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Are you uplifted? Land value uplift and economic appraisal
In a few recent projects, I have used the former Department for Communities and Local Government’s (DCLG) – now known as the Ministry for Housing, Communities and Local Government – land value uplift appraisal guide to help generate benefit to cost ratios (BCRs) for a number of public sector interventions. For the uninitiated, BCRs are used to assess the potential benefit resulting from an intervention (e.g. infrastructure investment) versus the cost to the public purse. The higher the BCR the better, and in theory, the more likely that public funding can be justified for the intervention. There are other factors that can be used in calculating BCRs, such as the impacts assessed under the Department for Transport’s (DfT’) WebTAG toolkit. However, land value uplift plays a significant role alongside these other factors and has been a key feature of government guidance since 2016. To assess the benefits of an intervention on land value, the latest (December 2016) DCLG appraisal guide considers how and when land is transferred from one use to another (e.g. industrial to residential), following the logic that an intervention will induce land use change and additional development which is more productive than before. The guide recommends that to calculate land value change, it is best to use land values specific to a locality based that are on research. However, if this is not possible, the DCLG guide provides indicative values for residential land, by local authority and by region, for agricultural and industrial land. The DCLG guide’s residential land value benchmarks show London and the South East as typically having the highest, as highlighted by the chart below. It should be noted the average residential land value for London (£29,100,000 per hectare) is based on a development density of 269 dwellings per hectare which when scaled down to a development density of 35 dwellings per hectare, (as used for the rest of England) decreases to £3,800,000 per hectare. Source:  DCLG / Lichfields analysisNote: The un-weighted land value for London assumes a development density of 269 dwellings per hectare, while the weighted land value assumes a development of 35 dwellings per hectare (as used for the rest of England) The variation in residential land values is further highlighted by the heat map below, that shows the South East and London as including the majority of local authorities with residential land values of £5,000,000 per hectare and upwards. The upshot of this is that a residential development in one part of England could generate a substantially higher BCR than the same scheme in another location, potentially giving the first location an advantage in accessing public sector funds. Source: DCLG / Lichfields analysis To highlight the potential impact that varying residential land values can have on BCRs, I have run a test scenario based on: a £20m public sector intervention delivered over a five-year period; development induced by the intervention assumed to occur for the following ten years, with the land transferred from industrial to residential use, resulting in a change in land value; 2,000 dwellings are assumed to be delivered over the ten years at densities of 269 dwellings per hectare. in London and 35 dwellings per hectare. elsewhere in England, equating to 7.4 hectares and 57.1 hectares of land developed in each location; and the land values used to calculate change are from the DCLG’ guide with a standard discount rate of 3.5% from the HM Treasury Green Book, so all BCRs are based on the net present value of the intervention cost and land value change. It should be noted that the BCRs do not take into account other potential benefits that might be assessed under DfT’s WebTAG toolkit, so they would likely be higher in reality. The results of the test scenario at the regional level are presented in the bar chart below. Despite the assumption that development occurs at a density of 269 dwellings per hectare, the intervention on average in London would generate a higher BCR (7.6) than the other regions. However, these averages do not highlight the wider variation that occurs with the BCRs when the test scenario is run at a local authority level. Source: Lichfields analysis At the local authority level, the test scenario generates a wider variety of BCRs, including some which are negative, as DCLG’s residential land values for some local authorities such as Amber Valley and Copeland are lower than the regional industrial land values used in the scenario. The scenario also reveals that BCRs in London differ substantially between some inner and outer London Boroughs, as shown on the inset map below. Source: Lichfields analysis My analysis here is only based on a single set of assumptions and, in reality, the type and scale of intervention and the level of land use change could vary substantially. However, it does at least provide an indication that the DCLG guide’s benchmark land values and appraisal methodology may disadvantage some areas because of land value differentials; this is an important factor when assessing the benefits of public sector interventions. This situation could evolve in the future as the Government’s recently published Industrial Strategy provides some indication that appraisal methods will in future be required to take account of a ‘rebalancing toolkit’, to address the fact that the benefits of investment cannot necessary be measured in narrow land value terms across all parts of the country. While no time frame is given for when a revision might happen, from my perspective it illustrates the need to take account of a range of wider economic impacts when appraising the case for a public sector intervention. Image credit: Pixar Animation Studios

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Will brownfield land registers solve Greater Manchester’s housing crisis?
It is well-known that Greater Manchester is not immune from the national housing crisis. Going forward, the first draft Greater Manchester Spatial Framework’s (GMSF) housing target is still considered too low by many observers (including ourselves). However, at least it has confronted the issue of Green Belt release. Greater Manchester’s Mayor Andy Burnham campaigned on, and has delivered on this matter through his review of the draft Framework, and it will be covered in the much anticipated, upcoming 2nd draft of the GMSF. Whether this represents the promised “radically changed” approach to make more use of the city region’s brownfield sites, and reduce the impact on the Green Belt, we will have to wait to see. New rules in force since last April mean that all local planning authorities (LPAs) had to publish a brownfield land register before 31 December 2017. Nationally, Lichfields’ analysis shows that only approximately half of English local planning authorities have published their brownfield land registers (BLR); the registers tend to simply include sites identified in strategic housing land availability assessments/ allocated housing land. This is possibly related to, and symptomatic of, the slow delivery of local plans, with patchy coverage at best nationally and a similar development planning pattern across Greater Manchester too. As part of Lichfield’s analysis highlighted in this blog, we focus on the Mayor’s stated aim of tackling the city region’s ever-growing housing crisis with the re-use of brownfield sites. How will the GMSF make better use of brownfield land, and how realistic is this policy approach? Publication of the region’s registers in December 2017 provides some insight on this issue. To be fair, all 10 Greater Manchester authorities have published their registers, reflecting their wider regeneration aspirations and the drive to maximise the re-use of brownfield land for housing-led development. In total 1,314 PDL sites have been identified across Greater Manchester which collectively have the capacity to deliver around 100,100 new homes over the next 15 years. How many of these are deliverable without significant public sector investment will be interesting to see. It is by any measure a significant number, but it only helps to crystallise the case for retaining the Green Belt around Greater Manchester or not; the number of homes on BLR sites equates to only around 44% of the draft GMSF housing target of 227,200 new homes up to 2035. Many within the industry considered this aspiration to be too low already, identifying how it failed to serve aspirations for economic growth and the Northern Powerhouse agenda. Irrespective of this, we all have to grapple with where the other 127,100 or more homes will be built. It is also fair to say there is a mixed picture across Greater Manchester in terms of distribution of brownfield land. Figure 1 below compares the quantity of brownfield land to the previous draft GMSF requirement. Only Manchester, Salford and Bolton can deliver over half of their target. Six local authorities (Bury, Oldham, Rochdale, Stockport, Tameside and Trafford) can only deliver less than 30% of their requirement. Figure 1: Brownfield land register proposed dwellings compared to the previous draft GMSF’s requirements   Source: GMSF, MHCLG The capacity gap in Trafford (86%) and Stockport (88%) is very substantial to say the least. So what does this mean for the future spatial strategy, and what are the consequences? How are Trafford’s and Stockport’s (and others’) needs to be met, without further increasing the affordability gap and the pressure on house prices. The previous draft GMSF identified a series of greenfield sites - predominately from the Green Belt - that would be required to meet need, contributing some 63,850 dwellings overall. Since it was formally adopted in 1984, the Greater Manchester Green Belt boundary has largely remained unaltered and it is a highly controversial topic - hence the Mayor’s review of the first draft GMSF. However, even if one adds all of the potential GMSF allocations to the BLR sites, the total falls a long way short of housing targets. Taking Greater Manchester as a whole, BLR sites and potential GMSF allocations will only deliver 72% of the city region’s housing requirement overall. Again the picture is highly variable, with Bolton and Bury close to achieving their requirement, but others, including Trafford and Tameside, having significant shortfalls. Figure 2: Total GMSF allocation & proposed brownfield land register units compared to the previous draft GMSF requirement Source: GMSF, MHCLG Furthermore, when considering the identified allocations, the GMSF has focused primarily on a few very large sites coming forward to meet the shortfall in supply. This results in inevitable pressure on infrastructure in key communities. We will have to wait and see how the 2nd draft GMSF responds to these issues, but it may for example include a broader range of sites, of different sizes and locations in order to de-risk the delivery issues and problems associated with not achieving the housing requirement. Brownfield land is one step towards meeting the requirement, and key questions will remain around delivery, and how long term requirements are to be met.   However, as demonstrated in Figure 3, there remains a shortfall of 63,245 homes to meet even the first draft GMSF housing target.  Regardless, the 227,000 GMSF requirement still remains well below the level of housing necessary to address housing pressure and the under-delivery that the city region has experienced over the years, even before considering the long-term economic growth needs of the conurbation at the heart of the Northern Powerhouse. Figure 3: Identified housing shortfall Source: GMSF, MHCLG Conclusion Whilst there is much to be welcomed in the Greater Manchester local authorities publishing their BLRs before the deadline, it seems that the re-use of brownfield land for housing can only be part of the solution. Even if every one of these sites were to come forward as intended, the local authorities still need to identify land for more than 127,100 homes just to meet the GMSFs conservative targets. If less land is to be removed from the Green Belt, there remains significantly more deliverable sites that will have to be found to meet need. This is even before a debate as to whether a target of 227,200 is suitably ambitious for a great conurbation such as Manchester, that should be driving the economy of the North in the Northern Powerhouse agenda.   Image credit: A.P.S. (UK) / Alamy Stock Photo  

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