrastructure will remain. In the newly created Renewal zones prior approval may result in increased infrastructure demands without the means to provide it.
Aspirations are easier than practical legislation

The publication of the White Paper will lead to substantial debate about the role and ramifications of the Infrastructure Levy. Many house builders will welcome the greater certainty in permissions and transition from planning obligations to a development tax. But evidently the goal of increasing the proportion of value captured will also have an impact. The key questions for the delivery of housing will be, who in practice actually pays for this and how willing are they to accept it? Our research shows that the house building industry is ready and willing for changes to land value capture, but the detailed language of legislation that follows this White Paper will determine the answers to these questions.