Blog: 5 March 2018Developer Contributions: The Government’s new stealth tax on land value?

Dan Mitchell

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Dan Mitchell

Planning Partner

Manchester office

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This week the Government announced a public consultation into the revised National Planning Policy Framework (NPPF). Whilst planners and lawyers alike will be pondering about the interpretation of the various changes in this widely anticipated consultation, it is perhaps its sister document that will have the greatest impact on the housebuilding industry.

Supporting housing delivery through developer contributions sets out the Government’s proposed changes to Section 106 Agreements, Community Infrastructure Levy (CIL) and Strategic Infrastructure Tariffs. The Forward in the consultation paper includes the now widely cited Government rhetoric about ‘fixing the broken housing market’. And this time there’s a threat. The consultation paper refers (several times) to one option the Government is considering which is to set a national and non-negotiable level of developer contributions. The inference here is that a nationally set tariff would cut out all negotiation, create certainty and speed up housing delivery.

Whilst the stick approach is clearly on the national radar, Supporting housing delivery through developer contributions does not go that far, for now. Instead, the paper includes a whole range of reforms to the existing CIL regime.

Paragraph 39 sets out the key objectives that the Government is seeking to achieve, which includes reducing complexity, increasing market responsiveness and improving transparency. All laudable in their own right. However the paper also introduces the ability for local authorities to target increases in land values and introduces the ability for a Strategic Infrastructure Tariff in addition to local CIL requirements (much like exists with the London mayor’s charge in Greater London – expect this in Greater Manchester in the not too distant future?).

So what does the paper suggest then as the interim technical clarifications? Well, the removal of pooled restrictions is probably welcomed where CIL already exists, but retaining them in area where CIL has not been implemented suggests the Government is reaffirming its commitment to development tariffs, previously criticised as being too rigid and slow to be implemented.

Combatting this is the proposal to simplify the preparation of and requirements for CIL charging schedules.  Government thinks that this can all be achieved through the Local Plan making process, by aligning the requirements for evidence on infrastructure need and viability into one stage. This is perhaps overly idealistic as often the costs of development are often not known until the detail of a scheme proposal is tabled. Further, Local Plan Inspectors are not always able to grapple with site specific viability issues on certain sites. And, Local Plans are extremely slow in their process of production in any case, so would setting Tariffs this way create flexibility?

However, perhaps the biggest area of contention is the proposal to allow local authorities to set CIL charging schedules based upon the existing use of land. This will allow Councils to capture any value generated through planning permissions to fund infrastructure. Developers take note – expect much more focus on development economics and open book appraisals for specific sites. Landowners will no doubt request greater certainty on minimum land value before entering into contracts. As one friendly land agent recently suggested, some landowners might just sit tight and not make their land available for development. It could be counterproductive to the Government’s desire to build more homes.

Other proposed changes include removing Regulation 123 lists, which will allow Council’s to ask for a wider range of contribution types and the Index linking of costs to house price inflation (however that is to be measured, nationally or locally). And the paper also allows for Strategic Infrastructure Tariffs to be set where combined authorities already benefit from planning powers. This could aide long term transport planning, for example, and will be an incentive to city-region planners to look towards CIL to fund strategic projects.

Whilst many of the changes will be welcomed by local authorities, the underlying assumption in the paper is that the public sector needs to do more by capturing value and benefits from developers building homes. The paper opens the process of capturing developer contributions and CIL, with seemingly less stringent testing of viability. We would expect much more debate about existing land values, expectations on return and development costs per site at the Local Plan examination should the proposals be approved.

And don’t forget paragraph 41’s big stick: “In the longer term, the Government will continue to explore options for going further. One option could be for contributions to affordable housing and infrastructure to be set nationally, and to be non-negotiable."  Devolution, in a centralised sort of way.

Supporting housing delivery through developer contributions is available for comment until the 10th May.

 

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