In Dante’s Inferno, these words are inscribed above the gates of hell. Comparing the Local Plan process with a place of perpetual suffering might be a tad harsh
[1], but the latest element of Labour’s housing policy platform to be floated - allowing local authorities to buy land without
“factoring in ‘hope value’ - might suggest the warning is apt for what faces landowners bringing forward sites for development.
On 29
th May the Guardian reported
[2]:
“Labour is planning to give local officials sweeping new powers to buy land cheaply and develop on it, as part of the party’s new “pro-building” agenda.
Party sources say … they will pass a law to allow local development authorities in England the power to buy up land at a fraction of its potential cost if they want to build homes on it.
The new law will allow officials to buy land under compulsory purchase orders without having to factor in the “hope value” – a massive price premium granted to any land on which developers hope to secure planning permission.
Hope value is the price premium attached to land on which planning permission has either been granted or on which developers hope it will be granted. An analysis by the Centre for Progressive Policy [CPP] in 2018 found that planning permission inflated the price of agricultural land by 275 times, pushing it up from £22,520 per hectare to £6.2m per hectare.
Labour officials are still deciding on the scope of the reforms, and whether they should be passed in the “take back control” bill, which Starmer has promised will be part of his first king’s speech, or whether they should be part of a separate planning bill. They are also deciding on how best the value added by planning permission should be dispersed to local communities themselves.”
Reforming the 1961 Land Compensation Act to allow CPO at existing use value (EUV) has been a cause célèbres among policy wonks for years, and the Government itself proposed amendment to the LURB to allow this in limited situations
[3].
The reported Labour proposals would go further and create a power for all LPAs
[4].
At one level, the attraction is obvious. If land is acquired cheaply, more money is available to fund infrastructure and affordable housing, perhaps with some left over to help local public finances. In theory, house builders would hardly object to lower prices for allocated development land.
But the idea has not been universally welcomed
[5]. This contrasts with the largely positive reception from the sector for Labour’s wider approach to planning for housing
[6] which has created a dividing line with Government over the role of housing targets and Green Belt
[7].
In this blog I explore some of the practical challenges that would need to be overcome if this idea were adopted, drawing on empirical evidence of how land comes forward through planning. But first, it’s worth exploring how the purported additionality of the proposal might compare to the current system.
The size of the prize
The CPP report cited by the Guardian
[8] suggests an uplift from agriculture to residential of 275 times based on an assumed average increase in value per hectare from agricultural land at £22.1k to residential at £6.2m. Frankly, that figure does not seem realistic as a national estimate (and was derived well before current pressures: deflationary on value and inflationary on cost) and there are good reasons to believe this ratio should be interpreted with caution in trying to conclude on the scale of uncaptured uplift when compared to the current policy position. By way of example:
- It is based on a model that – for all its efforts - is sensitive to uncertain input assumptions. For example, it relies, inter alia, on the MHCLG Land Value estimates for Green Book-type appraisals[9], the guidance for which says it “should not be taken as appropriate for all sites in the locality”. It assumes a notional one hectare site with 80% developable area; yet the majority of sites allocated in plans are larger[10] and a typical plot ratio for sites of over two hectares is 50-75%. Any large site – e.g. a new settlement or urban extension - would expect at least half the allocation given over to open space and infrastructure.
- An earlier iteration of the CPP methodology was cited in evidence to a House of Commons Select Committee investigation on land value capture in 2018 suggesting that 75% of the total value uplift was being lost. However, the Committee’s report found that “estimates of mean average increases in land value arising from the granting of planning permission are not particularly helpful, given the considerable variation in uplifts dependent upon location and previous land use. Approximations of the proportion of the land value increase retained by the landowner also vary widely, with no agreed methodology for this calculation. Where estimates have been made, these suggest that landowners currently retain around 50% of the increase in land value arising from the granting of planning permission.”[11]
- The CPP methodology dates from 2018 and cites historic issues around operation of the planning system, which predates the current policy approach introduced through the July 2018 NPPF[12] which ‘frontloads’ viability to the plan-making stage and enshrines an approach to a benchmark land value, defined as:
“…. the existing use value (EUV) of the land, plus a premium for the landowner. The premium for the landowner should reflect the minimum return at which it is considered a reasonable landowner would be willing to sell their land…. while allowing a sufficient contribution to fully comply with policy requirements.”[13]
In other words, the land value uplift available for capture via s.106 or CIL is calculated from the benchmark land value. There is less scope to renegotiate s.106 contributions due to viability concerns.
To implement this policy, the PPG provides guidance on how to estimate the benchmark land value and the relevant premium
[14].
Our 2021 research looked at the approach adopted by viability assessments prepared for local plans; on greenfield sites it found that, of the 29 studies in which a premium was discernible, 52% sat within a range of 15 to 20 times EUV. The maximum level of premium observed was close to 40 times EUV and, at the other end, the premium tended not to be set any lower than 10 times EUV. This is well short of the 275 times estimated by CPP.
Therefore, Local Plans prepared under current policy (post-2018) will set planning obligations that enable capture of value uplift up to the level at which a reasonable landowner secures a premium above their existing use value that would be sufficient for them to be willing to sell their land. Given high levels of unmet affordable housing need, LPAs can flex affordable housing contributions in their policies to draw down the available uplift. Of course, over the 15+ year life of a local plan, development values and construction costs rise and fall, and individual sites vary, so what is captured will not align perfectly with a plan’s viability study (hence the use of viability buffers), but the crucial ingredient is the concept of a willing landowner bringing their land forward for development.
This takes us to the next question.
How is land brought forward for development in local plans?
In the 5
th June House of Commons debate on housing supply
[15], David Davies MP claimed - in a speech advocating new settlements - that the increase in land value arising from prospect of a development was the result of “
no work undertaken — that is just a change of planning permission”. He may have meant physical works, but perhaps he was also implying that getting a site through planning is a free ride – that it just
happens. If only.
In the real world, the process is not linear. Local Plans are prepared based on an assessment of reasonable alternatives (a requirement under Strategic Environmental Assessment regulations that will be carried forward into the proposed Environmental Outcome regime
[16]). This means that plan makers must consider options over the scale and spatial distribution/approach of housing delivery. Local Plans can expect that many more potential sites are considered for allocation than are actually chosen
[17].
A Council will typically run a ‘call for sites’ to inform its Housing and Economic Land Availability Assessment (HELAA) in which landowners, promoters and other parties (including community groups) are invited to put sites (not necessarily their own) forward for consideration, often accompanying their submission with supporting evidence to demonstrate that the site is ‘suitable’ for development, including identifying the suggested type of housing (or other uses), the scale of development and any barriers to deliverability and how they could be overcome. LPAs are required to have a complete audit of available land, and not just sites they are informed about. The number of sites considered by the HELAA typically exceeds the number of homes required for the plan period many times over (and LPAs typically ration allocations only to that necessary to meet need, perhaps with a small margin for flexibility).
LPAs rely on evidence from site promoters to assess the merits of sites for allocation. The scale of information and evidence required will vary, but larger sites (especially urban extensions and new settlements) will require a significant body of evidence to show they can be suitably developed and will realistically provide homes within the plan period. The NPPF (para 35) requires Local Plans to have strategies that are deliverable.
As a LPA prepares its plan, the potential sites are assessed; some will be rejected, some are shortlisted for allocation and considered further, and some – eventually – are chosen for inclusion in the strategy submitted for examination. Most local plans depend on tens of individual sites – large and small - to meet their needs over a 15+ year period. Local residents and other stakeholders are entitled to challenge the plan’s chosen allocations through representations and at examination in public (EIP), often on the basis that – for example – they consider the adverse impacts are greater than was concluded by the Council, or that there are alleged barriers to its deliverability which mean it may not deliver the scale of development or benefits envisaged. Responsibility for defending the draft plan lies with the LPA, but those promoting the land will often be invited by the Inspector to assist the EIP by providing evidence as to whether the LPA’s approach is ‘sound'.
The simple point is that land is not magically allocated solely on the basis of what the LPA wants to do; it has to be justified and tested and a large part of this is paid for by the promoter of the site: directly through their own commissioned studies and (increasingly) indirectly via a Planning Performance Agreement (in which the promoter pays for the LPA's work on the local plan). Check and challenge via EIP is part of the process of securing community confidence that decisions have been made transparently and in the public interest.
All of this is done without any guarantee that a site will be allocated: LPAs might select – at most– one in three sites that are put forward. For large-scale sites – such as new settlements – the odds might be very long indeed. For example:
-
The Stratford on Avon Core Strategy considered five large-scale new settlement/urban extension options in 2014, before settling on one option (Gaydon Lighthorne Heath) and then having to select a further option (Long Marston Airfield) mid-way through the Examination when soundness was successfully challenged by the promoter;
-
In the Bedford 2030 Local Plan, four new settlement options were promoted and assessed; one (Colworth) was allocated in a draft plan before being superseded by a submission plan in which none of the sites were allocated
[18];
-
In the North Essex Local Plan, three large-scale new settlements were promoted as part of the Garden Communities Programme and proposed for allocation, but only one of these was confirmed at Examination
[19]. A similar problem afflicted adjacent Uttlesford
[20].
-
Other examples of selected but then omitted sites include Hart (Shapley Heath), Tunbridge Wells (Tudely Village) and numerous other local plans that have been delayed, abandoned or withdrawn due to a change in political control with prospective allocations going up in smoke
[21].
If your site doesn't make the cut, it's out in the cold and must wait for the next plan (typically 5+ years away) or - potentially (and mainly for small to medium sites) - see if an opportunity arises for a speculative application, but success rates at appeal are less than half and it isn't cheap.
How much does it all cost? This varies depending on the size and complexity of the site, but will typically run into hundreds of thousands of pounds for technical studies, masterplanning and representation through the Local Plan process. For the largest sites, it can run into millions. The Council-backed SPV established to promote the North Essex Garden Communities reportedly spent £6.8m promoting its three sites for allocation (securing only one of the sites and just a fifth of the homes it had sought
[22]) entirely separate to the costs incurred by the three LPAs preparing the local plan. Further costs – perhaps the same again - would then arise to prepare and submit planning applications. Across all LPAs in the country, the cost is substantial.
Who pays? Research by Henley Business School looked at permission data for 2018-19 which suggested promoters of sites were 35% housebuilders, 30% real estate development and investment firms, and 13% landowners. They invest in a site’s promotion in anticipation of an increase in the land value to secure a return on their investment. For example, land promoters typically invest their own capital in anticipation of taking a cut of any successful land sale once permission is granted (reported as 10-15%
[23]).
The implications of a power to acquire without hope value
This brings us back to the embryonic Labour proposal for local authorities to acquire land without hope value. Obviously, we don't have specific proposals before us (and the Guardian reports the scope of reforms is yet to be decided), but the report of consultation on the Government own (narrower) proposal for CPO reform gives a flavour for some of the pros and cons
[24] including the issue of equivalence and a two-tier land market. A broadened-out power for LPAs - if carried through - raises even bigger questions:
- On what basis – and at what stage – would the LPA have the power to CPO land at EUV? On what criteria would this be done? Presumably, CPO could only take place when the site has been successfully allocated in the Local Plan[25].
- Under policy, most sites can be allocated in the local plan only if they can be shown to be viable and achieve necessary planning obligations based on the principle of EUV+[26]. Would all such sites be at risk of CPO on EUV-only terms to achieve improved levels of betterment?
- One idea is that threat of CPO is used to chivvy along slow sites. But the build out of sites – even small ones – can be subject to delay and risk due to issues that may not have been known at the time the site was promoted and allocated. If any delay – or barrier to implementation - warrants CPO at EUV when there the landowner promoted it on the basis it could come forward under EUV+, it heralds the prospect of uncertainty, increased dispute, litigation and more objections to CPOs, leading to increases in costs and time taken to settle claims. The very time and uncertainty associated with CPO would add lead-in time risks when sites are considered at EIP.
- Ultimately, the risk of CPO at EUV creates a genuine disincentive for landowners to put forward their land for development. What would be the terms for lenders funding promotion in the face of this? There is a reason that most viability studies conclude a premium equivalent to 15-20 times agricultural value is necessary to encourage a landowner to make their asset available (and for farmers or other business owners, it can be giving up their whole way of life).
- The challenge would be especially acute for larger-scale and complex schemes that often face barriers to delivery – such as up-front infrastructure or land assembly/equalisation – that currently already leads to longer lead-in times[27] and attracts the most challenging questions from Inspectors at EIP. What is the incentive for a landowner, master developer or promoter to invest, say, £2m in promoting a site through the local plan system when even if they secure an allocation, they risk gaining nothing from their success?
- If landowners and the promoters are less likely to advance sites – and the evidential justification for them - who will do the heavy lifting? Do local authorities have the capacity to take on this role at scale and see it through to the CPO dénouement? And will that achieve the necessary plurality of options so local authorities and communities have choices over where and how to direct development, in line with the environmental assessment stipulations? Issues include:
a. If demonstrating deliverability is left solely to the plan maker, this will significantly increase the cost and time to prepare local plans and risk conflicts of interest in situations where some LPAs are politically ambivalent about the desire to accommodate growth; if landowners/promoters have no skin in the game, who will provide check and challenge to ensure a LPA is not planning to fail?
b. If local government adopts the North Essex Garden Communities model and creates dedicated promotion SPVs (or local development corporations
[28]), these bodies will require upfront funding and be capable of managing the perception of conflict of interest, accepting that they will invest significant amounts of public money advancing sites that do not subsequently deliver, potentially in conflict with local communities. Over time, this might become a sustainable business model (with development receipts funding future promotions) but whether local authorities have resources and political writ to kick start this cycle is open to question.
c. Alternatively, one might boost Homes England (would it have the capacity and be sufficiently fleet of foot to take on promotions in 290+ local plans?) or establish regional or sub-regional public-sector land promotion vehicles, heralding the prospect of clashes in open forum between public sector land promoters and LPAs. Perhaps this is the vehicle for nationally-significant large-scale new town-like proposals (equivalent to those promoted in the post-war period), but that was ultimately a matter for Central Government, not LPAs as is being suggested here.
d. In any event, much more public sector resource (and qualified people) would be needed to take forward the multitude of CPOs necessary to appropriate land to deliver on hundreds of allocations in the Local Plan that were made without the consent or input of a willing landowner and then act as development managers to bring forward the sites for construction by housebuilders. Many LPAs already struggle to meet current obligations. Is there an opportunity cost of directing resource this way? Might efforts be better focused on supporting delivery of regeneration projects which face the most significant development challenges?
- Alternatively, if the bar is to be lowered on demonstrating deliverability through the plan making process to reduce the costs associated with promotion of sites, it is inevitable that a greater number of sites will need to be included in plans, creating a long list of allocated sites (many more than are necessary to meet need) with planning status, with Government and the private sector then working jointly to bring forward those that are deliverable, including by CPO. This risks further reductions in public confidence over the link between land allocation and housing delivery.
All this indicates that the move to enable local authority CPO without hope value and a consequential locally-led public sector-driven land acquisition model is not without challenge. It would require a fairly significant rewiring of the system for promotion of development land than has perhaps been explored to date. The potential for further hiatus in plan making is obvious. Get it wrong and it risks holding back land release rather than encouraging its delivery.
[1] Although perhaps not for those involved in the fiasco of LB Hounslow’s multi-layered (and now abandoned) Local Plan review - as reported by Planning Resource here (£)[2] See the Guardian here[3] See this article in Planning Resource - here (£)[4] The Guardian article refers to Local Development Authorities, but wider reporting has referred to Councils without any pushback.[5] See for example the commentary assembled by The Construction Index here[6] See this by Patrick Maguire in the Times on 1st May 2023 (£)[7] Notably due to the changes proposed in the NPPF Consultation launched in December 2022 (see here), in response to which the Lichfields analysis for the HBF and LPDF suggested housing output could fall by 77,000 per annum.[8] The CPP report is available here[9] The latest 2019 iteration of these figures is here. Even the unvarnished DLUHC Land Value estimates make the £6.2m figure seem unlikely. Outside London (which has very high values, particularly in inner Boroughs), the residential land value for the median authority is £2.13m and for three quarters of LPAs outside London the value is under £3.75m. Only around 20% of net additional homes in England are built in London.[10] The 2018 NPPF introduced the concept of seeking a minimum of 10% of allocations on sites of one hectare or less because such sites were not coming forward and this was believed to harm SME builders. The RTPI believes it to have been an ineffective measure, see here. Our research showed that in the 24 areas with Garden Communities allocations in adopted plans, large sites comprised on average 30% of the total housing requirement within that plan, but this proportion is up to two thirds in some local authority areas.[11] See paras 29-30 of the Select Committee Report here[12] The 2018 NPPF is here[13] Extract from the PPG ID: 10-013-20190509 – see here[14] See PPG ID: ID: 10-014-20190509 and 10-016-20190509[15] See Hansard here[16] See the Government Consultation: Environmental Outcomes Report: a new approach to environmental assessment here[17] The PPG on housing land availability assessments states: “The assessment needs to identify all sites and broad locations (regardless of the amount of development needed) in order to provide a complete audit of available land.” ID: 3-008-20190722[18] See the Bedford Local Plan 2030 Sustainability Appraisal report here[19] The sorry tail of North Essex (plus Uttlesford and Hart) is summarised in my blog[20] ibid[21] See the slow motion car crash of Spelthorne for a topical example – as reported by Planning Resource here (£)[22] See the local media coverage - suggesting public money had been 'poured down the drain' - in EssexLive here[23] See this analysis by Henley Business School at Reading University[24] The Government's Consultation Outcome report on its CPO Compensation reforms is here[25] The CPP report states: “In countries with higher rates of housebuilding and infrastructure investment such as France, Germany and the Netherlands, local government plays a key role in developing an integrated transport and housing plan. Once the plan is agreed, the land is generally assembled through a development corporation which often includes firms developers that put in the infrastructure, thereby delivering serviced plots to housebuilders and individuals to build on.”[26] Albeit with the proviso that with large sites, there is room for uncertainty. The PPG (ID: 61-059-20190315) states: “Where plans are looking to plan for longer term growth through new settlements, or significant extensions to existing villages and towns, it is recognised that there may not be certainty and/or the funding secured for necessary strategic infrastructure at the time the plan is produced. In these circumstances strategic policy-making authorities will be expected to demonstrate that there is a reasonable prospect that the proposals can be developed within the timescales envisaged.”[27] As shown in Lichfields’ Start to Finish 2020[28] Although my blog from 2020 suggested the track record of Development Corporations as vehicles for promoting greenfield development and new settlements at the outset of the plan making process is not particularly well established
