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What land purchase powers will new housing development corporations have?

Daniel Bentley, 21 April 2017

The housing white paper is still out for consultation but one key, little-noticed measure has already been incorporated into legislation. An amendment to the Neighbourhood Planning Bill, accepted by the government, will enact the promise to ‘allow locally accountable New Town Development Corporations to be set up, enabling local areas to use them as the delivery vehicle [for new communities] if they wish to.’ (The snap election puts outstanding Bills in doubt, although the Neighbourhood Planning Bill is already in its final stages, and has good cross-party support, and so might be a strong contender for receiving Royal Assent in the wash-up.)

This is an important move that has not received the attention it deserves. It extends to local authorities the ability (previously only available to central government) to set up development corporations that can purchase land to create new garden towns and villages. This could make a significant difference by better enabling the creation of new developments from scratch, at some distance from the objections of residents in the suburbs of existing conurbations, and with commitments to infrastructure and affordable housing guaranteed from an early stage in the planning. It bypasses, in other words, many of the difficulties associated with the piecemeal, sequential, speculative developments on the outskirts of our towns and cities. Developments could be masterplanned and provide greater scope for land to be broken up for SME and self-builders  who often struggle to get a foothold in ordinary circumstances.

This was broadly the basis on which the new town developments of the 20th century were built. It would also help facilitate the kind of approach to housebuilding advocated by Shelter in their excellent New Civic Housebuilding initiative. There is, however, one important question that seems to have been left hanging, which concerns the price at which local authorities will purchase the land. Central to the success of the post-war new towns was the ability of development corporations to acquire land at its existing use value (usually agricultural) and then capture the quite considerable increases in value when planning permission for homes was granted. These sums effectively paid for the infrastructure and higher design standards of the communities being created. A similar idea underpins the Shelter plan, which requires the land to be purchased at ‘fair values’ with the uplift being shared between the windfall for the landowner and benefits for the community.

The ability of public authorities to purchase land at existing use value has long been removed, however, and all of the uplift that follows the granting of planning permission goes to the landowner. Infrastructure and social housing commitments are then squeezed out of the developer via section 106 agreements and the Community Infrastructure Levy. Capturing that uplift in the first place, as happened in the past, would open up enormous possibilities.  Agricultural land is valued in the tens of thousands per hectare, industrial land in the hundreds of thousands per hectare; land with residential planning permission is worth millions per hectare.

The question is, to what extent does the government intend a return to the previous way of collecting the uplift in value? Do ministers really mean for councils to be able to buy land at its existing use value once more and use the profit to pay for infrastructure and public amenities? Liam Halligan, reporting this reform in the Sunday Telegraph last weekend, suggested the development corporations would indeed be able to buy the land at existing use value in order that ‘the planning gain receipts stay at local level’. Lord (Matthew) Taylor, the Liberal Democrat peer who tabled the amendment, has also said it would

‘…capture the value of the land in order to create supplements. In that way, we would not look to the taxpayer to fund the school, build the surgery, provide for shops or build a real community. The value of the land would be put into the process of making this work.’

Sajid Javid gave a similar impression when he was asked this week by Clive Betts, chairman of the Communities and Local Government Select Committee, about the prospect of capturing land value increments from new housing. The communities secretary pointed to the Taylor amendment as evidence of the government’s plan to do just that:

‘We accepted an amendment to the Neighbourhood Planning Bill very recently which would make it far easier for local authorities to set up public interest companies which will be able to, under certain circumstances, acquire land before planning permission, get the planning permission working with the developer, and retain a lot more of the upside in that public interest company for the benefit of local people including investment in local infrastructure.’ (my italics)

But what is meant by ‘a lot more’? That the development corporations will purchase land before planning permission is granted does not mean that they will be able to purchase it at its existing use value – or indeed anything less than its full residential use value. In order to enable that, the government would have to reform the land compensation rules, which as they stand prevent the compulsory purchase of land at anything less than the full market rate, including the owner’s expectation of any future residential value. Their entitlement to this ‘hope value’ is enshrined in the 1961 Land Compensation Act.

This position is often obscured by the fact that compensation for compulsory purchases is meant to be set at the market value in the absence of the scheme for which the purchase is being made; this is the ‘no-scheme world’, or Pointe Gourde, principle. It might also be noted that the 1961 Act also specifically provides for new town designation to be disregarded when compensation is being calculated. However, such exemptions appear only to exclude the value that those specific developments would create: they do not override any reasonable expectation of planning gain that may already obtain in the no-scheme world – values at which, indeed, the land may already have been traded.

Thus when industrial land was acquired under compulsory purchase powers for the Olympic Park in East London, landowner Rooff claimed that they should have been compensated at residential use value on the basis that that land might at some point have been used for housing. After a lengthy legal battle, the landowner won. As Thomas Aubrey, who cites this case in his report Bridging the Infrastructure Gap, writes:

‘…in the event of a CPO for local infrastructure or housing, it is clear that a local authority or development corporation would most likely need to acquire vacant land at residential housing levels to avoid having to fight expensive legal cases which they would then need to pick up the bill for. This is precisely why CPOs are so rarely undertaken, and ultimately this means that very few large-scale housing and infrastructure projects are financially viable.’

Giving local authorities the power to set up development corporations does not, on its own, change the basic position of the land compensation system. So those development corporations will still have to acquire land at its full residential use value.

When the Taylor amendment was being debated in the Commons, the Conservative MP Nick Herbert argued that Lord Taylor did in fact want to grant compulsory purchase powers to local authorities so that they ‘could purchase land at below the market rate’.  Housing minister Gavin Barwell sought to reassure him that that was not the case and shed some light on how the government envisages  this to be applied:

‘Let me say what I think Lord Taylor was driving at and then reassure my right hon. Friend on his particular points. At the moment, when somebody owns a piece of land that is not designated as suitable for housing or any other use and then, through a local plan process, the council changes that designation, the landowner sees a significant uplift in value. If a company or individual then acquires rights over that land and secures planning permission, there is a further uplift, and that planning permission may be traded several times. At the end of the process, several organisations or individuals have made a great deal of money and there is not a great deal of value in the land for providing the infrastructure that all our constituents tell us is vital to go along with housing. I think Lord Taylor is considering the extent to which, when changing the designation of land, the public sector can try to secure that land early in the process, avoiding the long chain I described and ensuring that more value is available to provide the required infrastructure.’

This, then, appears to be about tackling the trading and re-trading of land at the later stages of the process which attach an additional premium to the price paid; this in turn renders earlier infrastructure commitments unviable for the developer who finally comes to build the scheme. Lord Taylor did indeed describe it this way, making the point: ‘The use of the development corporation as proposed would guarantee that what had been promised to people at the start would be delivered to people at the end.’

This is a good, important principle and the reform is welcome. But, by itself, it does not enable the purchase of land at below its residential use value and so it is difficult to see how this framework will facilitate much more ambitious plans for investment in local infrastructure.


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