What’s Planning Worth?

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This fascinating blog post discusses how we can create a planning system that delivers higher quality development with better infrastructure. It talks about putting land value capture back on the agenda, creating a more sustainable system of planning.

 

Drawing on recent work on the ‘Value of Planning’ for the Royal Town Planning Institute, Andy Inch, explains how we can – and must – revive the social license required for planning permissions and why this will make everyone – including developers – better off…

 

Over the last few years Planning Democracy have tried to draw attention to the often very high personal costs that members of the public pay when trying to participate in planning decisions. These costs, often borne in time, energy and stress as much as money, have not usually been recognised by the statutory planning system. This remains a serious issue. However, when the Scottish Government has talked of planning reform over the last few years they have often been preoccupied about a different set of costs: those that the planning system is said to impose on developers and the economy; this is a story about delay and risk caused by unpredictable decisions that deter investment and restrict much needed development. We are not convinced there is necessarily much evidence to support it, but it has definitely been politically powerful.

 

So much historical focus on costs has led everyone to think of planning in almost exclusively negative terms – but what if we think about the benefits it brings, or could bring?

 

From a broad societal perspective, the planning system exists to steer land-use change “in the public interest”. This is a pretty vague formulation though, potentially hiding a multitude of sins. So it would help if we had a clearer idea of what it actually means. It might help to think of ‘the public interest‘ in terms of the many benefits that people gain from high quality, attractive places; living and working in well-made buildings that respect community needs and bonds, with access to the full range of opportunities, services and facilities that make for a good life. In a world facing the threat of climate change we need to do this whilst minimizing the impacts we have on the environment.

 

Of course, we won’t all agree about what makes a good place and we need to have robust and inclusive debates about the kind of development that can support the good life. But planning should be a way of both having that debate and then realizing our collective aspirations. And, if it was, we would all realize the benefits of living in healthier, fairer and happier places. There is also a strong argument to be made that if it achieves these outcomes then well-planned, up-front investment in the built environment would lead to considerable long-term savings to the public purse too (what the Scottish Government has sometimes called ‘preventative spend’).

 

Here it gets tricky, however. It can be hard to see some of the benefits of planning (particularly when they are the result of stopping bad things from happening). In fact, the existing planning system does realise some pretty substantial benefits to society.

 

Bear with me here. We’re all so used to seeing uninspiring and poorly served developments springing up in places we might have preferred had remained as they were. But just think, for example, of some of the valued green spaces that planning has protected in many towns and cities.

 

One problem is that in Scotland many of those benefits end up coming with a hefty price tag attached and are available only to those who can afford to pay – indeed in the long-term it’s property owners who often benefit from the longer term increase in land values that results from (good) planning controls and public investment in places. Just think how much more a house costs near those those green spaces or a good school.

 

Given their poor public image, planners need to give more thought to how they can demonstrate the positive value that they realise. But just as importantly, we need to ask more questions about how those benefits are distributed. Which brings us on to some neglected issues about the economic costs and benefits of planning; issues that are particularly relevant in these straitened times where we need to find new ways of funding public investment in people and places.

 

Putting ‘land value capture’ back on the agenda

 

I teach undergraduates in planning. In recent years I have started asking students: “who does the increase in land values that results from planning permission belong to?” The majority assume that it’s the rightful property of the landowner or developer. This is worrying for several reasons. And not just because it means they haven’t done the preparatory reading that was set ahead of the class.

 

The 1947 Town and Country Planning Act introduced radical changes to property rights. Perhaps most fundamentally it nationalised the right to develop or change the use of land. Ever since, planning permission, a kind of social license to build, has been required.

 

That means that planning permission is a public gift, restoring to applicants the right to develop land when it is clear that this is in the public interest. Any increase in land values is also therefore the property of the community. Let’s imagine two neighbouring farms. Both farmers apply for planning permission to turn their top field into housing. Because only so much new housing is needed and one is a more sustainable location, permission is granted to Farmer Trump but refused to Farmer Salmond. Now, without either of them lifting a finger, the market value of Trump’s land is several hundred percent higher than Salmonds. It’s clear Trump did not create this value – the value was created by the public decision that this should be a development site.

 

At present a percentage of this increase in land value is recaptured through section 75 legal agreements, where developers agree to pay for infrastructure or other community benefits. However, we gift most of it straight back to those lucky enough to gain planning permission. This amounts to a pretty generous public subsidy (and it would be fascinating to know how much it has been worth over time).

 

When the modern planning system was introduced the Government had a different idea: they introduced a 100% tax on this increase in land value, or betterment as it’s sometimes known. The tax didn’t last long though. It was quickly repealed by an incoming Conservative government on the basis that landowners need profit as an incentive to bring land forward for development.

 

Two further attempts by Labour Governments to tackle the betterment question met the same fate. Even accepting the need for a ‘profit motive’ in a capitalist society, however, we should surely still be asking how much of an incentive is needed and how those incentives should be structured to ensure that the market delivers high-quality development that contributes to the better places we want to create.

 

‘Build it and Bugger off’ models of development

 

It certainly doesn’t seem like we’re getting much value for money from that subsidy at present. The standard model of residential development in Scotland, for example, might be summed up as a “build it and bugger off” approach. Developers buy (or secure ‘options’ to buy) land, look to get planning permission then drip-feed new housing onto the market.

 

By building and selling more or less immediately, developers have little incentive to care about the long-term development of high-quality places. A large share of their profits comes not from the quality of what they build but from speculation in underyling land values. This is unproductive and also risky since land values can fluctuate a great deal. As a result, housebuilders in this country tend to seek a higher level of profit per new house than those in many other countries. This leaves less money available to contribute to the cost of the new infrastructure needed to support development.

 

Too often the overall result is low quality housing built with barely adequate infrastructure. To understand this we only have to compare new housing in Scotland with the light, space and environmental standards achieved as standard elsewhere in Europe (see this report for more on related themes).

 

Another planning is possible

So far this might sound like a bit of a rant against the housebuilders. But that’s not the idea – and you don’t need to take my word for it either. Yolande Barnes of the global real estate and property research company Savills came to much the same conclusion when she thought about these issues. She has argued that the economic benefits from up-front investment in higher quality places accrue to subsequent property owners rather than developers, which means that the incentive structures are just not in place to build (or pay for) better places.

 

The thing is, it doesn’t need to be this way.

 

There are many examples of better ways of planning that can also fund higher quality development (that remains profitable for developers).

 

One key issue is to secure a long-term interest in land so that subsequent rises in value can be recaptured (and used to maintain infrastructure and investment).

This was the model on which the great London estates were laid out and continue to be leased today. A model of private sector development, but one premised on long-term stable investment and return and therefore better equipped to create better quality places.

 

It’s also the model of the Garden City as described by Ebenezer Howard in the late nineteenth century, and then partially realised in Letchworth in the early twentieth. This was a model of long-term community development and ownership of land and assets, using grounds rents and increases in land value to fund communal facilities and services. Its ethos and ideas resonate strongly with ideas of community empowerment and land-reform in Scotland today.

 

Howard’s ideas were also at the heart of the post-war new towns. A model of public sector investment in long-term place-making. The basis of the new towns was the idea of proactive public ‘land assembly’, buying up land at existing use value, paying up front for infrastructure and then either developing housing or selling plots to developers to build out.

 

Whatever you think of the relative merits of Mayfair, Letchworth or Milton Keynes, these models of proactive planning were able to effectively capture the uplift in land value brought about by development, using it to fund up-front investment in infrastructure and ongoing maintenance of assets.  Such practices are still common in other parts of Europe (e.g. the Netherlands) where public authorities often practice land-assembly as a means of ensuring that plans are realised. This has other impacts too, substantially ‘de-risking’ the development process for the private sector by stabilizing land-values. As a result developers compete on the quality of what they build rather than speculating on rising land values.

 

Evidence suggests that such approaches can lead to better quality places and higher quality development. So it’s definitely possible to imagine more positive forms of planning that generate better outcomes.

 

Having said that, these models won’t do away with the need for healthy debate about the kinds of development society needs and where it should be built. Any move towards public or community-led plans backed by powers of land assembly would need to be premised on strong, democratically shaped plans – something that doesn’t really exist in Scotland today (does an NPF, SDP or LDP mean anything to the average citizen?). But the promise of more powerful plans, rooted in a positive vision of the future and with the tools to realise it, might be just the thing to transform those acronyms into something worth caring about.

 

 

This blog draws on ideas from the recent RTPI report on the Value of Planning which the author was involved in, but the views expressed are those of the author.

 

 

 

 


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Clare Symonds

Clare Symonds is the Chair of Planning Democracy.

2 Responses

  1. Alistair Stewart says:

    In addition to S75 agreements, the current planning system also attempts to capture part of the planning gain by mandating that a proportion of new houses in a development should be “affordable”. In practice, developers often prefer to pay Councils a cash sum so that the affordable homes can be built in someone else’s back yard (it would be interesting to know how many of these homes actually get built). This can be thought of as a highly regressive tax on development – developers can maximise their profits by building high-value, low density housing in order to minimise the cost of affordable housing provision. This is another example of the perverse incentives that are presented to developers.

    • clare symonds says:

      It is interesting that the planning review seeks to address infrastructure issues by reviewing section 75 agreements as these planning obligations have not addressed the pressures of growth on existing infrastructure. There is consideration of introducing a Community Infrastructure Levy or CIL.

      I have copied this from an RTPI blog post by Kate Houghton you might find it interesting Alistair, its about CIL and affordable housing

      “CIL was supposed to open up development opportunities by creating an income stream for the infrastructure needed to support growth. It was also supposed to create certainty for developers in terms of infrastructure contributions, as the levy due on development would be clear in advance of the application process beginning. To establish a clear difference in purpose between CIL and planning obligations, following the introduction of the levy no more than five planning obligations would be ‘pooled’ to pay for any single piece of infrastructure. Any shortfall in funding would then be met from the CIL pot.

      CIL was introduced in England and Wales through the Planning Act 2008, and then implemented through the Community Infrastructure Levy Regulations 2010. Under the regulations, each local authority is able to produce a ‘charging schedule’, specifying the amount of CIL that would be charged across all types of development over 100m².

      Six years after its implementation, take up of CIL across local authorities is still patchy. Adopted Charging Schedules tend to be clustered in South East England and urban areas, where land values are higher. There is no doubt that the amount of money raised by CIL is still a small contribution to infrastructure funding.

      The relationship between planning obligations and CIL, especially with regards to the ‘pooling restrictions’ has been a particularly challenging issue. The practical response to this challenge is to ‘zero rate’ certain types of large complex development, meaning that planning obligations can be maximised to meet the specific infrastructure needs associated. However, on major phased developments, delivery through several planning consents means that securing the funds to pay for their supporting infrastructure through just five planning obligation agreements has proved difficult.

      As affordable housing contributions are also excluded from CIL, this means that there can be tension between securing funding for affordable housing and funding for the infrastructure needed to made development workable.

      The tension between affordable housing and infrastructure delivery has impacted on the effectiveness of CIL in a further context: For those local authorities with particularly high housing need, but lower demand, the continued use of planning obligations is often preferred to CIL. In these places delivering affordable housing numbers is a higher priority than meeting the extra infrastructure demands brought about by housing growth.

      Clearly, forcing local authorities to choose between meeting housing need and funding infrastructure is not a long term solution. This is arguably especially true in Scotland where there is a need for frontloaded infrastructure development which opens up opportunities for development. If development is delayed or cancelled, this clearly has a knock on effect for CIL receipts, and therefore the delivery of much-needed infrastructure.

      On a positive note, CIL has presented an opportunity for some local authorities to devolve decision making to communities. Crowdfund Plymouth sees some CIL money used to fund community led projects throughout the city. Given current moves among some local authorities in Scotland towards devolving some budgeting decisions to communities, an infrastructure levy might be a way of increasing the slice of the pie that communities are able to distribute.

      The recommendation in Empowering planning to deliver great places refers to a ‘regional or national’ levy, so clearly the independent panel does not envision an exact copy of CIL in place in Scotland. However, the lessons about the reliability of levy funding, and competition between different developer contribution streams, are undoubtedly relevant. There are good arguments for streamlining the way that developer contributions are collected, and decisions made on how they are distributed. But, the implementation of CIL in England has not (either by design or coincidence) increased the amount of land value uplift captured for the public benefit. As Scotland faces infrastructure funding challenges, this is an important consideration to bear in mind.

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