A Government Committee has announced an enquiry into land value capture. But what is it and why should we care? Mark Walton looks at the current system and some potential ideas for change.
The Communities and Local Government Committee (CLG) Committee has announced that it will be undertaking an enquiry into land value capture. In particular it will be looking at the methods currently used and to capture the uplift in the value of the land associated with the granting of planning permission, or resulting from improvements to nearby infrastructure. It will also examine whether there is a need for new ways to capture this uplift.
Here at Shared Assets we welcome this enquiry. The current land system frequently creates windfall rewards for landowners simply for owning the land. Currently the mechanisms we do have for capturing and redistributing some of this wealth for shared benefit are incomplete and limited in their effectiveness.
The most well developed form of land value capture currently at our disposal are those which are associated with granting of planning permission and the building of new developments.
Section 106 agreements between Local Authorities and developers set out measures that the developer must take to reduce the impact of a development on the community. These might include road or access improvements, the provision of community facilities or green space, and the provision of affordable housing. Whilst this mechanism worked reasonably well in a buoyant market, in more difficult economic times many developers negotiate down their level of commitments, claiming that delivery will impact on the economic viability of the whole development.
Since 2011 local authorities have also been able to charge a Community Infrastructure Levy which is intended to contribute to more general improvements in the local area. Like Section 106 CIL is easier to levy on developments where the market is strongest and so have tended to be used more in wealthier areas. Local authorities in poorer areas are less willing to make additional charges on developers which might prevent development taking place.
In both of these cases the charge is made on the developers and not on the landowners. Calculations undertaken by The Centre for Progressive Capitalism show that in 2014/2015 CIL and S106 captured £2.8 billion of land value increase, yet a further £9.3 billion of land value uplift went directly to landowners. This unearned wealth has contributed to the concentration of wealth to the south and east of England, as well as to an older demographic.
After many years in which radical approaches to land value capture have not been on the political agenda public disquiet about widening wealth inequalities is driving changes in political thinking, and in recent days government ministers have publicly displayed impatience with the speed of delivery of new affordable housing.
The Labour Party has recently promoted the idea of creating an “English Sovereign Land Trust” with powers to compulsorily purchase land for housing at prices which exclude the planning approval uplift value from the compensation. The Government has also raised the idea of new charges on land to ensure the state takes a portion of the uplift. This could effectively achieve the same goal as Labour but through a new tax rather than a change in the law.
We have fewer mechanisms to capture the unearned wealth of landowners in the cases where public investment and new infrastructure causes an increase in land and property values nearby. A classic example of this the extension of the Jubilee Line on London’s underground. £3.5 billion of taxpayers investment in the 1990s, led property values within 1,000 yards of each of the eleven new stations to rise almost four-fold to £13 billion.
A Land Value Tax has long been proposed as a way of capturing this unearned uplift in land values. Levying a tax on landowners based on the value of the land they own rather than on the value of the property on it. Proponents claim a Land Value Tax could replace a raft of other taxes and would drive landowners to make efficient and productive use of the land they own so would reduce issues such as land banking.
Encouraging the development of Community Land Trusts for new developments could also give communities a direct stake in the value of the land they live, work and play on. By creating a community owned trust to own the land, and enabling companies and individuals to own the properties and structures on it, any increase in the value of the land is effectively captured by the community. Property owners are also encouraged to maintain and improve their properties as their value will more accurately reflect their condition if the value of the underlying land is stripped out. The original garden cities used these mechanisms and they are seeing a resurgence in the current crop of community led housing schemes.
Along with debates on the post Brexit role of public subsidy for farming we are seeing land questions rising up the political agenda in way they have not in several generations with an unprecedented interest in the question of who benefits from land ownership.
We’re looking forward to a lively debate over the coming weeks. What would you like to see change?