How a plan to pilot land auctions would capture planning gain

Last week's Budget contained no direct references to planning, but observers have predicted that one initiative buried in the small print of the chancellor's statement could boost efforts to secure infrastructure funding from new development.

A proposal to pilot a development rights auction model (DRAM) on a major infrastructure project in London was contained in a memorandum of understanding (MoU) on further devolution to the capital, published alongside the Budget statement. The document, agreed between the Treasury, the Department for Communities and Local Government, the mayor of London and umbrella body London Councils, says the pilot will be led by a joint task force to be established by the government alongside the Greater London Authority, mayoral agency Transport for London (TfL) and London Councils.

The announcement follows the publication of a technical report by TfL last month which detailed options for land value capture models to help extract planning gain from new development, with DRAM highlighted as a potential key tool.

Under the model, a transport authority would work alongside planners to prepare a development plan for the area in question which would set out desired uses and densities for development sites. All outline planning consents across the area would be obtained through the plan and the planning authority would calculate the market value of land across the area based on the "no scheme" principle, disregarding any increase in value arising from proposals in the development plan.

Landowners in the area would then be offered three choices to realise land value uplift. The first option would be to join an authority-led development rights auction scheme. Here, development rights on the land would be pooled with those of other participating landowners and auctioned - potentially on an annual basis - as assembled packages. If the auctioned value is greater than the "no scheme" market value of the land, landowners would share the gain with the authority - the report suggests using a 60:40 split.

The two other choices open to landowners would be to develop the land themselves, subject to payment of a high zonal Community Infrastructure Levy charge, or to "continue to have quiet enjoyment of their land and make minor developments or home improvements, provided they do not change the density or use of the land", the report says.

The DRAM model would have the advantage for public authorities that it would not require land acquisition and could potentially to accelerate receipts from new development, the report says.

Observers agree that the scheme could have potential benefits. "The idea is good but there are several ‘buts’," said Paul Cheshire, professor of economic geography at the London School of Economics. "There need to be proper safeguards that any land coming forward does not have significant environmental or amenity value, and that choice is not distorted by either ownership or existence of development options."

Cheshire added that revenues would need to be specifically used to deliver the infrastructure. "But the idea seems in principle a good one and London would be a good choice to trial it since it has the necessary resources to be best placed to make it work," he said.

British Property Federation chief executive Melanie Leech welcomed the proposals. However, she suggested the pilot should be "tested with the wider developer community to ensure efforts to bring about more infrastructure do not become barriers to the very development they seek to underpin".

Duncan Field, head of planning at law firm Norton Rose Fulbright, described the scheme as "eye catching". "This - if it works - has the potential to transform infrastructure funding, particularly for transport projects in the UK," he said.

The MoU states that, should a pilot of DRAM be agreed, "it will be jointly evaluated by London and the government to review its effectiveness and determine whether a similar model could be applied to other infrastructure projects."


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