Government rules out major changes to land value uplift capture approach

The government has rejected calls for major changes to the system of capturing a proportion of the uplift in land values when planning permission is granted, saying it prefers to focus on reforming the current system of developer contributions.

Development: government cool on further land value capture changes
Development: government cool on further land value capture changes

In a September report, the Commons housing, communities and local government select committee recommended that the government allow councils to trial "more innovative" approaches to land value capture.

However, in its response to the committee’s report on the matter, released yesterday, the government said that introducing new methods could disrupt its aim to increase the pace of delivery of new homes.

The response, issued by the Ministry of Housing, Communities and Local Government, says: "Changes to land value capture systems can have profound impacts on the land market in the short term, even where they are sensible for the longer term.

"Accordingly, the government’s priority is to evolve the existing system of developer contributions to make them more transparent, efficient and accountable."

However, it said it would continue to explore options for further changes to better capture land value uplift, "providing it can be assured that the short-run impact on land markets does not distract from delivering a better housing market".

In particular, the government said it opposes a suggestion from the committee to create a cross-departmental project to consider how to capture land value increases on existing properties caused by new development.

Its response says: "As noted in the evidence to the committee, it would require frequent, complex and expensive revaluations of land, would lead to very significant increases in taxation in some parts of the country and would penalise homes with gardens."

The government also specifically rejected the idea of carrying out work to create a local infrastructure tariff (LIT), which would be charged on all development alongside section 106 agreements.

Its response says: "The government notes that there is no precise model for an LIT at present. In particular, there is no proposed methodology for how the LIT would be set and the rate at which this would be charged.

"Without this, it is not possible to make an assessment of the extent to which different developments in different places would pay more or less, and therefore whether the viability of development would be affected and whether individual authorities would raise more or less revenue."

The government made it clear that there are unlikely to be any major additions relating to land value capture mechanisms to the proposals set out in its consultation on reforming the system of developer contributions, which was released alongside the revised draft National Planning Policy Framework in March

The government also rejected calls from the MPs for further changes to the Land Compensation Act 1961, to make it easier for local authorities to compulsorily purchase land for development.

It said: "Through the Housing and Planning Act 2016 and Neighbourhood Planning Act 2017, the government has recently taken forward wide-ranging reforms to make the compulsory purchase process clearer, fairer and faster for all.

"These reforms include extensive changes to the Land Compensation Act 1961. We are keen to let these recent reforms bed in, but will continue to monitor their practical application and remain open to considering practical improvements to the framework."

Responding to the announcement, Commons committee chair Clive Betts urged the government to revisit the issue and bring out proposals "that will make a real difference".

"Overall, this seems a wasted opportunity by the government to use the committee’s reflective report to engage with, and open up, the debate on this issue," said Betts.

"It is pleasing that the government has recognised that there is scope to capture a higher proportion of land value increase, yet there is a distinct lack of vision and urgency in how it would be achieved beyond existing mechanisms."

Ian Fletcher, director of real estate policy at the British Property Federation, said: "The government’s priority is delivery and to provide more high-quality homes and communities more quickly.

"So it is right that the government focuses on improving the existing system of developer contributions to make them more transparent, efficient and accountable."

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