CIL, s.106 and Land Value Capture – Is It Time For A Radical Re-Think?

It’s good to see that the Government is getting to grips with the need to reform land value capture. The recently launched consultation by the Ministry of Housing, Communities & Local Government on draft CIL regulations for adoption in 2019 is welcome progress in improving transparency and accountability.  But from a developer’s point of view, the limited ambition is somewhat disappointing.

On the plus side, the abolition of the pooling restriction brings a welcome dose of good sense to the system, giving LPAs much more flexibility in how they work with developers to fund higher-value infrastructure.  The fundamental problem, however, with the whole developer contribution system remains – i.e. why should the bulk of the ‘tax’ burden continue to sit with the developer and not the party that benefits from rising land values – the landowner?  Don’t get me wrong, I agree with the principle of land value capture – some kind of levy is entirely appropriate – but can’t help think there is a powerful case for a more equitable system to be devised, where the developer and landowner are treated as separate entities.  With the bulk of the ‘tax’ being paid by land owners because they are the ones who make a profit from the increase in land value after planning consent is granted.  It’s simply naive for legislators and town planners to assume that the normal forces of supply, demand and increasing development cost can influence the price of land in a downward trajectory.  If the location is strong, and the land has been allocated in the Local Plan, values only ever go up – never down.

Land ownership is monopolistic by its very nature and I have yet to meet any owner willing to lower his price just because I have increased costs to bear.  So the developer pushes the cost of the ‘tax’ into higher house prices; and the merry go round continues…ever increasing land prices, developer costs and tax burden increasing and house prices are pushed up…and the only ones to benefit from this are the land owners, who quite literally get off Scott-free.

Such a change in approach would, of course, need to factor in the whole land taxation system, including capital gains and stamp duty.   Perhaps it’s understandable then, that the Government has found this too daunting a prospect (especially with the Brexit ‘elephant’ still crashing around the room) and has decided instead to try and achieve more marginal benefits through tinkering with the CIL and S106 regulations.

As things stand, developers have to bear the commercial and planning risk of development, as well as CIL and S106 contributions hitting their bottom line once they finally receive planning permission and can start on site – a process that will have cost them a fortune and usually a great deal of time, both of which are virtually impossible to properly quantify beforehand.  Is this really the best way for Government to encourage developers, especially SME developers, to help them achieve its target of 300,000 completions a year?