The implications of the government’s proposed developer contributions shake-up

Some commentators fear that the new infrastructure levy proposed in the government's planning white paper may be too inflexible and could deter development as well as work against ministers' wider policy aims.

The impact of the proposed Infrastructure Levy on developments is unclear - image: Secret Pilgrim / Flickr (CC BY-SA 2.0)
The impact of the proposed Infrastructure Levy on developments is unclear - image: Secret Pilgrim / Flickr (CC BY-SA 2.0)

The proposed overhaul of the developer contributions system was set out in the Planning for the Future white paper published earlier this month for consultation. It says ministers want to see the existing community infrastructure levy (CIL) and section 106 planning obligations systems merged into a new "infrastructure levy", with payments based on a nationally-set flat rate applied to a development’s final value. Ambitiously, the government intends this new levy to “raise more revenue than under the current system of developer contributions, and deliver at least as much – if not more – on-site affordable housing”.

Graham Jones, CIL and infrastructure planning specialist at local authority body the Planning Officers Society, voiced concerns about the later timing of payment under the new system. He said: “There are major problems about the payment being due at the completion of development rather than commencement. How this would work in terms of process is not clear, and it presents a major issue in terms of delivery of infrastructure. Some analysis and explanation about the likely income from the new CIL, and how this relates to the likely charge, impact on land values and viability is urgently needed.”

Simon Ricketts, partner at specialist planning law firm Town Legal, is also unimpressed. “I am sure that the net effect will be to increase the extent of obligations on developers, and to reduce flexibility in terms of the negotiation of bespoke solutions,” he said. A question remains as to how the rates will be set to cover necessary infrastructure and affordable housing provision but low enough not to "choke off" development, he added. And in the move over to a new system, he said: “What will be the transitional arrangements so as to avoid either an enormous rush ahead of its introduction, or delays so as to take advantage of the new system?”

George Venning of Bailey Venning Associates, which specialises in affordable housing consultancy and development viability appraisals, also warns of unexpected consequences. “At present, the inflexible part of the planning obligations framework – CIL – is a relatively modest portion of the total whilst the value of the contributions secured towards affordable housing are about five times larger,” he said. The latest government figures show that CIL accounted for just 12 per cent of all developer contributions in 2018/19. Venning added: “If you take the much larger affordable housing contributions and place them into an inflexible regime like the current CIL system, there will be a great many sites that it simply won’t be worthwhile to develop.”

Overall, were the planning obligations regime to become less flexible, “it will be the sites whose economics are more delicate which will stall first”, said Venning. Instead, this would effectively incentivise sites that generate the biggest uplifts in value from planning consent – typically, greenfield sites - which “would seem to run counter to the aims of the rest of the white paper”, he said.

Venning suggested that developers might need to increase scheme density and height "in order to make their developments capable of bearing the new levy". "Again, given the talk of ‘gentle densification’, that would seem to run counter to the aims of the white paper,” he added.

Matthew Spilsbury, director and head of development viability at planning consultancy Turley, also feared the proposed measures may go against the government's wider policy aims. “A single levy is fine if you’re in a well-off area - you can capture the value and spend it on roads, schools and affordable housing,” he said. “But we have significant regional inequality, for which a one-size-fits-all rate may be too blunt an instrument. Will the government then redistribute that wealth?”

Overall, he said the proposals contain “a lot of unanswered questions before we can say it’s a positive or a negative for delivery of infrastructure and affordable housing”. Spilsbury went on to say: "It’s not clear it will yield more money. Landowners need the incentive to bring land forward for development. If contributions are too onerous, it will backfire. We need to see the evidence base underpinning this, as we did with the standard method for assessing housing need.”

There is also a longer-term risk that other ambitions in the white paper to make housing cheaper could impact on levy income, Spilsbury warned: “If the levy is set on sales value, that could depreciate, chipping away at what it’s supposed to achieve.”

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