Land Value Capture Consultation

Posted on March 23, 2018

Communities and Local Government Committee

Land Value Capture (LVC) inquiry 

A Communities and Local Government Committee (CLG) Committee is to examine the effectiveness of current land value capture methods and the need for new ways of capturing any uplift in the value of land associated with the granting of planning permission or nearby infrastructure improvements.

The Committee invited written submissions on the following points:

  1. Are current methods, such as the Community Infrastructure Levy, planning obligations, land assembly and compulsory purchase adequate to capture increases in the value of land?
  2. What new methods may be employed to achieve land value capture and what examples exist of effective practice in this area, including internationally?
  3. What are the possible advantages and disadvantages in adopting alternative and more comprehensive systems of land value capture?  (we set out the advantages and disadvantages throughout)
  4. What lessons may be learned from past attempts to capture the uplift in value?

The following were AspinallVerdi’s responses:

  1. Are current methods, such as the Community Infrastructure Levy, planning obligations, land assembly and compulsory purchase adequate to capture increases in the value of land? 

The current methods of LVC are not perfect, but proposed reforms are going in the right direction and there is potential to go further.  The critical issue is how robustly current powers are being applied by planners (as custodians of LVC) and whether Planners (PINs etc.) has the appropriate skills and experience to negotiate LVC effectively.  

S106 Agreements

The negotiation of S106 agreements can be a source of delay in the planning process. We have come across many cases where the delay in securing planning consent and progressing with the development is caused by the failure to agree the appropriate levels of affordable housing and/or other planning obligations.  Councils are well aware that delays can cost developers money and the threat of delay can be used as leverage in S106 negotiations.  Also we are aware of many Local Authorities including their advisors in the public sector, who do not have the skills, expertise or resources to negotiate S106 agreements in a timely way.

Note that S106 negotiations are not the only source of delay in the process and it depends on the particular circumstances of the development proposal and the stance of the developer/Local Planning Authority. For example, delay can be caused by all manner of issues including: design, environmental considerations, traffic and highways, statutory consultees/stakeholders, local politics, community objections etc.  What is important is that the planners work with the development industry to overcome these issues and facilitate development.  This is done by incentivising sustainable development and being pragmatic about the development economics. The Elphicke-House report, ‘From statutory provider to Housing Delivery Enabler: Review into the local authority role in housing supply’ (January 2015), describes the strategic roles Councils could play in ensuring housing delivery through acting as a ‘Housing Delivery Enabler’.

CIL

The 2016 CIL Review, A New Approach to Developer Contributions (October 2016) highlighted that CIL is not raising as much money as was envisaged by the Government when it was first introduced and as a result infrastructure is not being delivered in a timely manner. In this context neither the developer nor the community has the certainty that the required ‘school/surgery/road’ will be delivered on time which in turn affects the developer’s ability to sell completed houses. This effect is exacerbated by the way in which CIL has effectively transferred financial and construction risk from developers to local authorities which often lack the capacity to deliver.  The Review team noted that this can result in a ‘catch 22’ situation where charging authorities have not accumulated sufficient CIL revenues to fund key elements of enabling infrastructure that will unlock house building; so the house building does not take place and the related CIL payments needed to deliver infrastructure are not made.

In terms of the relationship between CIL and S106, the Review found that:

  • a considerable amount of confusion and variation on the issue of the operation of the Regulation 123 list and its relationship to Regulation 122 which enshrined in statute the three tests (necessity, direct relationship and fair and reasonable) for the use of Section 106
  • mixed evidence on whether fewer Section 106 agreements are now being
    required and whether they are now less complex and therefore taking less time to negotiate
  • pooling limitation was overwhelmingly viewed as unhelpful to the delivery of infrastructure to support development and a large number of the submissions received by the Review Group sought its removal from the regulations (see below).

Furthermore, in terms of CIL and affordable housing, the Review found:

  • very mixed evidence on the impact of CIL on affordable housing
  • an acknowledgment that where CIL is a first charge on developers then the contribution to affordable housing had inevitably reduced. But for many respondents in local authorities this seemed not to be a particular cause for concern
  • From the evidence, the Review Group could only conclude that either:
    • there has been an  acceptance that, on the basis of a viability approach to affordable housing, the increased burden of CIL would inevitably result in a reduction of affordable housing, or
    • charging authorities have taken sufficient account of their policy requirements for affordable housing in setting their charge which has limited the reduction in affordable housing - but has reduced the amount of money raised for infrastructure. 

The above findings are consistent with our own experience.

The issue for CIL is that it has its roots in: the Review of Housing Supply Delivering Stability, Securing our Future Housing Needs (March 2004) (the Barker Review); the subsequent Planning Gain Supplement (PGS) (see question 4 below); and the taxation of unearned windfall gains from the release of greenfield development land.  However, the government conflated this with a more generally applied tax including commercial uses and brownfield land.

The timing of redevelopment and regeneration of brownfield land particularly is determined by the relationship between the value of the site in its current [low value] use (“existing use value”) and the value of the site in its redeveloped [higher value] use (“alternative use value”) – less the costs of redevelopment.  This includes the legacy costs of site demolition and clearance (at best) and site remediation and decontamination (at worst).  This includes a high level of risk and uncertainty compared to a greenfield site.  Any tax or levy that attempts to capture the increases in land value impacts on these costs and has a delaying effect on the timing of redevelopment.  This makes the regeneration and redevelopment of brownfield land inherently inefficient. 

This is quite different in the context of greenfield windfall sites.  Greenfield sites are constrained by the planning designation.  Once this is released for development there is a ‘windfall’ shift in the alternative use value – which makes the development economics more accommodating.  There is much more scope for LVC without postponing the timing of development.

Thus we are supportive of the reforms proposed by the 2016 CIL Review to introduce a hybrid system of a broad and low level Local Infrastructure Tariff (LIT) and Section 106 for larger developments, and allow [Mayoral] Combined Authorities to set up an additional Strategic Infrastructure Tariff (SIT) (see question 2. below).  Notwithstanding that the government has not fully implemented the Review Group’s findings we recognise some of the reform themes in the Autumn Budget 2017.

The Autumn Budget announced proposals to remove the restriction of pooling S106 contributions. We agree with this proposal as limiting the number of pooled S106 contributions to five is arbitrary and a barrier to the delivery of strategic sites which may have more than five parties involved. Furthermore the CIL Regulations for land payments and infrastructure payments in-kind are highly complex and unworkable in many cases. The circumstances in which an infrastructure payment in-kind is likely to be attractive to a developer are where he would otherwise be unable to carry out his development until the infrastructure has been provided and so he wants to be able to control delivery and timescale.  But where, as will more often than not be the case, the infrastructure is necessary to make a development acceptable in planning terms, the Regulations do not assist.

A frustration of the current CIL regime is that it is unclear whether Councils can differentiate CIL by existing use (e.g. greenfield sites or previously developed land (brownfield) sites).  There is discrepancy between the PPG guidance and the Regulations.  The Regulations allow charging authorities to apply differential rates in a flexible way, to help ensure the viability of development is not put at risk. The PPG refers to: geographical zones; types of development; and/or scales of development.  However Regulation 13 refers to ‘use’ rather than ‘type’ of development.

This is important, because development on brownfield land could be considered a ‘type’ of development, but it is not a ‘use’. Paragraph: 022 Reference ID: 25-022-20140612 refers to ‘How can rates be set by type of use?’ This states that ‘the definition of “use” for this purpose is not tied to the classes of development in the Town and Country Planning Act (Use Classes) Order 1987. Therefore, it is not entirely clear whether differential rates can or cannot be set by reference to brownfield (previously developed land) typologies. However, in our experience most Charging Authorities are interpreting ‘type’ to mean ‘use’ as in the Regulations.

This  is  a  theme  that  was  acknowledged  in  the  Autumn  Statement  where  the  Chancellor announced plans to ‘better reflect the uplift in land values between a proposed and existing use. Rather than setting a flat rate for all development of the same type (residential, commercial, etc.), local  authorities  will  have  the  option  of  a  different  rate  for  different  changes  in  land  use (agricultural to residential, commercial to residential, industrial to residential)’.

Enabling Charging Authorities to differentiate by reference to greenfield and brownfield (previously developed) sites would enable land value uplift to be captured more effectively. Permitting differentiation would be more aligned to the original recommendations of the Baker Review on capturing windfall gains for strategic greenfield land releases. Charging Authorities could set different (lower) CIL rates on brownfield sites which would promote sustainable development using existing infrastructure and not stymie regeneration projects.

Land Value and CPO

One of the key issues of land value uplift capture is the thorny issue of land value itself in the context of viability. 

In pure development appraisal terms, the price of a site is determined by assessment of the residual land value (RLV).  This is the gross development of the site (GDV) less ALL costs including planning policy requirements and developers’ profit.  If the RLV is positive the scheme is ‘viable’.  If the RLV is ‘negative’ the scheme is not viable.  Part of the skill of a developer is to identify sites that are in a lower value economic uses and purchase / option these sites to (re)develop them into a higher value uses.  The landowner has a choice – to sell the site or not to sell their site depending on their individual circumstances.  Historically this would be left to ‘the market’ and there would be no role for planning in this mechanism.

The residual approach to valuation is the accepted best practice for development sites.  Best practice (e.g. RICS Financial Viability in Planning (August 2012)) accepts that this should take into consideration the relevant Local Plan policies.  The issue is that in a rising market landowner’s expectations increase and developers have to compete for with each other for land. This brings into the equation ‘hope value’. 

Hope value is the element of open market value of a property in excess of the existing use value, reflecting the prospect of some more valuable future use or development. It takes account of the uncertain nature or extent of such prospects, including the time which would elapse before one could expect planning permission to be obtained or any relevant constraints overcome, so as to enable the more valuable use to be implemented.

Therefore, in a rising market landowners may often have high aspirations of value beyond that which the developer can justify in terms of risk and in a falling market the land owner my simply ‘do nothing’ and not sell in the prospect of a better market returning in the future. The actual amount paid in any particular transaction is the purchase price and this crystallises the value for the landowner.  There are only so many variables within the appraisal that can be optimised and then developers seek to negotiate S106 contributions or affordable housing to recover profit.

It is important to note that by definition hope value is in excess of existing use value but should not exceed the Market Value of the land (which should reflect planning policy requirements). This is an important principle for Inspectors and those negotiating S106 agreements and Compulsory Purchase Orders to understand and implement.

However, planning policy in England has not helped developers and site promotors agree terms with landowners.  Policy has become increasingly detached from the development process of real estate.  Since the credit crunch in 2007/08 planning policy has sought to intervene in the land market by requiring that at [an ‘arbitrary’] ‘threshold’ (TLV) or ‘benchmark’ land value is achieved as a ‘return to the landowner’. This is accepted in principle, but the question of what is the appropriate TLV / return to landowners? creates circularity in the land market.  Thus, viability and land values are influencing policy development which then influences land values. 

This circularity is described in detail in the research report by the University of Reading, ‘Viability and the Planning System: The Relationship between Economic Viability Testing, Land Values and Affordable Housing in London’ (January 2017) and the policy response considered in the new Mayor of London SPD ‘Homes for Londoners’ (August 2017).

It is fundamental for LVC that the valuation (either for S106 or CPO) is carried out by RICS Registered Valuers and Chartered Surveyors with experience in Planning and Development who can mediate between landowners, developers and the public interest to fully embed the cost of Policy requirements into land values (and not get ‘carried away’ on the euphoria of ‘hope value’). 

2.  What new methods may be employed to achieve land value capture and what examples exist of effective practice in this area, including internationally?

S106

The current emphasis on S106 viability stems from the last recession.  In 2009, the Homes and Communities Agency (HCA) published a good practice guidance manual ‘Investment and Planning Obligations: Responding to the Downturn’. This defines viability as follows: 

a viable development will support a residual land value at a level sufficiently above the site’s existing use value (EUV) or alternative use value (AUV) to support a land acquisition price acceptable to the landowner.  

It is important to note that at that time in 2009, developments with planning conditions or obligations agreed before the market downturn were no longer viable, and were undeliverable in their consented form.  This was in addition to the changed lending environment and attitude to risk as a result of the credit crunch.  The HCA guidance was targeted at development management where developers were seeking to appeal or renegotiate S106 planning obligations.  It recommended that planning policies and practice for securing planning obligations needed to accommodate both the current realities and the future dynamic of the land and property markets. 

In March 2012, the National Planning Policy Framework (NPPF) confirmed this emphasis on viability in the now notorious section on plan-making, paragraph 173.

Subsequently the Planning Practice Guidance website (Paragraph: 019 Reference ID: 10-019-20140306) states that:

In making decisions, the local planning authority will need to understand the impact of planning obligations on the proposal. Where an applicant is able to demonstrate to the satisfaction of the local planning authority that the planning obligation would cause the development to be unviable, the local planning authority should be flexible in seeking planning obligations. This is particularly relevant for affordable housing contributions which are often the largest single item sought on housing developments. These contributions should not be sought without regard to individual scheme viability. The financial viability of the individual scheme should be carefully considered in line with the principles in this guidance. Assessing viability should lead to an understanding of the scale of planning obligations which are appropriate. However, the National Planning Policy Framework is clear that where safeguards are necessary to make a particular development acceptable in planning terms, and these safeguards cannot be secured, planning permission should not be granted for unacceptable development… (our emphasis).

Hence the emphasis is on the Applicant to demonstrate to the satisfaction of the Local Planning Authority (LPA) that the scheme is not viable and planning permission should not be granted for unacceptable development.  Planning Officers and Inspectors need the skills and resources to robustly apply these principles and secure LVC.

In February 2016, the Department for Communities and Local Government (DCLG) consulted on Section 106 Planning Obligations – speeding up negotiations – with draft proposals for mediation.

One possibility to improve the process of agreeing S106’s (and LVC) is to formalise the process.  For example the statutory time periods of determining a planning application could be amended such that there is a pre-determined timescale for all applications involving S106 planning obligations. This would ensure that LPAs and developers put focused time and resources into agreeing the S106 as they would do to any other fundamental aspect of the application.

Where the S106 is not agreed within the statutory timescales, the developer or the LPA could elect that the scheme enters an alternative dispute resolution (ADR) mechanism.  This could be similar to, and possibly in parallel, to an appeal.  However, the actual mediation should be carried out by suitably qualified and experienced mediators.

One of the reasons often cited for disputes is that the planning policy is unclear.  It is important that all Local Plan policies are properly tested in terms of whole plan viability prior to being adopted.  The up-to-date policies should be published and easily accessible on the Council’s website such that developers can have regard to the policies in formulating their land bid.  Furthermore, all LPA’s should have draft Planning Agreements which can be provided to the developer at the pre-application stage. 

In this way, through the residual land value (RLV) mechanism, developers can formulate their land bid.  The value of the site is determined by the gross development value of the scheme, less ALL the costs of development, planning policy, finance, overheads and profit.  If the RLV is positive such that the developer can secure the land, the scheme will come forward.  If the RLV is too low to entice the landowner to sell, then the development is premature.  The developer should wait until the existing use value has depreciated further and/or the alternative use value has increased such that the lines cross and development is viable. 

What could a S106 mediation process look like?  - Where, due to specific unforeseen circumstances, a scheme cannot support the full policy requirements and a compromise cannot be agreed with the LPA, developers or LPA’s could require the scheme go to mediation.

The parties could submit to the mediator their Viability Assessment (comprising specific detailed evidence).  The mediator would be able to establish the reasonableness of what is being proposed by both the developer and the Planning Authority and facilitate a settlement.

The appropriate body to oversee this S106 dispute resolution service is the Royal Institution of Chartered Surveyors (RICS).  It is important that mediators have the particular skills and experience in order to generate options and ‘reality check’ the parties positions.  Mediators should either be RICS Registered Valuers with detailed knowledge of residual appraisal techniques and/or specialist planning and development surveyors and ideally both. 

A panel of specialist mediators could be set up by DCLG (managed by the RICS working closely with the Planning Inspectorate) to ensure that there is the appropriate network throughout the UK to cover all regions and share best practice.

Mediation is an established method of dispute resolution in construction related claims.  Experienced mediators would be able to understand the wider issues and context for the dispute and facilitate S106 agreements.  Additional ADR techniques such as evaluative mediation or expert determination could be implemented where the parties require a determination to be imposed.  For example, the parties might require a determination on the percentage of affordable housing a scheme could support where no agreement could be reached.  This takes the control for the agreement away from the parties and would need to be binding if it is to speed up the planning application process.  It is much more sustainable if a settlement can be reached by consensus through mediation.

CIL Reform

The 2016 CIL Review, A New Approach to Developer Contributions (October 2016) was generally well received by the development industry.  We concur with many of the findings. 

The purpose of the review was to – 

“Assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to recommend changes that would improve its operation in support of the Government’s wider housing and growth objectives.” (para 1.1.1)

The CIL Review notes that the original impact assessments for the creation of CIL suggested that it might raise £4,700 million to £6,800 million over a ten-year period with the top end increasing to £1 billion in later assessments. If this were to be split evenly over a ten-year period, this would result in an average of £470 million to £680 million per annum. However, the CIL Review team estimate that CIL raised was approximately £170 million by the end of March 2015. In this context neither the developer nor the community has the certainty that the required ‘school/surgery/road’ will be delivered on time which in turn affects the developer’s ability to sell completed houses. This effect is exacerbated by the way in which CIL has effectively transferred financial and construction risk from developers to local authorities which often lack the capacity to deliver. The Review team noted that this can result in a ‘catch 22’ situation where charging authorities have not accumulated sufficient CIL revenues to fund key elements of enabling infrastructure that will unlock house building; so the house building does not take place and the related CIL payments needed to deliver infrastructure are not made. (section 3.3-3.4)

The Review also found the following weaknesses of CIL:

  • Neighbourhood Share - doubts as to whether the community or neighbourhood share is having any impact on a community’s likelihood of accepting or even welcoming development. Charging Authorities were generally concerned that allocating a substantial portion of their CIL receipts to neighbourhoods reduced their ability to fund some of the larger infrastructure, such as roads and schools. (section 3.7)
  • Complexity - the CIL regulations are 155 pages long and consist of 129 separate regulations. They have been amended each year since they were first introduced in 2010 to deal with policy changes and technical issues. (section 3.8) This needs consolidation.
  • Implementation and Rate Setting Process - the EIP process was dominated by a small number of development typologies, generally large residential developments on greenfield strategic sites and noted that a small number of advisors were having the same arguments (e.g. about Threshold Land Value) on behalf of developers and councils at most EIPs with little public benefit. (paragraphs 3.8.5 - 3.8.10)
  • Exemptions and Reliefs - applying for exemptions can require a considerable amount of paperwork for both the applicant and the local authority. For the local authority this is particularly burdensome as they receive no CIL revenue in compensation. (paragraph 3.8.11)

We concur with the above CIL Review findings and support the proposals – whether this is as a LIT or reformed CIL.

Under the CIL Review proposals larger developments which require direct mitigation to make them acceptable in planning terms or very specific major infrastructure on or close by the development including infrastructure delivered up-front, would be subject to an additional Section 106, strictly in accordance with the Regulation 122 tests.

Also, given the changing nature of the local government geography and the emergence of Combined Authorities, we agreed that there is a good case for making the necessary legislative and regulatory provision to enable CAs to collect a ‘Mayoral’ type CIL as a contribution to major pieces of infrastructure. This would not be obligatory and indeed would only be relevant where there was a requirement for such large infrastructure (e.g. Crossrail in London).

The proposal of setting LIT(/CIL) by a standard calculation would make LIT(/CIL) rate setting much simpler.  The argument goes that, because it applies to nearly all development without exception a low standard charge has the potential to raise equally, if not more, funding for infrastructure as CIL.

We agree with the proposal for a standard calculation liked to house price data from the Land Registry. However we caution that any future reform of the CIL (LIT or SIT) setting process should do so having regard to the cumulative impact of the Local Plan policies at that time.

The Autumn 2017 Budget goes some way to implementing the above recommendations, but not the whole way. The Chancellor announced that DCLG will launch a consultation into, ‘speeding up the process of setting and revising CIL to make it easier to respond to changes to the market. This will include allowing a more proportionate approach than the requirement for two stages of consultation and providing greater clarity on the appropriate evidence base. This will enable areas to implement a CIL more quickly, making it easier to set a higher ‘zonal CIL’ in areas of high land value uplift, for example around stations.’  

The Budget report also states that, ‘giving Combined Authorities and planning joint committees with statutory plan-making functions the option to levy a Strategic Infrastructure Tariff (SIT) in future, in the same way that the London Mayoral CIL is providing funding towards Crossrail. The SIT would be additional to CIL and viability would be examined in public. DCLG will consult on whether it should be used to fund both strategic and local infrastructure.’ 

The inference from the above is that CIL is to remain (and be simplified), and SIT is to be introduced ‘over the top’ of CIL.  We consider that this could work very well especially with the Chancellors proposals to allow CIL to be differentiated by existing use (greenfield / brownfield) which will facilitate LVC.

3.  What are the possible advantages and disadvantages in adopting alternative and more comprehensive systems of land value capture?

 Key reforms for LVC are:

  • Introduction of the February 2016 DCLG proposals for speeding up negotiations including formalising the process of S106 negations and the introduction of mediation techniques
  • Implementation of the 2016 CIL Review, A New Approach to Developer Contributions (October 2016)
  • Lifting of the S106 pooling restrictions
  • Enabling the differentiation of CIL by existing land use (e.g. greenfield and brownfield (previously developed land))
  • Greater understanding of land valuation techniques and robust negotiation of land values in S106 viability cases and CPO.

 The advantaged and disadvantages of the above are set out herein.

4.  What lessons may be learned from past attempts to capture the uplift in value?

 All taxes should be: fair, efficient, and transparent.

The 1947 Town and Country Planning Act effectively nationalised land and development. Since that time successive governments have tried and failed to capture the development value or betterment.  The Barker Review had regard to these previous development gains taxes (Box 4.2 p78) and it is worth repeating the summary here:

  • The 1947 ‘Development Charge’ was the first attempt to tax windfall gains from land development. The charge was levied at 100 per cent of the excess value attributable to the granting of planning permission, relative to the existing use value on the date the development began. However, the effect of the tax was to reduce land coming forward for development, and the revenue raised was substantially lower than expected.
  • The 1967 Betterment Levy aimed to capture value above 110 per cent of existing use value, so as to provide an incentive to sell by allowing some development gain to be made. The charge was introduced at 40 per cent with the stated intention of raising it higher. However, among other problems, the complexity of the legislation allowed many developers and landowners to avoid paying by ‘establishing’ that work had begun prior to the charge’s introduction and again, the measure raised far less money than was initially expected.
  • The 1973 Development Gains Tax aimed to extend the CGT [Capital Gains Tax] regime by taxing as income gains accruing from disposals of land possessing development potential at rates of up to 82 per cent for individuals, and 52 per cent for companies. However, rapidly changing market conditions, and a change of Government to one with different development gain ideas soon after the tax’s introduction, meant that the measure had little time to exercise an influence on the land market.
  • The Development Land Tax was charged on each occasion of the realisation of development gain flowing from disposals of land after August 1976. The tax contained several different features to its predecessors. These include levying the charge not only on actual sales, but also on assumed disposals where development projects began on land without a preceding land sale. There were also numerous exemptions from the tax. However, the complexity of the tax led to a proliferation of avoidance regimes and resulted in the tax falling disproportionately on smaller landowners, leading to allegations of unfairness.

The Barker Report goes on…..these are important lessons for policy makers. Any tax on the uplift in land values must have credibility, relative simplicity and be perceived as reasonable, or landowners may withhold land in the expectation of policy change, or engage in elaborate strategies to avoid paying.

The Barker report is important as it considered the prospect of capturing development gains at a time of buoyant market growth prior to the credit crunch.  Some of the principles were lost as a result of the credit crunch, but they should not be forgotten as they are important principles of land economics (see question 1 above and the difference between greenfield and previously developed land).

The 2004 Barker Review stated that there were two justifications for proposing tax measures in relation to housing supply, as follows:

  1. Tax policies are part of a package of reforms and should not be looked at in isolation. Combined with policies to promote the supply of land, planning permissions and affordable housing, the result should be an increase in the amount of new housing overall, compared to a situation with no tax….and
  2. If Government is to reform the planning system to bring forward more land for development, it will increase the potential for unearned windfall development gains that can be made by landowners (including developers) from selling land for residential use. Consequently, there is a strong case for Government to consider the use of tax measures to allow the community to share in the increase in development gains its actions will create.

There were a number of important Barker recommendations that were lost when Government introduced Planning Gain Supplement (PGS) and subsequently CIL:

  • The case for taxation was made alongside recommendations for increased supply of housing land and planning reforms – i.e. the tax was intended to be on ‘windfall gains’;
  • There were, and are, substantial implications for commercial development of a ‘housing-led’, but generally applied tax;
  • There was no thought to commercial or mixed used regeneration.  With brownfield land there is no clear definition of value and windfall profit is a myth.

Increasingly we are seeing cost equalisation ‘roof tax’ type S106 agreements for delivering strategic sites across multiple developers and landowners.  This is likely to increase with the lifting of the S106 pooling restrictions.

The Milton Keynes Tariff is a good example of this.  This was an agreement between the Milton Keynes Partnership, land owners, developers and the Council. This model provides certainty to both the council and developers. The agreement enabled English Partnerships to invest in growth related infrastructure and services in advance of receiving the cash contributions from developers. Developers could pay their contribution in instalments. This tariff permitted the necessary transportation, highways, educational, health and social infrastructure to be provided in advance of development, so that new growth is sustainable and existing communities would not be disadvantaged by growth. A developers’ contribution of £18,500 per residential dwelling and £260,000 per hectare of employment space was pooled and used to reimburse English Partnerships in future years after much of the infrastructure had been provided. 

The Milton Keynes Tariff continued to operate on sites covered by the framework agreement that were permitted before 6 April 2015. However, under the Community Infrastructure Levy Regulations 2010, the MK Tariff could no longer operate on sites permitted after that date due to the pooling restrictions. 

This model is beneficial as a fixed tariff gives developers certainty regarding their development. Also the Tariff provides the council certainty of the amount of land value uplift they can capture, and therefore certainty of funding for strategic infrastructure. A five year business plan provides developers with assurance regarding the timing of infrastructure delivery. Note that this model is best applied to strategic sites where there is more certainty of housing delivery.