Planning Gain Providing Infrastructure and Affordable Housing

Winner of the Royal Town Planning Institute award for research excellence

This critical examination of the development and implementation of planning gain is timely given recent changes to the economic and policy environment.

The book looks both at the British context as well as experience in other developed economies and takes stock of how the policy has evolved. It examines the rationale for planning gain, how it has delivered substantial funds for infrastructure and affordable housing and, in the light of this, how it might continue to play a role in the funding of these.  It also draws on overseas experience, for example on impact fees and public sector land assembly.  It looks at lessons from the past for future policy, both for Britain and for countries overseas.

Mechanisms to tap development value are also a global phenomenon in developed market economies - whether through formal taxation or negotiated contributions.  As fiscal austerity becomes an increasingly challenging issue, ‘planning gain’ has grown in importance as a potential source of funding for infrastructure and new affordable housing, with many countries keen to examine, learn from, and adapt the experience of others.

• a critical commentary of planning gain as a policy
• timely post credit crunch analysis
• addresses recent planning policy changes

Professor Tony Crook is a chartered town planner, Emeritus Professor of Town & Regional Planning and former Pro Vice Chancellor of the University of Sheffield. His current research focuses on planning obligations and affordable housing and on the supply side of the private rented housing sector. His co-authored book with Professor Peter A Kemp, Transforming Private Landlords was published by Wiley Blackwell in 2011. He is also actively engaged in policy and practice. He is chair emeritus of the Shelter Trustee Board, Deputy Chair of the Orbit Housing Group, a non executive director of a regional house-builder, a Trustee of the Coalfields Regeneration Trust, a council member of the Academy of Social Sciences, and a member of the Royal Town Planning Institute Trustee Board. He is a Fellow of the Academy of Social Sciences and was appointed CBE in 2014 for his services to housing and the governance of charities.

Professor John Henneberry is a charted town planner, a chartered surveyor and Professor of Property Development Studies in Department of Urban Studies and Planning at the University of Sheffield. His research focuses on the structure and behaviour of the property market and its relation to the wider economy and state regulatory systems. He has particular interests in property development and investment and their contribution to urban and regional development. He has developed a distinctive 'old' institutional approach to property research that focuses on the impact of social, cultural and behavioural influences on market actors, structures, processes and outcomes. He is a Fellow of the Academy of Social Sciences.

Professor Christine Whitehead is Emeritus Professor of Housing Economics at the London School of Economics and was for twenty years Director of the Cambridge Centre of Housing and Planning Research at the University of Cambridge. She is an internationally respected applied economist working mainly in the fields of housing economics, finance and policy. Major themes in her recent research have included analysis of the relationship between planning and housing; the role of private renting in European housing systems; financing social housing in the UK and Europe; and more broadly the application of economic concepts and techniques to questions of public resource allocation with respect to housing, education, policing and urban regeneration. Her latest book, with Kath Scanlon and Melissa Fernandez, Social Housing in Europe, was published by Wiley Blackwell in July 2014. She is a Fellow of the Academy of Social Sciences and was appointed OBE in 1991 for services to housing.

Acknowledgements xiii

Foreword by Dame Kate Barker xv

Preface xvii

Notes on Contributors xxi

1 Introduction 1
Tony Crook, John Henneberry and Christine Whitehead

Purpose of the book 1

The development process and the creation of development value 2

The taxation of development value 4

Factors affecting effective development value capture 6

Property rights and ownership 7

The need for finance 8

The ownership of development rights 9

Taxing value or raising charges 9

Rules versus discretion? 9

Fixed taxes, tariffs and negotiated contributions 10

Hypothecation and contract 11

Key factors behind the development of planning gain policy in England 11

Political economy 12

The planning system 12

Central–local relations: Local discretion, innovation and adoption 14

Definitions 15

The structure of the book 16

2 The Economics of Development Value and Planning Gain 20
Christine Whitehead

Introduction 20

Why is land and its value special? 21

The potential to tax increasing land values without generating inefficiency 22

The impact of planning on development values – the creation of planning gain 25

How are these values achieved? 25

Planning affects land supply 26

Planning affects demand 27

Planning affects density of construction and use 28

Planning affects prices and quantities 29

Bringing together the possibilities 29

Instruments available to capture planning gain 32

Overview 34

3 Capturing Development Value Through de jure National Taxation: The English Experience 37
Tony Crook

Introduction 37

Betterment and development value defined 39

Compensation and betterment: the Uthwatt principles 43

Taxing development value: post-war national schemes 46

1947: The development charge and the central land tribunal 48

1967: Betterment levy and land commission 51

1974, 1975 and 1976: Development Gains Tax, the Community Land Scheme and Development Land Tax 54

Lessons learned 59

4 Planning Obligations Policy in England: de facto Taxation of Development Value 63
Tony Crook

Introduction 63

Planning obligations: the key principles 65

Using planning obligations to secure land and funding for affordable housing 74

The overall framework 74

Detailed requirements 79

Recent policy initiatives 83

Tariffs 85

Optional planning charge 86

Planning gain supplement 88

Community infrastructure levy 93

Changes to CIL and new LPA incentives 97

Viability and S106 99

CIL policy: concluding comments 100

Conclusions 101

5 Development Viability 115
John Henneberry

Introduction 115

Development viability 117

Threshold land value 120

Table of Contents ix

Development appraisal 121

Property development within the wider property market 121

Development appraisal 123

Estimating the residual value of a residential development site 124

Assessing the impact of planning obligations and developer’s contributions on the viability of development proposals 130

Accounting for spatial and temporal variations in the development market 133

Conclusion: addressing the viability dilemma? 136

6 The Incidence and Value of Planning Obligations 140
Steven Rowley and Tony Crook

Introduction 140

The growth of obligations 140

Methods for measuring the incidence and calculating the value of planning obligations in England 145

The number of obligations in England 151

Affordable housing obligations in England 155

The total value of planning obligations agreed in England 160

Planning obligations in Scotland and Wales 162

Rural exceptions schemes 163

Who pays for the obligations? 164

Conclusions 171

7 Spatial Variation in the Incidence and Value of Planning Obligations 175
Richard Dunning, Ed Ferrari, and Craig Watkins

Introduction 175

Defining and disseminating good practice in planning obligations 177

Review of earlier evidence 177

Good practice research and advice 178

Implications of evidence and good practice guides 184

A note on Scotland and Wales 185

Regional variations in the value of planning obligations 185

Quantitative analysis of the drivers of the incidence and value of planning obligations 187

Qualitative explanations for spatial variations in planning obligations 192

The changing practice context 192

Stretching the ‘rational nexus‘ 195

Delivery 196

Conclusions 197

8 Delivering Planning Obligations – Are Agreements Successfully Delivered? 201
Gemma Burgess and Sarah Monk

Introduction 201

Why consider delivery of planning obligations? 202

Types of planning obligations 203

Case-study evidence of successful delivery of planning obligations 204

Quantitative evidence on the delivery of obligations 207

The factors affecting the delivery of affordable housing obligations 210

Trends in the delivery of affordable housing 211

The impact of the economic downturn on delivery 216

Implementing the community infrastructure levy 220

Conclusions 224

9 International Experience 227
Sarah Monk and Tony Crook

Introduction: making comparisons and transferring experience 227

Australia 231

Planning policy, planning legislation and its administration 231

Developer contributions to infrastructure 233

Developer contributions to affordable housing 236

Germany 239

Planning authorities and the planning system 239

Special mechanisms for controlling growth 241

Land readjustment 242

Provision of housing and related infrastructure 243

The Netherlands 244

Planning institutions and planning policies 244

Changing housing policies 247

Providing land and related infrastructure 248

United States 250

The constitution, planning and its administration 250

Developer contributions to infrastructure: impact fees 252

The impact of fees on prices and land values 255

Developer contributions to affordable housing: inclusionary zoning and linkage fees 256

Linkage fees 258

Summary and conclusions: comparing the English and international experience 258

Table of Contents xi

10 Summary and Conclusions 269
Tony Crook, John Henneberry, and Christine Whitehead

Introduction 269

Policies for capturing development value 270

National approaches 270

Locally based approaches 271

International experience 274

Overview 275

The economics of planning obligations 276

The sources and measurement of value 276

The complexities in assessing development gain 277

Planning constraints 279

Approaches to capturing gains 280

The financial aspects of planning obligations 281

Conclusions 285

Looking forward: England 286

Looking forward: international experience 288

Index 291

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