26 March 2020: restrictions on leaving one’s home without a reasonable excuse, first
announced on 23 March, come into legal effect in England. Very limited exceptions
permit travel to work where it is not reasonably possible to work from home.
Participating in a gathering of more than two persons is prohibited except where the
gathering “is essential for work purposes”.
13 May 2020: leaving or being outside one’s home without a reasonable excuse
continues to be prohibited Some restrictions are relaxed to allow meetings outdoors
for exercise or recreation with one person from another household. Guidance
encourages those who cannot work from home to go back to work. At work, social
distancing advice applies with workplaces required “to avoid crowding and minimise
opportunities for the virus to spread by maintaining a distance of at least 2 metres (3
steps) between individuals wherever possible”
1 June 2020: England moves to “step 2” of the government’s roadmap in which
restrictions on leaving one’s home are removed. Gatherings of two or more persons
indoors and more than six outdoors are prohibited. An exception permits gatherings
that are “reasonably necessary …. for work purposes”
15 June 2020: Non-essential retail businesses are permitted to reopen and individual
prayer in places of worship is allowed again
4 July 2020: most remaining national restrictions are removed as pubs and restaurants
reopen. Gatherings of more than 30 persons are prohibited
5 July 2020: despite the removal of most national restrictions, local restrictions are
retained and reintroduced during July and August in certain areas, including Leicester,
Bolton, Greater Manchester and the North East
14 September 2020: a restriction on gatherings of more than six persons indoors and
outdoors (the “rule of six”) is introduced, subject to exceptions which include where
“the gathering is reasonably necessary…. for work purposes”
14 October 2020: a tiered system of progressive restrictions is introduced. London is
moved to Tier 2 (“High”), from 17 October, in which two or more persons are prohibited
from meeting indoors
5 November 2020: a second national lockdown is introduced which requires people to
stay at home and which prohibits gatherings with people from other households except
for permitted exceptions, including where the “gathering is reasonably necessary ….
for work purposes”
2 December 2020: England is divided again into three tiers, with London in Tier 2 in
which gatherings of two or more persons continue to be prohibited unless an
exception, such as where the gathering is reasonably necessary for work purposes,
applies. Government guidance for the Christmas period on visiting pubs and
restaurants advises: “although there are exemptions for work purposes you must not have a work Christmas lunch or party, where that is a primarily social activity and is not otherwise permitted by the rules in your tier.”
16 December 2020: London is moved to Tier 3. Indoor gatherings of two or more
persons from different households continue to be prohibited. Social distancing remains
the rule at work, with offices advised “to maintain social distancing guidelines (2m, or
1m with risk mitigation where 2m is not viable), wherever possible, including while
arriving at and departing from work, while in work and when travelling between sites”.
20 December 2020: London is moved to a newly-created Tier 4 with much of South
East England, to help control the Alpha variant. The “stay at home restrictions” prohibit
leaving one’s home except for permitted purposes
6 January 2021: All areas of England are moved into Tier 4’s stay at home restrictions.
This is the third national lockdown. The stay at home restrictions prohibit leaving one’s
home except for permitted exceptions which include where it is “reasonably necessary
…. for the purposes of work” and where it is not reasonably possible to work from
home
29 March 2021: All areas of England move to Step 1 and the “stay at home restrictions”
are lifted. Gatherings of two or more persons indoors or more than six persons
outdoors are prohibited, subject to exceptions which include where a gathering is
“reasonably necessary… for work purposes”
12 April 2021: All of England moves to Step 2. Non essential retail businesses and
many outdoor venues reopen but the restrictions on social mixing indoors and
outdoors do not change
17 May 2021: All of England moves to Step 3, permitting six persons or two
households to mix indoors and up to 30 people to mix outdoors
The CMA Housebuilding Study: Labour’s blueprint?
This extended post summarises and critically reviews the Housebuilding Market Study (the Study) that the Competition and Market Authority (CMA) published this February. This concluded that the housebuilding market in England, Scotland, and Wales is failing consumers and has consistently done so over successive decades, delivering outcomes falling well short of what a market working well should do.
Wider lessons are drawn from both the Study’s analysis and shortcomings to focus on the actions that a new Starmer-led United Kingdom (UK) government should put in hand within its first few weeks of office if it was serious in intent to achieve Labour’s proclaimed commitment to build 1.5m. additional homes during the lifetime of the next parliament in England (an average annual total of 300,000).
Section One provides background to the process, defining the Study’s diagnosis of housing market failure taken from both the published final report and supporting evidence documents against the metrics of supply and affordability, the quality, innovation and sustainability of the delivered product, and the profitability of the 12 largest housebuilders.
Its main decisions on future actions, including the recommendations to government made concerning the future private management of public amenities on housing estates and on future consumer welfare, protection, and information outcomes are noted. Appendix A records those recommendations.
Section Two delves deeper into the causes and consequences of the wider market and the institutional failures that the Study identified, with reference to the operation of the planning system and the speculative housing model and its associated low build out rates.
The options it identified for government to consider while taking account of wider policy and other trade-offs, as well as other possible areas of government intervention that to improve outcomes across the planning and the speculative housing system and associated build out rates are discussed. Appendix B catalogues these options.
Section Three points out that the Study, like many housing policy commentaries, conveniently neglect the key political economy parameters of housing policy that need to be understood and addressed for real press to occur.
These include the real fiscal crisis of the state, Nimbyism and related issues of local democratic preference versus the central compulsion required if set central government objectives are to be attained, lack institutional capacity at both central and local levels, and political short-termism and the related lack of effective governmental focus on, or any real intent to achieve proclaimed objectives, most notably the overarching 300,000 supply target (the target).
Section Four points out that development timescales and almost certain substantial under-supply in 2025 mean that planning approvals and housing starts must begin their substantive upward trajectory no later than 2026 if the target is not to prove an early ‘dead duck’ or an example of ‘wishful verbiage’ for the new government, as it has proved for previous governments. It outlines an initial route map on how a new UK government could at least hit the ground running in its initial weeks in the light of that imperative.
It also demonstrates that the target cannot be achieved without a substantial step increase in the share of total supply taken by affordable and other forms of housing delivered outside the speculative model.
This – as will the enabling of New Towns and other large scale urban extensions – will require additional public investment. The 2025 Comprehensive Spending Review treatment of that investment requirement will thus provide an early and determining litmus test as of the practical application of Rachel Reeve’s fiscal rules and their positive relationship to wider macro-economic and strategic political goals.
1 Process and Diagnosis
The Competition and Markets Authority in February 2023 launched a Market Study (MS), under its Enterprise Act 2002 statutory powers, into the supply of new homes to consumers (‘housebuilding’) in England, Scotland, and Wales.
Under that Act, such a MS can be a self-standing piece of work or, where reasonable grounds for suspecting “that a feature or combination of features of a market or markets in the UK for goods or services prevents, restricts or distorts competition” are found, it can lead to a further market investigation reference (MIR), which can then culminate in the imposition of fines or other remedies on identified firms.
In November 2023 working papers on the Private management of public amenities on housing estates, land banks, and the planning system(s). were published.
The final report (the Study), alongside other supporting material including a supporting evidence document, was published on the 26 February 2024. It concluded that intervention in the housing market was required for it to deliver better outcomes, across three main areas:
- More homes overall, and particularly in the areas of highest demand, in turn reducing pressure on affordability;
- Consistently better outcomes on new build quality, with consumers having an effective route to redress; and
- Reduced detriment to consumers arising from the private management of amenities on new build estates.
The CMA, however, decided against making MIR references regarding the existing private management of public amenities (estate management) or the land banking arrangements it had examined in detail.
With respect to estate management, it concluded that direct government action would provide a more appropriate and comprehensive response to the consumer detriment the Study identified as occurring, as well as its future prevention.
Specific policy recommendations (see Recommendations 1.1 to 1.5, Appendix A) were made aimed at preventing the future proliferation of private management arrangements on new housing estates and to provide greater protection to households living under such existing arrangements.
It further invited the United Kingdom, Scottish and Welsh governments (GB governments) to also consider options to support the adoption of public amenities on estates currently under such private arrangements.
The Study also made specific recommendations to governments to improve quality and redress routes for consumers and purchasers of newly built housing (Recommendations 2.1 to 2.6, Appendix A.
These specific recommendations were made across both the above areas, because better market outcomes could be obtained “within the current broad market framework and (they) which do not involve significant trade-offs with other policy objectives which are outside the scope of the CMA’s study and which would involve wider political choices”.
With respect to land banking, the Study found that their size and operation reflected wider market and institutional failures, namely the operation of the planning system and the speculative private housebuilding model alongside related incentives driving the speed of private speculative build out.
These wider failures, it concluded, would be better addressed through government action focused on those areas, (see section 2 below) rather than through remedial measures made specifically to reduce the size of landbanks, as these taken in isolation would most likely reduce housing supply.
However, on the back of evidence uncovered by the Study that suggested that some housebuilders may be sharing non-public information on sales prices, on incentives, and on rates of sale, the CMA did decide to launch an investigation under the Competition Act 1998 into such suspected conduct by Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey, and Vistry, “given that it may have the object or effect of preventing, restricting or distorting competition”.
In March it announced that (outside the Study) it would commence a preliminary investigation into the proposed merger of Redrow and Barratt.
Supply and Affordability
The Study linked together two crucial facts that:
- Housing supply has persistently fallen well short of successive government targets, “compounding over time to create a growing housing shortfall”; and,
- Housebuilding has only previously reached the current 300,000 dwellings target (in England during periods where “significant supply was provided via local authority building”. Final report Figure 3.2 provides a useful annotated graphic illustrating that historically fundamental outcome.
The achievement of an additional annual supply of 300,000 is also the opposition’s target consistent with Labour’s commitment to build 1.5m homes over the lifetime of the next five-year parliament. The Welsh and Scottish governments have not hitherto set a headline total new supply target.
As Table 1, instructively, shows, the highest annual new supply (total net additions) figure recorded since 2006-07 (when the most accurate and comprehensive official housing statistical series to measure new completions and net additions in England began) was c248,500 dwellings in 2019-20: 83% of the 300,000 annual target; more pertinently, the annual average total supply across the entire 2006-23 period was c195,000 dwellings, c64% or less than two thirds of the proclaimed target.
The table also demonstrates the further substantive (albeit well known) point that the Study went on to make that new supply is also highly cyclical and prone to sharp fluctuation: the 2010-11 low point figure was barely half of the latest 2019-20 peak, as cited above.
Explaining this, the Study reported that most new homes are delivered through the private ‘speculative model’ of housebuilding for profit, where housebuilders buy land in advance of the construction and sale of homes without knowing the final price at which they will be sold.
Overall, according to the Study, around a half of GB homes are built speculatively, and a third on an affordable housing basis, sold or rented at a discount to market price; self- or other custom-built and build to rent completions account for the remainder of the total (noting that data on the tenure breakdown of completions is less accurate than total new supply data (DLUHC), certainly in the case of England.
In England, however, (less during market downswings, more during upswings) around 60% of new builds are produced through private speculative model. Scotland and Wales produce relatively more affordable housing, 45% and 50% of total new build supply in 2021-22, respectively, compared to around the 29% share that it takes across England.
The Study went on to highlight that this model produces too few houses especially in the areas in which they are most needed, consequently, “exerting associated effects on local affordability and overall consumer welfare outcomes”.
“Significant variation in housing delivery relative to need” also occurs across both countries and regions, with Scotland in recent years coming closer to meeting its implied target levels than has England and Wales.
London, the South East, and the East regions (administratively defined) account for the majority of the areas exhibiting “significant under-delivery against assessed need”. All LPAs in the East of England, South East, South West, and London regions have an affordability ratio of five or higher.
Housing need is defined by the Study as “the amount of housing required for all households to live in accommodation that meets a certain prescribed standard (which irreducibly involves political judgement as to the acceptable standard)”.
This is a normative standard that invariably results in a higher figure than the 300,000 target. For instance, a 2019 Study (Bramley or Heriot-Watt Study) for the National Housing Federation (NHF) and Crisis found that around 340,000 new homes need to be supplied in England each year, of which 145,000 dwellings should be affordable.
A February 2024 Financial Times (FT) analysis (not reported in the Study) that used the Heriot-Watt University methodology referenced above, but updated it with the latest (Office of National Statistics (ONS) population data and with net migration projections from Oxford University’s Migration Observatory, found that c421,000 additional homes were needed to be provided annually until 2036, assuming that average annual net migration to England figure will hover around 345,000 over the next 15 years.
On the other hand, the Study also cited an analysis (Study link broken, but summary by Ian Mulheirn can be found here) that argued that UK housing supply has outstripped household formation (for decades and that house price increases are a function of the main components of the cost of capital: mortgage interest rates, taxes, and expectations of future price growth.
Indeed, since the late 1990s, mortgage rates have tumbled, with inflation-adjusted interest rates on five-year fixed-rate mortgages, for example, falling from 8% to around 2% which given that mortgage interest rates tend to be the dominant element of the cost of capital for homeowners, largely explaining the substantial increase in house prices experienced since 1996.
It is relevant to note in that regard that a seminal 2019 Bank of England working paper concluded that the rise in house prices relative to incomes between 1985 and 2018 can be more than accounted for by the substantial decline in the real risk‑free interest rate observable over that same period and that changes in that rate “were a crucial driver in house price changes”.
Ian Mulheirn’s study went on to posit that the housebuilding target of 300,000 would only result in a 10% decrease in the affordability ratio over 20 years. It would neither solve problems of high house prices nor low home ownership, but instead likely to result in further growth in the number of unoccupied (and under occupied?) homes, “which may not be an efficient use of scarce investment capital”.
Alternative policy solutions it suggested included more social housing or more generous housing benefit, “as these policies would help affordability-constrained young people”.
The CMA Study concluded that even a highly competitive private housebuilding market (which it showed did not exist) will not, on its own initiative, produce sufficient housing to meet overall housing need in accord with its wider (external) benefits (boost to productivity, education, health, and other outcomes) to society.
And, while private housebuilder incentives to build are likely to follow changes in demand, how well the housebuilding sector is delivering for consumers and wider society “is likely to be better captured by how far it is delivering against housing need”.
The CMA accordingly decided to focus on assessing supply delivery against housing need in its supply analysis (para 2.6, further evidence document).
Turning to housing demand, this, according to the Study, is determined “by the number of people or organisations willing and financially able to buy a property, either as a home, second home or investment property”; an outcome patterned by disparate factors, including aspiring buyers’ ability to sell their existing home, their access to housing equity or a deposit, their access to credit and the price of that credit (effective demand is interest-rate sensitive where prospective purchasers rely upon mortgage finance to proceed), their current income and future expectations, as well as the financial and tax implications of property ownership, their expectations of future returns, and wider market sentiment.
People will also often choose to purchase more housing when their incomes allow, for example, taking on properties with spare rooms or buying holiday homes. Thus, as real incomes increase, it can be expected – other things being equal, which, of course, they will rarely be, as above – that housing demand will expand proportionately more.
Because all these factors are constantly changing and are strongly linked to general macroeconomic performance, housing demand will fluctuate, making it difficult to measure.
In addition, buying, selling, and even moving house are all time-consuming and difficult endeavours involving high time and other transaction costs, including residential stamp duty, estate agents’ fees, removal, and reconnection costs, etc.
Consequently, people may not adjust their individual demand for housing immediately as their circumstances change.
The Study went on to posit that “although affordability is determined by factors such as household size and composition, credit conditions (including interest rate changes, presumably), population growth, and levels of household income”, if the supply of housing fails to keep pace with changes in demand, house prices can be expected to rise faster than earnings, so worsening affordability.
This the Study defined as “the level of housing outgoings (for rent, mortgage, etc.) which a household can (and will) meet from its recurrent income without significant risk of material hardship or financial stress, including the risk of being pushed into poverty”.
It has certainly worsened over time. A key ONS dataset reports that the median house price to median gross annual residence-based earnings affordability ratio rose from 5.11 in England and 6.9 in London in 2002 to 9.06 and 13.62, respectively, in 2021, before subsequently slightly falling back as house prices dipped in response to increased mortgage rates.
The Study itself reported that by 2022, full-time employees in England could expect to spend around 8.4 years of income buying a home, compared to 6.4 in Wales, and 5.3 in Scotland, noting that as rough rule of thumb, it should lie in the four to five range (mortgage lenders, for example, seldom lend more than 4.5 times of purchaser annual income).
Considerable variation within countries and regions (as well as between – exemplified by the London figures reported above) also occurs. All regions (except the North east) have LPAs in 2021 with affordability ratios of over five (see figure 2.4, CMA Supporting evidence document for an annotated and illuminating infographic defining the most and least affordable LPAs within each country and region. You could purchase then homes in Merthyr Tydfil, Barnsley, Copeland, Bolsover, County Durham, Copeland, and Stoke-in Trent, LPAs reporting an affordability ratio of less than five).
The Study pointed out such entrenched variation is likely to be symptomatic of a market that in supply response is unable to adequately adjust to consumer preferences, expressed through price signals, concerning the supply of available homes and their desired locations.
With respect to rental levels, the Study reported that the rental affordability ratio for both England and Wales since 2014 taken across the board has remained below the affordability threshold of 30% of income, used by the ONS as a normative yardstick.
More instructively, however, when lower quartile income (the income that 25% of households are at or below) are compared with the lower quartile rent (the rent that 25% of rental properties are at or below), the ONS found that at a country level, in England and Wales, high, average, and low rents were all above the ONS’s affordability threshold and thus unaffordable for lower income households; and that they were only affordable for average-income households in Wales. In England only average and low rents were affordable for average-income households.
Quality, innovation, and sustainability
The Study recorded a lack of competitive pressure to drive up new build quality, related to factors both intrinsic to the characteristics of housing as a good and to specific shortcomings in the consumer regulation and oversight of the housebuilding market.
Intrinsic factors include that new build quality is difficult or impossible to observe prior to purchase. It becomes noticeable to purchasers only when something subsequently goes wrong. In that sense, the speculative housing market suffers from a similar market information failure or imbalance as does the second-hand car market – something the Study did not highlight.
Connected to that, prospective buyers also prioritise factors other than quality (which, as above, in any case, is difficult to observe or assess) as they hurriedly compete to complete a purchase in accord with their budget constraint and preferences and not to miss out on their hopes.
During this process they can fear that they will otherwise ‘miss the boat’ and be priced out (especially during periods of robust house price growth), making them even more amenable to the assumption that housebuilders build to a baseline level of quality – a reasonable one given the nature, importance, and expense of the good, when considered alongside associated seller publicity, which is often unclear and sometimes misleading (another information imbalance or failure).
The Study was clear that such information imbalances have not been rectified by the current voluntary consumer protection arrangements. It singled the House Builders Federation (HBF) Star Rating Scheme for criticism as of limited informational value, one which was not designed in the first place to ensure effective and timely rectification of defects.
Evidence of consumers encountering increasing and mounting difficulty and housebuilder resistance found by the Study when multiple number of snags or faults remain to be rectified, with a small but significant minority experiencing the most serious defects suffering significant consumer detriment: a serious matter and market failure for the most important purchase that most people make in their lives in terms both of their financial commitment and their individual/family future and welfare.
Levels of innovation in the industry were also found by the Study to seriously undershoot what it considered a dynamic, well-functioning market should foster and generate, noting that despite the largest housebuilders investing in, acquiring, or developing their own more innovative production capacity its dissemination continues to be slow, while sustainability efforts are primarily driven by expectations of future regulation, rather than endogenous (self-driven) industry momentum.
Profitability
The Study found that the profitability of the 12 largest housebuilders, delivering around 40% of total housing completions in recent years, exceeded what it would expect a well-functioning competitive market to provide, at least during “periods outside the Global Financial Crisis (GFC) and its immediate aftermath”.
That conclusion was based on a methodology predicated on the assumption that in a competitive market, a ‘normal’ profit was “the minimum level required to keep the factors of production in their current use in the long run: i.e. when the rate of return on capital employed for a particular business activity would be equal to the opportunity cost of capital for that activity”.
The rate of return that housebuilders achieved on their employed capital accordingly was compared to the opportunity cost of that capital between 2003 to 2022 inclusive.
Housebuilder profits from 2013 to 2019 were found by the Study to be particularly high against that ‘normal profit’ yardstick, because of supportive economic circumstances for housebuilders – in particular, low interest rates and quantitative easing – as well as by measures taken by the government to help homebuyers fund deposits for the purchase of new homes through the Help to Buy (HtB) scheme.
The Study highlighted that one large housebuilder, following the changes to the planning regime in 2012 was able to build out the strategic land bank it held at the time, thereby realising the greater returns associated with buying land without planning permission, before it then benefited significantly from increased HtB-driven demand; c60% of the homes sold by that housebuilder in 2018 were supported by that scheme.
Specifically, it (Table A:1) computed that during the 2016-19 period inclusive the return on capital employed (ROCE) achieved annually by the 12 housebuilders was between 29% and 34%, whereas its mid estimate (Table B.4 of Appendix B) of their pre-tax nominal annual cost of capital was between 14.4% and 14.6%: the observed profit of the largest housebuilders was thus double their expected ‘normal’ profit.
The Study had earlier confirmed (para 4.105, planning working paper, see link above) that, typically, housebuilders expect to achieve margins in the range of 15% to 25% on residential development sites, equating to approximately £46,000 to £77,000 per plot at average house prices.
It still concluded, nevertheless, that specific intervention (s) is not required to tackle such excess levels of observed profitability directly, as such intervention, according to the Study “could create an additional downward pressure on the number of houses being built, exacerbating the supply problems that have characterised this market over a long period”, because:
- the housing market is highly cyclical and is impacted by external factors, including the wider economic climate;
- profitability during the 2010s is likely to have been boosted by supportive economic circumstances and temporary factors no longer in evidence, in particular a prolonged period of low interest rates and the Help to Buy schemes’ support for first-time buyers;
- there was significant variation in the performance of individual large housebuilders in the Study sample.
2 Causes and consequences of housing market failure
The Study found that deficient housing supply and its affordability was propelled by, in effect, two (and a half?) key drivers:
- The nature and operation of the planning system;
- The limited amount of housing built outside the speculative approach (such as affordable housing, self-build, and build-to-rent), with private speculative build-out rates providing an additional (related?) factor insofar that it is both cyclical and calibrated to avoid impacting on market prices.
Operation of the planning system
Insofar that a prior condition for building houses is possessing permission to build them, the Study found that the nature and operation of the planning systems is a key driver of the under-delivery of new housing at levels required to meet government targets and measures of assessed need.
That the number of planning permissions granted over the last 10 years across GB, and particularly in England, have been “insufficient to support housebuilding at the level required to meet government targets and widely accepted measures of need” was highlighted, with the number of units granted planning permission in England in 2022-23 falling to 269,000 after several years when permissions had exceeded 300,000.
The Study pointed that due to some applications lapsing because of viability or other reasons and the time lag between when a scheme is approved and when it is built out, achievement of the 300,000 target requires the number of applications approved each to exceed 300,000 to allow enough permissions to be banked over time consistent with the delivery target.
More broadly, the ability of the planning system(s) “to support the level of housebuilding that policymakers believe is needed”, is limited by its:
- lack of predictability;
- length, cost, and complexity; and the
- insufficient clarity, consistency and strength of LPA targets, objectives, and incentives to meet housing need.
These problems, the Study added, may have a disproportionate impact on Small and Medium Enterprise (SME) housebuilders.
Four potential sources of unpredictability in the planning system were then pinpointed.
First, governments frequently use the planning system to implement new policies, most commonly environmental regulations resulting, in effect, administrative and policy overload on LPAs with limited resources causing consequent delay and confusion. Examples provided by the Study included nutrient neutrality requirements and biodiversity net gain rules in England.
Second, since the introduction of the National Planning Policy Framework (NPPF) in 2012, significant revisions have become more frequent in recent years, with the review process that starting with the 2020 Planning White Paper generating particular policy uncertainty at LPA and other stakeholder levels.
The most recent and, perhaps, notorious example was the December 2022 consultation on revisions to the NPPF, which, as this website in and others warned would happen, has led some LPAs to delay or to even withdraw their Plans, and/or rescind previous application approvals.
The Levelling Up Secretary of State Michael Gove in a December 2023 Ministerial Written Statement announced the result of the government’s response to that consultation, in parallel publishing an updated National Planning Policy Framework reflecting the changes made.
In summary, the new 2023 NPPF, according to the government, is designed to: facilitate flexibility for local authorities in relation to local housing need, with the Standard Method (see below) for calculating housing need becoming an “advisory starting point” rather than a mandatory input for LPAs in their determination housing numbers; clarify a local lock on any changes to Green Belt boundaries; safeguard local plans from densities that would be wholly out of character; free local authorities with up-to-date local plans from annual updates to their five-year housing land supply and remove buffer requirements, save that a 20% buffer will still be applied if Housing Delivery Test targets are not met; limit the practice of housing need being exported to neighbouring authorities without mutual agreement; bolster protections from speculative development for neighbourhoods that develop their own plans; support self-build, custom-build and community-led housing; and cement the role of beauty and placemaking in the planning system.
The 2023 NPPF also retained the 35% uplift to the assessed housing need for the 20 largest towns and cities in England and the requirement that it should be accommodated within those cities themselves, except where cross boundary redistribution agreements are in place.
According to the Study, the uncertainty arising from this latest review process have yet to be resolved, with many changes proposed to be rolled out gradually on a ‘test and learn’ basis.
Although it did not highlight introduction of the Infrastructure Levy (IL) by LURA that measure provides a prime case in point of planning reform generating confusion and uncertainty with its associated ‘test and learn’ issues risking potential and substantive future policy planning blight, as this website in Going around the Mulberry Bush discussed in detail.
In February 2024, the UK government announced further changes focused on encouraging brownfield development, including a new consultation on changes to the NPPF involving introduction of a presumption in favour of brownfield residential development where a LPAs HDT result is both below 95% and it is one of the 20 LPAs in receipt of the 35% urban uplift, and a change that would expect all LPAs to give significant weight to the benefits of delivering as many homes as possible, and to be flexible in applying policies or guidance on the internal layout of developments, especially again in relation to brownfield land proposals.
There have also been significant recent changes in Scotland and Wales over the past few years.
Third, there is a lack of up-to-date Local Plans (LPs), especially in England, where on 31 December 2021, less than 40% of LPAs had updated their plans in the last five years. 22% had not either adopted a plan for more than 10 years or had no plan in place.
Updating a plan is a complex and lengthy process, with DLUHC estimates suggesting that the average time taken to produce a local plan is seven years involving substantial time and other resource costs.
The Study was told by some LPAs told us that they had difficulty getting plans adopted for political reasons, especially where the plan might require the release of green belt land to meet housing need, with analysis presented showing that the LPAs with either a significantly outdated plan, or no plan at all, typically have much higher percentages of greenbelt land within their boundaries (see Table 6.8, further evidence document).
The Study advised that LPAs with out of date or no plans tend to the same ones that undershoot their Housing Delivery Test (HDT), (Table 6.5, further evidence document). The presumption of sustainable development ceases to apply to speculative applications where an LPA is not delivering more than 75% of its assessed housing need target, as it does where the LPA’s LP is out of date and/or where it cannot demonstrate a five-year housing land supply (5YHLS), subject to the changes made in the 2023 NPPF.
As way of background, the 2018 updated NPPF introduced both the centralised Standard Method (SM) to assess housing need and the HDT. The SM is a baseline formula used to identify the minimum number of homes expected to be planned for in a way which addresses projected household growth, affordability and, in some cases, any urban uplift required by the 2023 NPPF.
It identifies a minimum annual housing need figure to be used in the HDT, not a housing requirement figure, which the individual LPAs are expected to define themselves.
HDT targets cover a three-year period with specific values set and calculated for each year, based on the lower of either the need level set out in an up-to-date Local Plan (LP) or the SM assessed need level. Where the LP is not up to date, as is the case for the majority of English LPAs, the HDT should assess local delivery against the local SM assessed need figure.
In short, significant underperformance of housing delivery against targets is limited to a relatively small number of LPAs, relatively highly concentrated in certain areas of the country, particularly in the South East, the East of England, and the London regions.
The Study cited its own analysis that 51 out of more than 306 LPAs (17%) in England achieved less than 75% of their need based HDT targets in 2021, whereas 214 (or 70%) of LPAs achieved more than 95% of their housing need.
The majority of the areas that achieved less than 75% (37) are located in the South East, East of England and London, with LPA performance in the HDT remaining broadly consistent since 2018 (see Table 6.1, further evidence document). The above, of course, are the same areas where supply deficiency and affordability problems and the population are most concentrated (see section 1).
The Study further found that LPAs with the highest delivery against their housing targets tend to process a higher number of applications relative to their housing stock; approve a higher proportion of those applications; have a lower proportion of their rejection decisions appealed; and lose a lower proportion of appeals, with converse being the case for LPAs with the lowest delivery against their housing targets.
Fourth, political and public attitudes to development are frequently expressed through the planning process. Residential development has become increasingly politically contested, delaying, and making harder timely Local Plan making and planning application determination, to the point that development applications and investment are discouraged.
The Study did, nevertheless, find that the strongest existing sanctions for LPAs to prioritise housing delivery exist in England, where a presumption in favour of sustainable development (due to the NPPF) comes into play if targets are not met. Housebuilders therefore have greater rights to have applications approved, compared to Scotland or Wales, where no equivalent incentive is in place.
Protected land or geographic constraints can undercut that presumption, however. Across many areas of England (footnote seven of para 66, NPPF), designated local green spaces, areas of outstanding natural beauty, national parks, heritage coast, irreplaceable habitats, heritage assets (and other heritage assets of archaeological interest), and areas at risk of flooding or coastal change, as well as designated green belt land are specifically excluded from the presumption. The North West of England (53.1%) and the South East of England (49.6%) have the highest proportion of protected land in England
The Study went on recognise that when all is said and done the planning system(s) was and is in large part designed to ensure that local preferences are incorporated into decision-making – adding the cavil that this does not necessarily lead to consistent decision-making at a local level.
Given that and “the wider policy trade-offs and complexities that are inherent in planning system design and operation”, the Study decided that it would be inappropriate for the CMA to make specific recommendations to governments about how such trade-offs should be made.
Rather, given “the vital role that (planning systems) play in shaping market outcomes” it offered options to make them more predictable and less costly, lengthy and complex for housebuilders.
But it left it up to governments to “consider whether the (associated) trade-offs with wider policy objectives are worth making, in the context of their overall objectives for the housing market”.
These are set out in Options 2.1 to 2.7, Appendix B.
To give a flavour of these planning options, Option 2.1 defines the features that would mark an effective methodology more likely to result in a local target that accurately reflects need:
- ease of understanding – ensuring that the assessment of housing need is easily implementable and has results that are readily understood, will allow for national and local targets to be more readily accepted and outputs to be more easily disseminated;
- using reliable evidence – using up-to-date and robust evidence will ensure that the target will more closely reflect current housing need. In addition, using evidence from credible and, where possible, publicly available sources will help ensure that the results are more easily understood and accepted;
- regular assessment – regular calculation of the housing target will help to ensure that the target is as accurate as possible; noting, however, that LPAs need a degree of stability in the national target so that they can effectively plan to deliver their local housing target for the medium and long term. Updating the target too frequently could lead to increased uncertainty at a local level, as well as the national and local target losing credibility. To achieve the right balance, the target could, for example, be updated whenever updated national household projections are available, but no more frequently than this;
- unadjusted outputs – noting that housing policy is a matter for governments and incorporating aspects of policy targets, such as brownfield land use, may be an appropriate way of achieving policy aims. However, reducing the incorporation of other policy aims in the methodology through adjustments will result in the target becoming less reflective of underlying housing need. Therefore, such adjustments should be kept to a minimum with limited scope for discretion for the governments in making such adjustments.
- local alignment with national target – limiting local deviation from the agreed methodology will result in local targets that are more closely aligned with the national target.
Appendix B should be consulted for detail on the other options that the Study presented.
Wider operation of the speculative housing system and associated build out policy issues
The Study largely echoed the Letwin Draft Report analysis in concluding competitive pressure to supply homes at a rate that exceeds the current local absorption rate was weak, “limiting the number of homes that are built over a period, removing potential downward pressure on local prices”.
Letwin’s investigation into 15 very large sites in areas of high housing demand found that their median build out period from the moment when the house builder has an implementable consent is 15.5 years; or put another way, the median percentage of a site built out each year on average through the build out period is 6.5%.
It pointed out that across the large sites of over 1,500 dwellings that it examined the revealed market absorption or build out rate went on to limit the corresponding scope to provide cross-subsidies between the units sold at market values and the affordable dwellings, consequently retarding the rate at which housebuilders can and will build out the affordable housing that may be required by any applicable affordable housing Section106 (S106) agreement.
The CMA Study put forward Options 2.8 to 2.10, Appendix B to support a higher build out rate.
Under Option 2.8, LPAs could require increased diversity of tenure for larger sites to be granted planning permission, including raising the proportion of affordable, build to rent or custom build homes on sites.
Increasing the wider diversity of housing tenures (sub-tenures?) aimed at different sub-segments of the market, could consequently allow for more homes to be absorbed within the local market “without housebuilders needing to reduce the prices of the housing they produce for the private market, thereby improving the speed of housing delivery”.
LPAs could also publish their policy on housing tenure requirements, meaning that they are known by housebuilders and reflected in land transactions.
Such a requirement could be decided and operated in a similar way to LPA policies on affordable housing and developer contributions. The Study noted that the Letwin Final Report recommended a similar measure for developments providing over 1,500 dwellings, not then taken forward by the UK government.
With Option 2.10, LPAs could require housebuilders to increase the diversity of the types of homes (type, size, style, design, rather than tenure?) that they build on larger sites.
Sites with greater diversity of types may build out more quickly “as the varying types of homes entering the market are more likely to appeal to different sub-segments of the market and therefore such sites are less constrained by the local absorption rate”.
It went on to caution that were to support a higher build out rate the UK, Scottish, and Welsh governments to pursue these options that they should pay regard to the following considerations:
- requirements for housebuilders to deviate from the profit-maximising level of site diversity could impact on viability and the number of sites developed;
- to build a greater amount of affordable housing would likely require additional public funding, as such housing is sold to registered providers who are, at least in part, funded by government grants;
- as with obtaining developer contributions, site diversity requirements must be consistent and not complex, as this would increase uncertainty and create delays in the planning process.
The Study concluded, however, that whilst housebuilders could increase the rate at which they sell speculative homes by offering them for sale at lower price, as the number of homes that housebuilders can build (and therefore sell) in an area in the short to medium term is inherently limited by the planning system, “lowering their prices is more likely to bring sales of these homes forward in time, rather than increasing their overall sales over the medium term”.
Once a housebuilder has built out and sold the homes it has planning permission for in an area, it cannot simply sell more homes. To increase sales further a housebuilder must first obtain additional planning permissions, which, as the Study reiterated, is a lengthy and risky process, meaning that over the longer-term, “supply will depend on the extent to which they can get hold of further land with planning permission in the area”.
Yet, its overall conclusion was even if policymakers made the changes the Study proposed (as set out in Appendices A and B) “the market may still fall short of delivering the quantity of homes, supporting a level of affordability”, that policymakers find acceptable” because:
- market outcomes are heavily influenced by external factors, such as interest rates, mortgage availability, the rate of new household formation, by demographic change and by the level of household incomes; and
- market cyclicality and the speculative housebuilding model means that private housebuilders do not collectively have the necessary incentives to build houses at the rate required to meet policymakers’ objectives.
The Study went to say while it is open to policymakers to deliver change through more fundamental interventions “that go beyond the way in which the market itself works but would have a significant impact on the quality and affordability of new homes being built”, such interventions often come attached with “fiscal and policy implications”.
It accordingly declined to offer recommendations or specific policy options, but did identify areas of potential intervention because, “without them our analysis of this market and the potential outputs it can deliver would remain incomplete”.
These covered the encouragement of non-speculative housebuilding models, including self- or custom-build homes. CMA, therefore, looked to the UK, Scottish, and Welsh governments to significantly increase their delivery of publicly funded housing by local authorities or housing associations to “supplement the absolute number of houses provided by private sector housebuilders, whilst incentivising housebuilders of these types of homes to deliver homes at a faster rate than under the speculative model”.
Governments “could consider” also a more active role for the public sector in the purchase and assembly of land for development. This the Study suggested could be achieved by granting LPAs additional powers to purchase land and/or to generate revenue to support development or through Community Land Auctions.
It further noted that the Letwin review recommended the establishment of more local development corporations with strong compulsory purchase powers and the ability to raise finance to fund local infrastructure.
In that light, the Levelling Up and Regeneration Act (LURA) since its enactment in October 2023 provides for LPAs to apply for a direction from the Secretary of State to permit Compulsory Purchase Orders to be used for specific projects in the ‘public interest’, such as education, healthcare, or affordable housing, without compensating the landowner for the potential uplift in the value of the land associated with the land being granted planning permission (hope value).
Alternatively, the Study went on, across GB, expectations of higher build-out rates could be reflected in national planning policy and in local plans. LPAs could set the build-out rate it expects housebuilders to achieve and be provided with greater enforcement powers where housebuilders undershoot the required build-out rate.
In addition, the UK, Scottish, and Welsh governments may “wish to consider” measures to increase housing demand, but should then have regard to the following principles:
- stimulating demand without addressing the shortage in supply may cause house prices to rise. Therefore, implementing measures that increase supply would also be needed need to mitigate the risk that the gains from demand-side interventions accrue primarily to housebuilders and other sellers rather than buyers;
- measures that seek to stimulate demand among certain groups of customers reduce the incentives on housebuilders to reduce their prices to attract those customers, or to attract other customers. Any intervention should therefore be carefully designed to “target those potential purchasers who would not otherwise be able to purchase a home”;
- schemes that reduce the deposit requirement buyers face will also reduce the equity those buyers have in their home at the time of purchase, leaving “such buyers vulnerable to future mortgage and house price movements, with negative equity more likely”.
- any demand-focused scheme will inevitably be temporary, risking unintended consequences, “including creating winners and losers among different groups of house purchasers over time: an important temporal aspect to consider when designing such a scheme”.
3 Review and assessment
The Study provides a comprehensive, evidenced, and useful policy commentary (well worth careful reading for its informational and review value), rather than – as might be expected given the CMA’s formal remit to promote competition and to protect consumers – a focused technical dissection of the housebuilding market from an economic, consumer welfare and competition perspective.
Consequently, sometimes it reads more as a policy critique and reform commentary than a market analysis, written by a specialist campaigning organisation or a think tank, reprising key elements of the government’s 2019 Housing and 2020 Planning White papers, and other recent government reviews, notably the Letwin Review.
Accordingly, the Study has already been criticised by some as straying outside its territory by “not minding its own business”, indulging in wishful aspirational group-thinking distracted by well-meaning and often frequently put well-rehearsed generalisations covering the firs area of concern it identified – producing more homes overall, particularly in the areas of highest demand – that risk gathering dust within the corridors of Whitehall rather than acting quickly and directly on the policy dial.
Indeed, a danger is discernible that policy focus is thereby diverted away from its key recommendations it made to government concerning improving consumer protection and information arrangements and the private management of estates (covering the second and third of the areas where the Study identified that government intervention was required to deliver better outcomes), potentially distracting attention away from evidenced reforms and action that the CMA could and should effectively progress itself with central government, squarely within its statutory remit.
Although invariably the Study’s analysis and conclusions made from an objective technocratic standpoint are perfectly sensible and correct, it (perhaps necessarily, and certainly understandably) neglected the political force and dimension of the reasons (largely political economy based) giving rise to the problems that it identified and their constraining effect on effective remedial public action.
For example: national housing targets should be set “in an objective way that better reflects need in a more certain and consistent manner to avoid the counterproductive confusion and uncertainty of recent years, underpinned by a methodology that is easy to understand that uses reliable and up-to-date information, and is assessed at regular intervals to ensure it remains reflective of need with the government provided limited discretion to adjust the original calculation”.
As the last section recorded, the Study went on to suggest using demographic projections as a default regular mechanism to update need assessments. These, however, can fluctuate depending on the assumptions applied, resulting in large swings in local figures that require dampening or, in other words, the exercise of central government ‘discretion’; moreover, it is far from clear that such ‘a predict and provide’ indicator subject to uncertainty is the best one to use.
It probably would have been more helpful to systematically tabulate the different possible ways that local housing targets could be constructed, their pros and cons and other salient considerations, rather than just plump for one option in an ill-considered way.
The overall objective to make local target setting more consistent and certain makes perfect sense but is one hostage to politically disruptive events, inevitable in a competitive political democracy subject to the political economy characteristics of the UK, and of England especially.
One such disruptive event was the 2021 Chesham by-election when the Conservatives lost to the Liberal Democrats in a campaign coloured by concerns of additional housing adversely impacting on the local environment and the quality of life of a generally well-heeled population. It practically acted as a death sentence on the 2020 Planning White Paper.
Likewise, the December 2022 NPPF consultation and the subsequent December 2023 changes cannot be divorced from government political electoral concerns that similar affluent seats across the ‘Blue wall’ of the London environs – including the Surrey Heath seat of Micheal Gove, the current Secretary of state – could be lost at least in part due to similar concern.
Key political economy characteristics other than Nimbyism and the associated tension between local democratic preference and the levels of central compulsion needed to secure nationally set objectives, include the real fiscal crisis of the state, lack of institutional capacity at both central and local levels, as well as the time divergence between the short-term concentrated cost and political pain of planning and other housing reform measures versus their long-term diffused benefits. A tension that can undermine and discourage the levels of sustained political focus needed for desired change to be effectively and substantively actuated.
A more fundamental criticism of the Study was its choice to focus on the extent that housing need is being met as the key metric of effective supply delivery. This comes across as mixed up, big time given that its purported focus was the housebuilding market.
In short, there is no reason why speculative housing market should deliver supply sufficient to meet normatively defined levels of housing need rather than effective demand. Many in housing need will be unable to afford or access the speculative market; and put simply, private housebuilders cannot be expected to act as housing charities.
That is not to say that it would be more economically and socially optimal for private housebuilders to migrate down the value chain and make a more diverse tenure and type offer, consistent with Options 2.8 and 2.10 that the Study advanced (see previous section).
It should have logically gone further and concluded that unless the share of such housing approached 50%, neither the 300,000 nor an alternative target based on housing need will be met. But, as noted earlier, the Study concluded instead that while this might bring forward additional housing supply, overall, it would not increase numbers in total as these are constrained by the planning system and its ability and capacity to generate sufficient additional planning permissions. That, however, does not necessarily follow.
Indeed, at a practical policy level, the achievement of a sustainable stable and less volatile annual new supply level of 300,000 dwellings in England presupposes a much-enlarged state-enabled housing sector providing or enabling at least 100,000 dwellings a year, whether of social rented or intermediate sub-tenure: 50,000 more or broadly double than the average level of affordable gross supply achieved over the last decade, (see, Annex Table Four )
The Study itself reported that, since the Second World War, private developer output has fluctuated between roughly 150,000 and 200,000 dwellings per annum, implying that between 100,000 and 150,000 of a 300,000 total target will need to be met from other sources.
Not only would increasing the share of affordable housing (or requiring it to be built earlier) increase the supply of affordable housing sooner but such an intervention could encourage LPAs to approve applications in the first place.
Also, if the 300,000 target is to be attained, schemes of 2,000 homes of which 1,000 are affordable need to be approved rather than 1,500 homes of which 500 are affordable.
A connected conceptual problem with the Study was that its twofold diagnosis of deficient housing supply and affordability – the nature and operation of the planning system and the limited amount of housing being built outside the speculative approach (such as affordable housing, self-build, and build-to-rent), alongside with too low private speculative build-out rates– was sometimes likewise confused.
Subsequent media attention has largely focused on the emphasis the Study gave to the negative impact of the planning system on market outcomes and the resulting need for the system(s) to be made more predictable and less difficult and costly to navigate, and on occasions the Study seemed to assume that the planning system provided the overarching problem and that its reform would provide the needed remedy to systemic housing under supply.
Yet it also emphasised that the private speculative housing market due to its particular and developed characteristics and its sensitivity to wider macro-economic conditions meant that model was intrinsically incapable of meeting societal objectives.
In the view of this website, it would have been more intellectually honest and potentially more impact effective (as well as more in accord with its remit) for the Study to highlight that an incremental and partial shift to a contracting rather than speculative provision model was a necessity if policymakers declared objectives are to be attained, referencing that conclusion to robust and evidenced demonstration of housing market multiple failure.
Such a shift should increase the market absorption rate as well as both total and affordable housing supply. Known public purchases of affordable housing should involve a far lower profit rate than is currently levied and expected on speculative housing as housebuilders would no longer be subject to demand risk, although they would still be subject to some economic risk concerning construction and other costs.
But the levels of expanded public supply consistent with the attainment of the 300,000 target will require additional public funding, bringing it into conflict with the real fiscal crisis of the state: the unwillingness of governments to raise or commit to levels of needed social expenditure due to unwillingness to tax or borrow the necessary sums.
That crisis is not simply a reflection of real economic or financial constraints but also one of underlying denial that UK governments can both achieve desired social objectives based on citizen expectations of service delivery and quality as well as pursue the goal of low taxation.
But the Study, when recognising that the supply share taken by government-supported affordable housing must increase if supply targets are to be met, qualified that conclusion by recognising the policy and resource trade-offs involved, including increased public grant support versus wider macro-economic and public finance imperatives and increased developer contributions versus scheme viability considerations. In other words, it soon reverted to bureaucratic caution, pulling its punches.
So, on one hand, the Study went on ‘right-on’, boldly arguing on the primacy of housing need – as one would expect Shelter and Crisis to do – while, on the other, it then shied away from following the hard policy implications of that chosen approach.
The need for increased affordable housing and social rent has been previously advanced not infrequently by parliamentary Select Committee findings (often populated by MPs in favour of lower taxes and fiscal prudence), that then attract an invariably anodyne governmental response.
Certainly, the issue that must be understood and tackled is, why successive governments of whatever political colour, despite widespread cross party and public support for more affordable housing, have failed or felt unable or unwilling to act in the manner recommended by endless parliamentary committees, successive commissions of the ‘great and good’, as well as much of the mainstream media.
It would have more useful and pertinent for the Study to have queried the seriousness of intent of the UK government’s supply target; in short, is it simply aspirational or, put more cynically, an example of “wishful verbiage” (as a recent commentator put it in a wider political context) rather than a public policy objective backed by real political, financial, and institutional commitment.
If the former, the Study will be one of many that in the past and no doubt in the future that has or will say much the same things, without any or little policy impact, as this website’s earlier submission to the Study, tracked.
Of course, the CMA cannot directly intrude into the sphere of macro-economic and public finance management, but simply recognising such fundamental trade-offs hardly takes matters further.
Rather it behaved more like a pressure group facing both ways. By taking assessed housing need as the correct determinant of target setting – even though, as described earlier, that most studies indicate that would require substantial upward revision of national and local targets (above the national 300,000 level).
Such upward revision, however, would involve further methodological and process change – the same that the Study cautions against on planning certainty grounds and, in any case, would prove an exercise in futility insofar there is no prospect of a higher target being anything other than aspirational in the current and foreseeable policy environment.
The Study also at the same time seemingly ‘swallowed’ developer takes on profitability, viability, and the relationship of the second hand to the new home market.
While the much larger second-hand market (c90% of purchases) may put a partial lid on new build prices in particular locations and contexts, the new build and the second-hand market are not one and the same (perfect substitutes).
Many the housebuilders migrate up the value and price chain and as the Study itself highlighted the new build market has been underpinned by government interventions, most notably in the past by the HtB; nor should the impact of the information imbalances between housebuilder and new build purchasers be under-estimated.
Indeed, the Study itself noted the existence of a new home premium (perhaps 5% in some locations). Its figure 9.1 (supporting evidence document) suggests that during the upward part of the house cycle that premium increases.
The circularity of the argument that reducing housebuilder profits will or may reduce development viability should also be understood. This is true only to the extent that c20% profit levels are treated as a fixed parameter – predicated on an assumption that they are a necessity – reflecting the characteristics and failures of the market as currently configured.
A six or seven per cent profit level rather than one in the 15% to 25% range represents a difference in price of between £30,000 and £50,000 per home for a home valued at c£300,000, making a big difference at the margin on affordability levels.
Many housebuilders have emphasised that policy certainty and clarity was more important than, for instance, the existence or the level of housing contributions, which they could then factor into their business plans and plan and respond accordingly.
The Study itself also identified evidence that developer contributions could be increased especially on greenfield sites, suggesting that a more consistent and certain approach could induce such an increase.
The fly in the ointment that remains is the associated need to underpin such a partial shift to a contracting model with increased public grant and policy support within the real fiscal crisis of the state, perhaps explaining why the CMA felt that a focus on the planning system was more expedient and more immediately policy relevant, notwithstanding the case made above that is was not intellectually robust and consistent – cognisant of the prospect that planning reform has been declared as representing an early priority of a new Starmer-led government. That choice is revealing, perhaps, of prevailing civil service attitudes during what is likely to be a political transition year.
4 What should the next government do?
The political and policy challenge is to select and progress the line of least resistance to effectively reform Britain’s flawed institutional housing model, done in such a way that puts both total and affordable supply onto an upward trajectory to a sustainably higher and less volatile level more aligned to national economic and social needs.
The working assumption made here is that a new Starmer-led government, elected sometime in the autumn/winter of 2024-25, facing an immediate economic and political imperative to boost growth sooner rather than later to safeguard and release resources for necessary and vital public service provision and reform without increasing headline direct tax rates, will prioritise planning reform.
This in line with Starmer’s stated commitment that the government will “build rather than block” to support the provision of 1.5 million homes – equivalent to 300,000 homes per year – during the lifetime of the next parliament.
Indeed, it appears that Labour hopes that planning reform by generating a recovery and increase in housebuilding will kickstart the new government’s attempts to achieve higher growth, sidestepping the constraints on additional public investment that the debt reduction component of the fiscal rule framework (public debt as proportion of gdp will fall within five years) will impose.
Rachel Reeves, in her March 2024 Mais Lecture, confirmed the set fiscal rules as central to achieving macro-economic security and stability – the essential states of sustainable steady production-rather than debt-fuelled growth, in her economic worldview.
An alternative view and context is set out in his MainlyMacro blog (Tuesday 26th March) by an economist who has been instrumental to fiscal rule development, pointing out further that capacity material and labour constraints – likely to especially acute within the housebuilding industry (something that the CMA study omitted) – actually requires private consumption to be dampened by across the board tax increases.
The inevitable and potentially prolonged time lag (before any planning reform translates into building activity, and certainly into completed homes) translates into growth and productivity outcomes, presents an immediate problem.
That underscores the need for the new government to act quickly, decisively and with laser-like focus, notwithstanding the incessant competing pressures and priorities that it will inevitably face.
If it doesn’t, any prospect of Labour achieving its housing target will be hobbled at the start. On the 300,000 target itself, it is fair to say that it is a figure that has little or no evidential basis, whose virtue seems to be that it is a convenient round number, higher than current supply performance, which has been achieved in the past.
The location, type, and affordability of dwellings provided (composition) are as least, if not more important, than the bald total. The reason, of course that governments, or oppositions expecting to be the next government, do not disaggregate the supply target down into an affordable component is because their insufficient public housing investment would be exposed.
That said, the set target is understandable and visible and, if assumptions are strained to breaking point, potentially achievable – at least temporarily or fleetingly during the peak of the housing cycle.
Yet its current definition is unrealistic. Insofar that it unlikely that net new supply during 2024-25 and then 2025-26, will exceed 250,000 dwellings, a shortfall against that target will start to clock up from the outset. That new supply completions by 2029-30 will be closer to 400,000 than 300,000 (reflecting start levels of that magnitude during 2026-28), sufficient to offset early under performance, is simply not credible.
The lack of effective critical scrutiny is depressing. Even more so, it suggests, that Labour’s commitment to build 1.5m homes is for political show rather than made in serious intent.
Certainly, whether that is an unfair and unfounded accusation will become apparent soon enough. Unless its target is supported both by a committed strategy, detailed policies, and annual plans (very much a ‘Mission’ approach, echoing the committed efforts of early post war governments to achieve 300,000 new homes annually), it can be safely assumed that Labour’s target, as was the Conservatives, will remain an aspirational sop to ‘polite society’ rather than a ‘blood and guts’ political programme.
That Mission should be all encompassing, covering not only New Town and Urban Extension policy and planning, LPA empowerment, the declassification of ‘grey’ green belt land, and affordable housing, but also flats above shops/pubs, transport node densification, and community housing.
The shadow housing spokesperson has promised the imposition of “mandatory targets that bite on individual local planning authorities”. Settling on what objective sustainable basis they are to be set at a local level itself will take time, given consultation requirements, as would other associated changes consistent with it, such as the conditions when Green Belt land can be used for housing, some of which, such as co-operation with other LPAs, may require primary legislative amendment to LURA rather than NPPF revision (the author of this post is not a planning expert and expects the Shadow Levelling Up and Housing teams to be fully engaged now in working through these issues ready for alternative government detailed engagement with the civil service) .
Rather than getting hang up on what demographic projections should be used, simpler metrics such as local affordability and past delivery (perhaps measured by delivery of additional housing per 1000 dwellings could be used, if possible.
But Gove’s December 2022 changes (Gove changes) should be rescinded with best possible alacrity and replaced with emergency guidance that LPAs in future will be expected to deliver locally housing volumes that summed across the country are consistent with the achievement of the national 300,000 target with some additional buffer provided, covering the points below and others.
LPA’s that have paused Plans or rescinded planning approvals in the wake of Gove changes, should be individually instructed to resume Plan-making in line with that target, as should LPAs without an up-to-date Plan, and given a deadline to do so, monitored by the DLUHC, or whatever its successor may be called. Rescinded approvals should be revisited in line with the new guidance again within a deadline, which if missed will mean that determination by the Independent Planning Inspectorate.
Securing change working with such ‘reluctant soldier’ LPAs will not be easy. However, it is best to take any political pain in the early period of government, necessary in any case because of the timelag issue, as identified above. Any ‘Chesham’ effect will be better withstood earlier than later in the government’s lifetime.
The CMA Study, indeed, provides civil service and administrative cover and support for such actions and thus now provides a timely and useful resource.
LPAs should be given every possible encouragement and incentive to deliver additional housing sooner rather than later whether through mechanisms, such as the New Homes Bonus, infrastructural and other financial support, the expeditious approval and support of New Town Local, and other Development Corporations where appropriate, and though linkage to measures more specifically designed to increase affordable housing, such as lifting local borrowing caps and the use of CPOs, as well as the reinstatement of 100% receipt recycling, especially across areas where additional housing is both most needed and most likely contribute to productivity enhancement.
Then, of course, the overarching real fiscal crisis of the state overarching constraint could bite. Yet, public infrastructural investment in transport and sometimes other supporting social infrastructure, will invariably be required to pump prime private housing development investment in relation to large scale schemes.
These include the Oxford-Cambridge corridor, New Towns and urban extensions, and transformative brownfield urban developments, such as along the Thames estuary.
The same point applies to the necessary shift away from the private speculative towards a more towards a more public contracting partnership model, where upwards to 50% of the annual 300,000 additional housing target is affordable, custom-or built to rent.
Without such a shift, the 300,000 target, cannot and will not be met. It will require, however, some additional public funding support and guarantees that, in turn, will need to be an integral part of the 2025 Comprehensive Spending Review process.
It must be understood that if funds are not apportioned to public infrastructure and housing investment, neither the new government’s overarching economic nor its housing objectives will be met. As such it will provide an early test of the pragmatism – both in wider economic as well as political terms) of the application of Labour’s fiscal rules, as well as of its housing policy.
In planning policy terms, early planning guidance could provide a nudge in that direction by indicating an expectation that 50% of additional new supply should be locally affordable, whether officially defined as such or targeted to home buyers at lower quartile prices. Early delivery of affordable housing within large schemes along the lines that Letwin advocated should be put in train.
Creating a fast-tracked route for in-principal approval for applications that are in line with an adopted local plan, providing housebuilders with greater certainty to begin development, could also enter the policy menu.
Appendix A
Preventing the proliferation of private management arrangements on new housing estates
Recommendation 1.1: Common adoptable standards
The UK, Scottish, and Welsh governments each implement common adoptable standards for public amenities on new housing estates.
Recommendation 1.2: Mandatory adoption
The UK, Scottish, and Welsh governments each implement mandatory adoption of public amenities on new housing estates (outside of minor, well-defined exceptions).
Providing greater protection to households living under private management arrangements Recommendation 1.3: Enhanced consumer protection measures
We recommend that the UK government, in consultation with the Scottish and Welsh Governments, introduce enhanced consumer protection measures, underpinned by a robust enforcement regime, for households living under private management arrangements. Recommendation 1.4: Prohibition of new embedded management arrangements
The UK, Scottish, and Welsh governments each prohibit the establishment of new embedded management arrangements.
Recommendation 1.5: Guidance for residents’ management companies
We recommend that the UK, Scottish, and Welsh governments each provide guidance to members and directors of residents’ management companies to support and enable them in effectively managing the amenities on their housing estates.
Quality of new homes produced and service provided by housebuilders A single mandatory consumer code and the New Homes Ombudsman Scheme
Recommendation 2.1: A single mandatory consumer code
The UK government, in consultation with the Scottish and Welsh Governments, develops and approves a single mandatory consumer code for all housebuilders operating in GB. Recommendation 2.2: New Homes Ombudsman Scheme
The UK government, in consultation with the Scottish and Welsh Governments, activates the New Homes Ombudsman Scheme.
Eliminating drip pricing and providing greater clarity to buyers regarding the true cost of their new home
Recommendation 2.3: Prohibition of drip pricing
The UK government, in consultation with the Scottish and Welsh Governments, establishes a specific banned practice on the drip pricing of all mandatory elements of a new home, as well as other charges that are presented as ‘optional’ but which it is reasonably foreseeable that most consumers would have to pay, even if others could avoid them.
Recommendation 2.4: Disclosure of optional extras
The UK government, in consultation with the Scottish and Welsh Governments, requires that where housebuilders present consumers with genuinely optional extras as a part of the purchasing process, these optional extras and their prices are prominently and fully disclosed alongside the headline price.
Developing an independent single consumer satisfaction survey and publishing key quality metrics
Recommendation 2.5: Single consumer satisfaction survey
The UK government, in consultation with the Scottish and Welsh Governments, requires an independent body to develop, maintain and undertake a single consumer satisfaction survey on the quality of new homes and the service provided by all housebuilders.
Recommendation 2.6: Publishing key quality metrics
The UK government, in consultation with the Scottish and Welsh Governments, requires housebuilders to participate in the survey, display their key quality metrics to consumers, and share this information with an independent body for public dissemination.
Appendix B
Reforming the planning process
Option 2.1: More objective and effective use of targets to ensure housing need is met.
Governments are best placed determine an appropriate methodology to set a national housing target. In determining an appropriate methodology, the governments will need to consider: (a) how LAs could effectively align their local plan with the national target; and (b) whether and, if so, how the target should reflect the need to address existing levels of supply, as well as meeting future housing need.
Option 2.2: Effective monitoring and enforcement of local plans to encourage housebuilders to bring forward successful planning applications and build new houses.
- LPAs should be incentivised to have an up-to-date local plan in place. Incentives could include: ringfencing funds that LPAs can use only if they have an up-to-date local plan in place;
- making it more difficult for LPAs to reject planning applications if they do not have a local plan in place or if they do not have an up-to-date plan in place;
- central governments taking over the decision-making authority in a local area until a local plan is in place and as a last resort, imposing a local plan on the LPA, noting that “this would go further than the government’s recently announced plans to drive an improvement in local plan production”.
Option 2.3: Streamlining the planning system to significantly increase the ability of housebuilders to begin work on new projects sooner and bring forward marginal projects which may have previously been non-viable due to the costs of taking them forward.
The UK, Scottish, and Welsh governments could consider the following options for streamlining the planning systems:
- increasing the emphasis on local plans as the key means by which communities and their elected local officials decide the amount, mix, design, location, and overall standards of new housing in their area, rather than by reviewing planning applications on a case-by-case basis;
- creating a fast-tracked route for in-principle approval for applications that are in line with an adopted local plan, so housebuilders have greater certainty to begin development;
- formally reviewing the varied LPA schemes of delegation with a view to harmonising the complex set of rules and removing the use of Planning Committees for those applications which are broadly in-line with the local plan and/or which below an agreed threshold;
- improving the appeals process, as informal hearing and written representations appeals can cause delays and have an adverse impact on the delivery of smaller housing schemes and on SME housebuilders.
Improving the planning processes
Option 2.4: Clearly defining and rationalising statutory consultees to reduce the delay caused by the statutory consultation process.
Option 2.5: Effective monitoring and enforcement of deadlines for statutory consultees so as not to unnecessarily delay the planning process.
Measures to support reforms to the planning systems and processes
Option 2.6: Improving LPA capacity and resource by raising planning fees to a cost reflective level and ringfencing those fees.
Option 2.7: Additional support for SME housebuilders through better guidance, standardised LPA policy and a simpler ‘outline’ stage of planning permission.
Measures to support a higher build-out rate
Option 2.8: LPAs could require greater diversity of housing tenure for larger sites to be granted planning permission.
LPAs could require increased diversity of tenure for larger sites to be granted planning permission by increasing the proportion of affordable, build to rent or custom build homes on sites allow for more homes to be absorbed within different sub-segments of the local market(s) without housebuilders needing to reduce the prices of the housing they produce for the private market, thereby improving the speed of housing delivery.
They could publish their policy on housing tenure requirements, meaning they are known by housebuilders and reflected in land transactions to be decided and operated in a similar way to LPA polices on affordable housing and developer contributions, noting that the Letwin Final Report recommended a similar measure for developments providing over 1,500 dwellings, although it has not been taken forward by the UK government.
Option 2.9: LPAs could be incentivised by governments to increase the number of homes that are delivered through smaller sites.
The UK government’s NPPF requirement that LPAs should identify land for at least 10% of their housing requirement on sites no larger than one hectare could be strengthened to require explicit identification of the sites that will comprise this 10%, alongside regular enforcement of the policy. A similar policy could also be considered by the Scottish and Welsh Governments, to support SME housebuilders and increase housing delivery rates.
Option 2.10: LPAs could require housebuilders to increase the diversity of the types of homes they build on larger sites.
LPAs could require housebuilders to increase the diversity of the types of homes (type, size and style, design, rather than tenure?) that they build on larger sites. Sites with greater diversity of types may build out more quickly as the varying types of homes entering the market are more likely to appeal to different sub-segments of the market and therefore such sites are less constrained by the local absorption rate.
Starmer and the Spring 2024 Budget
In the wake of the May 2021 Hartlepool by election and the botched reshuffle of Angela Rayner, Keir Starmer was widely accused of possessing “no politics”: a competent bureaucrat innately lacking the ‘what it takes’ skill and instinct set to survive in frontline Westminster politics let alone that needed to climb Labour up its electoral mountain to power again.
That shroud of doubt has emphatically lifted. His last two years as leader has been marked by an increasingly assured leadership style, which while not capturing the nation’s imagination nor even enthusing a coherent vision or strategic interlocking policy map, has been a central feature of, if not instrumental to, Labour’s sustained and continuous electoral lead over the Conservatives, seemingly big enough to win a large overall parliamentary majority later this year; a prospect that was hardly even imaginable in the aftermath of Labour’s 2019 electoral defeat.
Starmer has in the past compared himself to Harold Wilson. Parallels with Wilson’s election victory in 1964 are indeed discernible, not least in the replicated existence of a deeply unpopular incumbent Conservative government, mired in incompetence, corruption and sleaze; tired of, and waiting, if not begging, to be relieved of its responsibilities after 13 increasingly tumultuous and divisive years.
Both came from humble backgrounds with their meritocratic rises stemming from their understated ability, determination, and diligence, not performative charisma nor entitled confidence.
Although Starmer is lawyer rather than an economist and statistician, who grew up in a southern commuter rather than a northern mill town – Oxted rather than Huddersfield – their backstories were and are in keeping with the economic geography and the social spirit of their respective times, exuding lower middle England ambition and capacity for hard work, not upper-class privilege.
Differences, of course, there are. The UK in 1964 still benefited from a historically sustained and robust established pattern of economic growth sufficient to reduce the post war debt to gdp ratio (by increasing the numerator) and to provide additional resources to expand real wages, personal consumption, and public services.
It was one, however, that was becoming progressively prone to shallow recessions getting deeper, constrained by a worsening balance of payments problem that in era of capital controls and fixed exchange rates could not then be by-passed by foreign borrowing and sterling depreciation.
And, unlike 1997, when New Labour inherited from its predecessor a recovered and improving economic and public finance position, a new Starmer-led Labour government will inherit an economic legacy marked by a prolonged period of sustained stagnation of growth and productivity, a record peacetime-incurred debt/gdp ratio, and medium-term public finances predicated on the future withering way of the welfare state.
Unable therefore to rely upon an already established mixture of steady growth and modest inflation to deflate that ratio down, the task of a Starmer-led government will be made that much more difficult by rises (see debt increases chart) in interest-rate related debt servicing costs from close to one per cent in 2020-21 to four per cent of gdp in 2022-23, even should some stirrings of renewed growth begin to take root in the real economy.
Not only the debt-gdp ratio, but the tax to gdp ratio also stands at a record post war level. Although both were partly propelled by covid-related spending, their overarching driver is the reduced and stagnant post-2010 post-covid growth record that has become a structural feature of the modern UK economy.
The fiscal austerity of the Cameron/Osborne years hollowed out public service provision to the point that that future political space for further cuts was all but used up: that is without a risk of inducing an electoral backlash and assuming a future governmental willingness to further reduce the coverage and quality of universal public services through cutting into their bone.
Self-denying governmental ordinances and electoral promises not to increase headline direct tax rates combined with stagnant growth also meant that successive governments have had instead increasingly resorted to stealth sources of taxation and/or promises of future public expenditure cuts to meet an ever more frequently shifting and contingent set of fiscal rules.
The non-indexation of income tax thresholds is the most recent and egregious example of such stealth taxation. In March 2021, the standard rate threshold from 2022-23 to 2025-26 was frozen and not indexed to future inflation – as per the default statutory requirement – at £12,750 and the higher rate threshold at £50,270, which, in November 2022, was extended for a further two years to end 2028-29: just before the next election but one (if the next government serves a full five-year term).
The Office of Budgetary Responsibility (OBR) forecasted in November 2023 (see Table A of link) that this extended freeze, if unchanged, by 2028-29 will raise additional annual tax proceeds reaching c£35bn (£44.6bn, when similarly frozen National Insurance Contribution (NIC) and other thresholds are also taken into account): broadly equivalent, in revenue terms, to a 10% increase in the main rate of employee directly paid Class One NICs.
Freezing tax thresholds mean that rising inflation-related nominal and real earnings are not offset by thresholds indexed to inflation, resulting in progressively larger number of taxpayers paying more tax and national insurance.
That tendency known as fiscal drag, will tip, according to the OBR, 11% more taxpayers into the standard rate, and an eye-watering 68% more into the higher rate band consequently causing four million additional individuals to pay income tax at the standard rate and three million more to pay the 40% higher rate by 2027-28.
Such stealth taxation is a prime product of the real crisis of the fiscal state: the mismatch between the public expenditure requirements of the UK (assuming a continuing public desire and demand for accessible and universal public services on the European social democratic model) and the political and electoral willingness for them to be met through forms of taxation that are efficient, sufficient, and transparent.
The supposed fiscal ‘headroom’ that according to the chancellor, Jeremy Hunt, allowed him last November to cut national insurance, derived from the failure to index both tax thresholds and public budgets to inflation: stealth fiscal measures on both sides of the budget combined with dishonest and/or illusory promises to make substantial cuts to public budgets in the future made to meet a debt reduction fiscal rule, which, when the time comes closer, on past practice, will be shelved or reformulated and/or put forward further in the future – invariably beyond the next due election date.
Another facet of the real fiscal crisis of the state is that both Conservative and Labour parties have progressively withdrawn from offering the electorate meaningful choices concerning tax and public expenditure policy or welfare state (social policy) development; both have tended to mimic or to follow the other to rule out headline personal tax increases or any shift to alternative more economically efficient taxes on wealth and unearned income.
Honest and deep debate on public funding requirements matched to sources is accordingly swerved, invariably subverted to short-term political presentational purposes, causing the fiscal can and the ultimate resolving of the crisis to be forever kicked down the road and made worse in the process.
This may well reflect electoral reality. Whilst the voting public through polling data may collectively express an abstract desire for more to be spent on public services and even to pay more, when push comes to shove individual votes are more likely to be determined by perceptions of the immediate impact of tax measures on their short-term household budget positions.
Hallowed out public services also have diffused impacts. These include delayed justice, limited police interventions for some crimes, planning bottlenecks, higher hospital waiting lists, reduced mental health services, eliminated youth provision, more severely rationed adult social care, declining local bus services, and so it goes; the list is almost endless.
However, taken in isolation, such individual impacts are not usually directly felt by the mass of the population: at any one time, few of us tend to be directly affected by each at an intensity felt sufficiently hard to register an electoral response, (save for possibly health service access), compared to the short-term impact of tax changes affecting swathes of the population directly in their pockets. People of any age or period seldom, if ever, welcome or invite taxes, especially ones that weaken and disrupt their short-term budgets, including the author of this post.
For Starmer and Labour now electoral victory later this year is paramount. Failing to win a majority then would be even more calamitous than it was in December 2019 or in 1992. Labour’s current record poll lead and the general abjectness of recent Conservative governments would mean that it would be akin to a top of a league football team losing to one facing relegation, when 3-0 up with 20 minutes to go, which it needed to win to secure coveted promotion. Snatching defeat from the jaws of victory at all costs must be avoided.
Morgan McSweeney, an established and instrumental key Starmer aide now responsible for 2024 election strategy and organisation, reportedly advised Labour’s National Executive Committee (NEC) last November that the party would need to win at least 162 seats across every country and region to secure a stable working majority – more than Tony Blair did in 1997.
That – notwithstanding current poll leads, fortuitous political developments in Scotland following the partial implosion of the Scottish Nationalist Party (SNP), along with some evidence of favourable tactical voting behaviour occurring in recent by-elections across key middle England and Red Wall battleground seats rather than previously confined to metropolitan and university centres – remains a momentous task, leaving little room for accident, false steps, or complacency.
It underscores why fiscal responsibility and costed policy commitments has been and is the mantra coming from Starmer’s shadow cabinet, setting the limits to its retail electoral offer – a stance quite consistent with both the real fiscal crisis of the state and the electoral high stakes involved.
The Conservatives promise a low tax economy but cannot deliver nor present nor promise policies on the expenditure side consistent with the achievement of that outcome on a structural and sustainable basis.
Labour wants to repair and rejuvenate public services damaged by years of fiscal austerity, correct welfare and other injustices, and extend opportunity to the many, but cannot present and promise concrete policies consistent with such outcomes that would cost money not matched by identifiable tax increases that it cannot present for fear of the electoral consequences.
A new Starmer Labour government according to its current no unfunded service promises regardless of need or justification, will rely on future growth and lower interest rates to generate resources for such strategic purposes, much as the Conservatives now rely upon future but unrealisable public expenditure cuts to provide sufficient space for current and trumpeted future tax cuts.
The sources or drivers of such future growth, however, remain unclear and/or wishfully optimistic. Future falls in interest rates, determined as they will be the Bank of England’s Monetary Policy Committee (MPC), are likely to be gradual.
Starmer’s updated decarbonisation version of Wilson’s 1964 election rallying cry to harness the ‘white heat of the technological revolution’, the Green Prosperity Fund (GPF), already in recent months has been increasingly scaled back in ambition and scale, backloaded to the end of the next parliament with existing government spending included in its posited delayed annual £28bn budget, attached with requirements to lever-in at least three times as much private finance for each unit of direct public investment, and, potentially, most crucially, made explicitly conditional on its rolling out not breaching Labour’s set fiscal rules.
This is despite its flagship investment status, funded by capital rather than current spending, covered by the borrowing for investment fiscal rule component, and the apparent illogicality of making of making a key climate emergency, energy security, or even a growth-inducing programme subject and subordinate to the vagaries and uncertainties of a rigid fiscal gdp/debt rule.
Most economists with expertise in the area consider that such a rule is arbitrary and unnecessary, economically sub-optimal if not downright harmful at times when additional public investment is either vital or necessary, especially one calibrated to a fixed rather than rolling period, subject to wide short-term forecasting swings.
For example in this, a former Treasury and Oxford economist – whose (free to access) blog for decades has consistently made the case for an economically rational fiscal policy – advises that the sole fiscal target should consist of a five year ahead rolling target for the government’s current deficit (excluding public investment), not be attached with any additional targets, and it should apply only outside recessionary periods, while the OBR should be equipped with a stronger remit to police it.
The fiscal constraint is political rather than economic. Of course, any government, whether for populist or short term electoral or for ideological reasons, which indulges in patently unsustainable fiscal policies that elicits such a market unwillingness to purchase its bonds that it induces an upward interest rate spiral, will inflict often lasting economic and social costs and damage, as, in September 2022, did the short-lived Trussonomics debacle. A strong fiscal council institutional check, however, would provide a better defence to that outcome than a nebulous fiscal rule set.
At the end of the day, whether a fixed debt/gdp ratio rises or falls by small micro-percentage relative to gdp at some fixed time in the future without reference to the economic and other circumstances prevailing at that time, will have little or no effect substantive macro-economic effect: subverting the macro-economic and wider governmental policy framework, as a Starmer Labour government seemingly intends, to the mechanistic achievement of such a target over the lifetime of a parliament would simply be crazy, both economically and politically.
Similar considerations apply across Labour’s main other potentially growth enhancing programmes, most notably the housebuilding proposals and planning reforms that Starmer has put his personal stamp on.
These promise a fresh generation of fast-tracked new towns and urban extensions, brownfield schemes, and the expansion of affordable housing; indeed, all integral to the trumpeted achievement of a 1.5million new homes by the end of the next parliament target – an annual average of 300,000 new homes.
For that to have any remote hope of attainment enabling public investment will need to be front-rather than back-ended across the lifetime of the next parliament, freed from an incorrectly defined fiscal debt rule straitjacket.
Sight should also not be lost that net public investment as a share of gdp has fallen in recent years to what most independent commentators consider to economically inadequate levels. That outcome will not be reversed even if annual spending on the GPF did reach £28bn annually sooner rather than later in the next parliament’s lifetime.
In short, Labour’s overriding debt/gdp fiscal rule and its putative detrimental impact on productive investment clearly needs rethinking; certainly, the self-defeating totemic overriding political fetish it has acquired for political electoral reasons over the last two years should be shed, as soon as is possible.
A much better alternative on both economic and political grounds would be to make public investment decisions demonstrably subject to a much robust and transparent selection, prioritisation, and delivery capacity appraisal process, capable of objectively ranking projects based on their clearly demonstrated economic and social returns relative to their claimed cost and capacity to deliver on time and on budget (given the lesson of HS2, optimism bias and uncertainty adjustment clearly should be better entrenched in that process).
This website some years ago in Investing in productive infrastructure presented a possible institutional model for that purpose, accommodated with an expanded remit of the well-established National Infrastructure Commission (NIC). Other models that could secure the same aim given the timescales involved and depending on their relative institutional feasibility could and should be considered.
In that light, it may well be no bad thing that the GPF has attracted critical scrutiny and concerns, including its wish-list nature and unevidenced value-for-money and its effectiveness relative to claimed outcomes justification.
A move to an institutional fiscal council type approach to major public investment appraisal and delivery would be consistent with both better ultimate outcomes and for political support for public investement borrowing, as well as for successful possible complementary linkages with, say, the housing, research and development, and training programmes.
The November 2023 autumn Budget provided an exemplary example of the hall and mirrors and some smoke that characterise modern fiscal events, determined in practice by the political and policy parameters set by the real fiscal crisis of the state.
The stealth threshold freeze was extended by Jeremy Hunt in the aftermath of the Truss interlude debacle to allow the government to present itself as fiscally on track to reduce a shifting debt target without having to impose more salient and politically damaging direct tax increases close to an election; the revenue increase generated is largely back-loaded into later years although fiscal drag during 2022-24, as noted above, gave him some of the supposed headroom for a reduction in the employee NIC rate from 12% to 10%.
This was touted as reducing the record tax burden, which it did taken in isolation at an annual forecast cost of c£9bn (taking account of reduced self-employed NICs that will also become operative in April 2024), but its benefit will be substantially offset and then exceeded for most taxpayers by the continuing impact of the freeze in tax allowances, until and when they are unwound.
Instructively, a January 2024 Institute of Fiscal Studies analysis also reports that the future distributional impact of their combined effect (a de facto tax increase) will vary. An employee earning close to the average £35,000 will be £130 better off over the course of 2024-25 with the maximum gain received at and above the now aligned NIC upper earnings limit and the higher rate threshold of £50,270. But most taxpaying employees earning less than £29,000 will be worse off next year.
But going forward, if the threshold freeze is maintained as planned until 2028-29, an employee on average earnings will by then be paying about £440 a year more in direct tax – because of the combined impact of the changes to income tax and NICs made since 2021.
The other side of that coin is that revenue raised from freezing thresholds this coming April 2024 alone – rather than uprating them by 6.7%, in line with the usual inflation measure – will exceed the annual cost of cutting the NICs rate. A resulting c£3bn net gain next year (depending on outturn inflation and earnings growth) will then balloon to c. £35bn by 2028-29, assuming no further changes.
Starmer’s Story Must Be Labour’s Story published by this website soon after Starmer became Labour leader identified that his key challenge was to fuse strategy with tactics to effectively advance a radical but feasible and sustainable social democratic agenda aligned to current and future national needs.
Hitherto he has combined both to best protect the prospect of electoral victory, without which such an overarching agenda would remain merely rhetorical.
The forthcoming March 2024 Spring budget, as the Institute of Government has pointed out, is an unnecessary second fiscal event occurring within five months of the last one, having little no economic or fiscal management objective purpose or point. It will take place to provide a political platform and mechanism for some good old fashioned pre-election voter inducements.
It will, however, provide an opportunity for Starmer and his Treasury shadow team to combine tactics with strategy to hammer home the message before, during, and in the face of the political spectacle and spin that the extended freeze of income tax thresholds represented one of the largest tax increases made in recent memory.
Most commentators expect the spring budget to include a cut to the basic rate of income tax and changes to inheritance tax, which could even be abolished.
Following the November 2023 NIC cut that became operative on 6 January, Sunak’s government will hope that any tax cutting package that it offers will maintain some hoped-for momentum on voter sentiment up to election day, even though the polling dial, as February approaches, remained unmoved.
The imminent election puts a political premium on salient cuts in direct personal tax rates with associated ‘headline’ short term impacts on household budgets; meeting abstract fiscal rules five years into an unknown future will take very a much back seat, even if it manages to get into the car at all.
A one penny cut in the income tax standard rate even though it would be of little or no benefit to low paid workers who, unlike higher and additional rate taxpayers, will not receive the benefit of such a cut across the entire current standard rate threshold range (£12,570 to £50,270).
The government could combine it with a promise to unfreeze thresholds in later years. As the tax threshold freeze tips ever more people into the standard and higher tax bands as reported above, its maintenance to April 2029 will become increasingly unsustainable as its distortionary and arbitrary effects become progressively understood and felt, making it unlikely that any new government could avoid beginning the process of unwinding it prior to then.
Labour certainly should not weakly commit to accepting an opportunistic income tax rate cut, adding to the self-denying list of potential future taxation measures that it has already seemingly ruled out, including re-aligning taxes on capital gains more closely to income tax, thus constricting even further its future fiscal maneuverability, demonstrating an asymmetry of its treatment of spending and tax commitments relative to its proclaimed fiscal stance.
Instead, based on the independent OBR and IFS work discussed above, it should continue to hammer home the ‘giveth on one hand and taketh more on the other’ message that it has begun to present, while laying bare the tax history of the Sunak government.
Rebasing the basic and higher rate thresholds closer to where they would have been had they been indexed with inflation since 2022-23, would reduce the tax that ‘hardworking families’ in future would need to pay, while offering some future flexibility to taper the benefit receivable by the higher paid and thus its net cost (as well as its distributional fairness), which lower future inflation should also tend to.
That unwinding process could be done in parallel with changes to universal credit tapers and allowances to reduce the poverty trap, where the combination of higher tax and reduced Universal Credit (UC) entitlements result in low-income wage households incurring one of the highest effective tax rates.
Turning to inheritance Tax (IHT), its abolition would overwhelmingly benefit the wealthiest one percent, entrenching not only inter-generational inequality, but also the perception that the Conservatives remain at heart the party of the already wealthy and privileged at resulting electoral risk. Opposed by many Conservative MPs, it is unlikely to occur in March.
More likely is that either the basic nil rate IHT threshold – ostensibly £325,000 but due to significant allowances and reliefs, the effective threshold for most payers is much higher – or the 40% rate or that both will be changed.
IHT is rightly not levied on the living spouse or civil partner of a deceased person’s estate as otherwise they could well be forced to sell their home or to face other financial difficulties at a time of spousal, bereavement and stress.
However, any unused portions of the basic and the additional £175,000 residence nil-rate bands (applicable to those owning but not renting their homes) are then also transferred to the surviving partner. This means that on their death, up to £1 million (£325,000 +£175,000 x2) in assets can be passed on tax-free: an effective threshold that in combination with other reliefs, results in very few beneficiaries of estates worth £1m or less paying any IHT, unless the estate deceased was a renter and/or single, and/or did or wish or was able to employ a tax accountant to reduce future liability.
Unsurprisingly, the wealthiest utilise the services of a small cottage industry of legal and financial advisers to maximise the benefit of the complex and extensive array of reliefs available to minimise their liability to the point that the payment of IHT proportionate to the value of their estate becomes often voluntary.
Various reform permutations involving the removal of the residential nil rate and/or the capping of agricultural and business reliefs, which currently allow the value of farms and businesses held with an estate to be netted off its taxable IHT liability, and/or the bringing in defined contribution pension pots (such as SIPPS) within the scope of IHT, could fund an increase in the basic threshold and/or a cut in rate levied as, for example, was proposed by the Conservative-aligned Onward pressure group in 2022 as an alternative to outright abolition, or most recently as this December 2023 IFS commentary discussed.
The wider socio-economic backdrop to IHT is that taxable inheritances, invariably large and getting bigger, are usually received by beneficiaries in late middle age already wealthy, are realised from the estates of the wealthiest geographically concentrated in London and the south-east.
Those now in young adulthood pushed to the margins of home ownership by rising real prices (translated for existing owners into housing wealth), whose parents had accumulated modest wealth as a product of their lifetime honest toil, their careful spending and stewardship of savings, and from buying their home when to do so was affordable, rarely receive inheritances reduced by IHT.
IHT in general reality in its present form allows the entrenchment of existing and widening wealth inequality inimical to social mobility rather than taxing the cascading of modest inter-generational wealth – largely home ownership equity – within the bulk of the population.
It currently raises c£7bn annually, a figure that is projected to rise in real terms to £15bn by 2032-33, generating proceeds that that any new government will require – at least in the absence of more buoyant and politically less sensitive sources that it can identify and harness – to ride the real fiscal crisis of the state to fund public services subject to increased real cost in an ageing society adequately.
That provides the real-world backdrop that Starmer’s Treasury Team should focus on and convey to parliament, press, and country. They, accordingly, should reject a IHT rate cut (and, of course, abolition, if it was tabled in March) unless it was accompanied by changes to reliefs and effective incidence that would result in the wealthiest estates paying more to the point that the basic threshold could be raised to reduce its future incidence on the moderately wealthy in a way that was at least revenue neutral and which reduced distortionary and rent-seeking behaviour.
But, more fundamentally, Starmer and his Treasury team should go on the offensive to counter the question as to what Labour would specifically do to reduce the tax burden, one invariably asked in isolation from its relationship to the wider public finances, to debt rules, to the rejuvenation of public services, and to the future growth and inflation trajectory, as well as to the UK’s position as a relatively low taxing country compared to certainly its European social democratic peers.
The electorate should be treated with respect and not treated as little children incapable of seeing and understanding that wider picture, as juries of randomly selected members of the public facing complex and difficult issues invariably do, with the exceptions tending to prove the rule.
Notwithstanding the challenge of the real crisis of the fiscal state laid bare earlier, Labour should recognise and project that the voting public will not be taken-in by last minute politically expedient tax cuts, reversed in effect sooner rather than later, consistent with the see-sawing nature of recent tax measures.
The multiple challenges of squaring future public expenditure requirements with tax policy, while turning around a stagnant economy should be honestly conveyed.
In that vein, future Labour tax policy narrative should be underpinned by the ThreeSs (3Ss), the pursuit of stability and sustainability through seriousness, communicated honesty: qualities generally well matched to Starmer’s.
It could embrace the establishment of an Office of Tax Transparency (OTT), provided with a remit to report clearly and comprehensibly the future expected and projected impact of tax changes proposed by any fiscal event on household budgets and on the future public finances, as well as their distributional consequences, defining transparently their contingent assumptions and sensitivities, referenced to alternatives.
One of its first tasks should be to produce a standard user-friendly ready reckoner on the model of that introduced and developed by the Australian government, allowing and encouraging the public and the media to regularly assess the direction of tax (and spending) policy, including the revenue-raising and distributional impact of particular taxes compared to alternatives. The future development of IHT could provide an early case-in-point.
The OTT could then work in parallel with the Office for Value for Money (OVM) that the shadow chancellor, Rachel Reeves, has already signalled will help guide the strategic spending decisions of a future Labour government, identifying and defining system and budgetary changes to make programme revenue spending more effective, efficient, and economical in tune with long-term societal needs and demands, as well as with long-term fiscal sustainability.
The precise scope and detail of the future remit of the OVM remains to be filled-in but a clear and pressing need to review the funding and delivery of public services, and to identify feasible policy medium term directions and reforms is present. It should also complement the work of an expanded-remit NIC to ensure smarter, and more and efficient selection and delivery of public investment programmes, including the nascent GPF.
Examples of future joint-working between a newly established OTT and OVM abound. They could include a review of the triple lock, taking cognisance of trade-offs between its future cost and the timing of future age eligibility and that increasing the age of eligibility disproportionately impacts upon lower income householders; the future sustainable and equitable funding of adult social care and its more efficient, effective, and person-responsive joined up delivery with NHS and local community services, supporting and complementing each other rather than working in silo.
All these new fiscal council-type institutions, if established expeditiously without delay on a strengthened OBR-type model, in effect, would begin and underpin the fundamentally vital process that has to start to address the real crisis of the fiscal state within sustainable and transparent social democratic parameters, as well as provide a more substantive and short-term response to the diversionary ‘return to Labour tax and spend’ jibes that are bound to intrude across the 2024 election run-up.
Such institutional reforms would manifest such a new 3Ss way of working or political methodology in practical concrete form, as required by the enveloping challenges now facing Britain, that could provide a defining hallmark of the next Starmer-led Labour government, as political triangulation was with New Labour, making him in the process a transformative prime minister, with a more legacy more lasting than either Wilson or Blair, in stark contrast to someone who back in 2021 was close to being written-off as one possessing ‘no politics’.
Constructive comments and observations are welcome via: asocialdemocraticfuture@outlook.com
Making Sense of Housing Supply Statistics
This post signposts readers to the official sources of housing statistics relating to new supply and dwelling stock for England collated and reported by the Department of Levelling Up, Housing and Communities (DLUHC), with some wider reference to UK-wide statistics that the Office of National Statistics (ONS) reports.
Section 1 provides links to the four main relevant source time series, the housing supply, net additional dwellings (net new supply), and the affordable housing, the dwelling stock, and the indicators of new supply (termed new housebuilding), with relevant data summarised in the commentary and in the seven annex tables.
All data and commentary refer to England unless otherwise stated.
Links are also provided to dashboards recently published by the DLUHC within their respective series and by the House of Commons Library that will allow them to access some data (sometimes incomplete) at an individual local authority level at a touch of a mouse.
The aim is to provide policymakers and other interested users with a user-friendly guide to the availability of such statistics and their most appropriate application and use depending upon the purpose of the enquiry, along with their associated limitations and uncertainties, hopefully reducing reader use of midnight oil and wet towels in the process.
Section 2 concludes by summarising the primary issues and problems connected with the series data, before making recommendations concerning their future presentment to users.
Comments and observations are welcomed to asocialdemocraticfuture@outlook.com. If you would like a pdf please request through this address.
1 The main housing supply statistical series
Housing supply: net additional dwellings (net new supply) series
The net new supply series is presented by the DLUHC as the primary and most comprehensive available new housing supply metric for England. This is for two primary reasons.
First, it includes additions and losses to the stock as well as new build completions, which can be higher or lower than net new supply, taking account of net additions or losses.
For example, between 1961 and 1980, as large-scale post war slum and redevelopment demolitions and clearances proceeded apace, net new supply lagged new build completion totals.
Conversely, across recent decades, as gains to the stock from net conversions and from net changes in use have progressively tended to exceed losses from demolitions, annual net new supply has exceeded new build completion totals.
Second, as the DLUHC technical notes on the series sets out, its method of compilation is more comprehensive and accurate.
LAs are required to take account of all the changes to the housing stock within their areas over the previous financial year before inputting them into – what is officially termed – a standardised housing flows reconciliation (HFR) form, and to submit that no later than the subsequent September. The Greater London Authority (GLA) collates similar information from the London boroughs.
Each LA, therefore, has up to five months from the end of the financial year to submit their annual HFR return, compared to the much shorter six-week submission period connected with the building control based quarterly new housebuilding series, considered later.
By having more time to reconcile diverse potential sources of completed new build activity, including from council tax, building control and other records, as well as site visits, LAs can consequently compile a more complete and comprehensive count of additions to their local stocks.
Each November successive to the preceding financial year, the DLUHC publishes a release and a set of accompanying live tables that together describe changes to England’s net supply position.
For example, the 2021 to 2022 annual statistical release published in November 2022 reported the net change that took place between 1 April 2021 to 31 March 2022.
Live Table 118 reports total annual net additions for England, by region, since 2000-1.
Table 120, since 2006-2007, has broken down the different components of net supply to include:
- new build completions;
- net changes to the dwelling stock resulting from gains or losses, whether attributable to approved changes of planning use, to conversions, or from demolitions; and,
- from 2015-16 onwards, changes in use resulting from permitted development rights (PER’s).
Table 1 below provides a summary of the data provided in Table 120.
It confirms that net supply exceeded new build completions by c20,000 dwellings per annum between April 2006 and end March 2022.
More significantly, it shows the proneness of net new supply to fluctuate in a lagged response to the wider macro-economic and housing market conditions, with 2012-13 net supply (reflecting collapse of private speculative activity during and in the wake of the 2008-10 global financial recession), barely half of the level subsequently achieved during 2018-20.
It can be expected that annual net new supply could dip below 230,000 dwellings during the next few years in response to recent housing market uncertainty induced by rising post-covid inflation and interest rates.
Certainly, there is no immediate prospect of the 300,000-dwelling target – as the data shows is clearly aspirational and rhetorical rather than policy-led in nature – being even remotely approached.
Table 1: Net new supply summary, April 2006 to end March 2022
Year (Apr-Mar) | DLUHC Table 120: New build completions | DLUHC Table 120: Non-new build total net additions | DLUHC Table 120: Total new net additions (new supply) | Non-new build net additions as % of total new supply | Total new supply as % of peak (2019-20=100) |
2006-07 | 193,080 | 21,860 | 214,940 | 10.2 | 88.6 |
2007-08 | 200,300 | 23,230 | 223,530 | 10.4 | 92.1 |
2008-09 | 157,630 | 25,140 | 182,770 | 13.8 | 75.3 |
2009-10 | 124,200 | 20,670 | 144,870 | 14.3 | 59.7 |
2010-11 | 117,700 | 19,690 | 137,390 | 14.3 | 56.6 |
2011-12 | 128,160 | 6,740 | 134,900 | 5.0 | 55.6 |
2012-13 | 118,540 | 6,180 | 124,720 | 5.0 | 51.4 |
2013-14 | 130,340 | 6,270 | 136,610 | 4.6 | 56.3 |
2014-15 | 155,080 | 15,610 | 170,690 | 9.1 | 70.3 |
2015-16 | 163,940 | 25,710 | 189,650 | 13.6 | 78.1 |
2016-17 | 183,570 | 33,780 | 217,350 | 15.5 | 89.6 |
2017-18 | 195,390 | 26,890 | 222,280 | 12.1 | 91.6 |
2018-19 | 214,410 | 27,470 | 241,880 | 11.4 | 99.7 |
2019-20 | 219,120 | 23,580 | 242,700 | 9.7 | 100.0 |
2020-21 | 191,820 | 20,050 | 211,870 | 9.5 | 87.3 |
2021-22 | 210,070 | 22,750 | 232,820 | 9.8 | 95.9 |
Average 2006-22 | 168,959 | 20,351 | 189,311 | 10.5 | 78.0 |
Average 2017-22 | 199,962 | 23,515 | 223,477 | 10.5 | 92.1 |
Tables 122 and 123 reports total net additional supply by LA district and their component flows, respectively, since 2001-2.
The House of Commons library has produced a very useful online housing supply dashboard in which users at a touch of their mouse can access and print net new supply data covering the most recent ten year reported for individual LAs, as is required.
Alternatively, the DLUHC’s own interactive dashboard can be consulted, although it is less print-friendly.
It does, however, offer a limited facility to access reported net new supply at a local LA level per 1,000 dwellings basis over a range of years.
Whilst the incompleteness of data coverage reported at that local level should be borne in mind, the range of performance displayed between even neighbouring authorities, suggests an under-researched area.
Table 124 reports annual changes in the flows of communal non-self-contained accommodation by LA district. These changes are separate to and are not included in the other tables or headline net supply figures.
Column C of Annex Table One, also since April 2006, charts significant variation between the between the total new build completions reported by the net new supply series and the DLUHC quarterly new housebuilding series.
That series undercounts new build completions by an average annual c17%, increasing to c24% during the recent 2017-22 period.
That tendency underscores the need to use this net new supply series measure not only new net supply, but new housebuilding completions since April 2006.
The 2012-21 dwelling estimates – calibrated to the 2021 census, as the next sub-section explains – suggest that the net new supply series has even itself under recorded net new supply over the past ten years.
The net new supply statistics are also compared against the latest census on its release every ten years to ensure that the sum of net additions over that period are calibrated to the latest census total dwelling count.
Any difference between the that and previous census total dwelling figure is spread evenly across the previous decade consistent with the adjustments made to the dwelling stock estimates.
Such an adjustment to the 2012-21 net supply series will be reported in the November 2023 net new additions (supply) release.
The 2021 census dwelling count will then provide the baseline for future reported annual net supply series changes that, in turn, will provide the data source for successive reported total dwelling stock estimates in England, until the next 2031 census adjustment takes place.
Other revisions to the series live tables are generally limited to those provided by LAs relating to the previous two financial years.
In summary, the net supply series identifies and measures the different components of net new supply, including new build completions, since April 2006.
It provides consequently the primary and most comprehensive and accurate available statistical record of the different components of new supply at both national and LA levels.
The series, however, is only published annually in November for the preceding financial year; given that and because it does not cover starts, it is not forward-looking.
Accordingly, to obtain a more timely but imperfect indicator of new build completions for the year preceding November publication of this series and of future activity, the demonstratable inaccurate new housebuilding series must be consulted.
The department also in 2011-12 removed the information reporting requirement on LAs to categorise new supply by tenure and the net supply series does not break down the reported net supply total by tenure.
This is significant insofar that gross reported new affordable supply greatly exceeds net new affordable supply – as the affordable housing series sub-section will show and discuss.
The dwelling stock series
The dwelling stock series reports total stock estimates back to 1801, when the first census took place, and from 1961 onwards its tenure breakdown.
Until April 2000, the annual dwelling stock estimates provided the source of the annual net additions figure. Starting with 2000-01, the annual dwelling stock estimate has been equal to the previous year’s dwelling stock estimate plus or minus the latest annual net supply of housing figure, subject to the census adjustment process outlined below.
Both the dwelling and net supply series are subject to a decadal retrospective and new baseline census adjustment, usually applied in the year following each successive census.
The May 2023 statistical release for the year ending 31 March 2022 calibrated dwelling stock figures for 2012 to 2021 to the Census 2021 dwelling count figure.
This involved an annual c6,000 dwelling upward adjustment to the previous annual dwelling estimates (the annual net supply change reported in that series from 2012 onwards).
These previous annual net supply figures, as the previous sub-section noted, likewise should be adjusted in the November 2023 net new supply release and its associated tables.
The dwelling count estimates reported for year ending end March 2022 are provisional and subject to revision.
The statistical release and the live tables break down the total dwelling estimate into owner-occupied, private rented sector, local authority housing and housing association tenures, save that it is not possible to split the private housing stock into owner-occupied and private rented sector at the local authority district level.
The tenure split is based on periodic survey data mainly for the owner occupied and privately rented sector, including the English Housing Survey, Labour Force Survey, and on local authority and regulator of social housing returns.
The technical notes accompanying the series provides more background and information.
They confirm that a dwelling in this series is defined in line with the census definition, which defines a dwelling as a self-contained unit of accommodation where all the rooms (including kitchen, bathroom, and toilet) in a household’s accommodation are behind a single door, which only that household can use.
A dwelling can therefore consist of one self-contained household space or two or more non-self-contained household spaces at the same address.
Ancillary dwellings (for example, ‘granny annexes’) are included provided they are self-contained, pay separate council tax from the main residence, do not share access with the main residence (for example, a shared hallway) and that there are no conditional restrictions on occupancy.
Communal establishments, that is establishments providing managed residential accommodation, are not counted in overall housing supply. These include university and college student, hospital staff accommodation, hostels/homes, hotels/holiday complexes, defence establishments (not married quarters) and prisons.
But purpose-built (separate) homes (for example, self-contained flats clustered into units with four to six bedrooms for students) are included in the dwelling estimates, with each such self-contained unit counted as a dwelling.
Non-permanent (or ‘temporary’) dwellings are included if they are the occupant’s main residence and council tax is payable on them as a main residence. These include caravans, mobile homes, converted railway carriages and houseboats.
Permanent Gypsy and Traveller pitches should also be counted as dwellings, if they are, or likely to become, the occupants’ main residence.
Shared ownership dwellings are currently counted as owner occupied within the dwelling stock series.
Dwellings classified as Other Public include dwellings owned by government departments, such as Ministries of Justice and of Defence. They can be vacant awaiting sale or redevelopment.
Table 2 below provides summary data for the decadal years 2001, 2011, 2021, and for 2022.
Table 2: Total dwelling stock estimates and percentage share by tenure, England.
Year Ending 31 March | Owner-Occupied (1,000s) | Private Rented Sector (1,000s) | Social and affordable rented (1,000s) | Other Public (1,000s) | TOTAL |
2001 | 14,735 | 2,133 | 4,236 | 103 | 21,207 |
2011 | 14,828 | 4,105 | 3,981 | 62 | 22,976 |
2021 | 15,914 | 4,875 | 4,105 | 33 | 24,927 |
2022 | 16,124 | 4,885 | 4,117 | 34 | 25,160 |
% of total stock | |||||
2001 | 69.5% | 10.1% | 20% | 0.5% | 100% |
2011 | 64.5% | 17.9% | 17.3% | 0.3% | 100% |
2021 | 63.8% | 19.6% | 16.5% | 0.1% | 100% |
2022 | 64.1% | 19.4% | 16.4% | 0.1% | 100% |
Source: | Tables 2 and 4, DLUHC Dwelling stock estimates 2022 in release |
DLUHC live Table 100 reports from April 2009 onwards, the total dwelling estimates and its tenure breakdown to down district local authority (LA), save that owner occupied and private rented sectors are subsumed into one private sector category at that LA level.
Table 104 provides a historical annual dwelling stock series, dating back to 1801, with a tenure breakdown first provided in the census year 1961 and then annually from 1969 onwards.
The short story it tells is that in 1961 the LA and private rented (PR) stock combined exceeded the c6.1m dwelling owner-occupied stock.
By 1980 the LA stock continued to climb to c5.2m, before plummeting to its current level below 1.6m.
The PR stock declined from c4.4m in 1961 to 1.6m in 1986, before recovering to its current level of c4.9m.
The owner-occupied dwelling stock progressively increased in total numbers throughout the period to its current c.16.1m dwellings, notwithstanding that its percentage tenure share fell from its recorded high of c70% in 2001 to c64.5% in 2011 and then flatlined for much of the last decade.
Annex Table Two derived from DLUHC live Table 104 reports the total stock dwelling estimates for each year since April 1991 up to 2022, by tenure.
Annex Table Three reports the annual change in the estimated dwelling stock for the same period relative to the previous year and the total period change, also by tenure. It offers the best available backward-looking guide to longer term interlinked stock and net supply trends calibrated to the decadal census.
The ONS publishes a dwelling stock by tenure, UK series recording the estimated number of dwellings in the UK by tenure for each of the UK’s constituent countries, where available, as well as at an aggregate UK and Great Britain level, formerly produced by DLUHC predecessors.
Dwelling stock data in total and by tenure for each English LA can be obtained by a flick of mouse using the House of Commons Library dwelling stock interactive dashboard.
Affordable housing series
The affordable housing series reports the gross annual flow of additional dwellings for rent or sale provided for specified eligible households whose needs are not met by the market.
Such housing can be newly built, acquired, or result from a net gain secured through conversion or from a change in use.
The gross totals reported in the series take no account of demolitions or sales of existing affordable dwellings.
Until recently, these greatly exceeded gross gains, resulting in a substantial net annual reduction in the affordable stock, and then for the last decade or so only a small net increase (see Table 4): a bit akin to trying to run up an accelerating downward escalator.
Headline affordable series figures tend therefore to mask that key outcome.
Affordable rented housing as a sub-tenure (termed government affordable rent in this post), was introduced in 2011 by the incoming Coalition government, to be let by providers of social housing to eligible households at a rent of no more than 80% of the local market rent (including service charges, where applicable).
In contrast, social rented housing is let at c50%-60% of local market rents according to nationally set guidelines.
Intermediate affordable housing is homes for sale and rent provided at a user cost above social rent but below market levels, subject to it remaining at an affordable price for future eligible households and/or to the recycling of expended subsidy into the support of alternative affordable housing provision.
It can include shared ownership and tenure forms where some equity is retained by the provider, as well as other low-cost homes provided either for sale and intermediate rent and, from 2021-22, through First Homes, a tenure form that the current government apparently intends to eventually account for at least 25% of all affordable housing units delivered through planning obligations.
Dwellings purchased under the post-2013 Help-to-Buy programmes were not, however, considered or recorded as affordable housing as purchaser access was not made subject to an income qualification.
Affordable starts and completions for the preceding financial year are published in the succeeding late November/early December alongside updated live tables, which are also subject to scheduled revisions of earlier key figures each June.
Table 1000 reports the most up-to-date summary estimates of affordable housing provided in England since 1991-92.
Table 1000C additionally breaks down that summary data to type of scheme, while Table 1000S reports affordable starts but – as across the series – only from 2015-16 onwards.
Tables 1008C and 1008S break down the total affordable completions and start information to region and LA district, while Tables 1006 and 1007 do likewise for defined tenure types.
Table 1009 breaks the total affordable completion data down according to whether the provided dwellings were newly built or acquired, by tenure.
Tables 1011C and 1011S report from 1991-92 affordable total completions provided and starts (from 2015-16), according to type and source of funding (including nil grant S106), broken down to LA district level.
Annex Table Four collates affordable completion data taken from Tables 1009 and 1011C, by sub-tenure, for the entire 1991-92 to 2021-22 period covered by the affordable housing series.
It reports that gross affordable provision for the April 2018-22 period averaged annually c57,000 – the highest level since April 2007-11.
This was considerably above that above the April 1999-2003 low point average of 33,500, but lower than the c68,500 annual average recorded during the April 1992-96 high point period.
However, Table Annex Four also reports that most affordable dwellings provided between 1999-2003 were let at social rents; during that latest 2018-22 period most were rather let at higher government affordable rent or on intermediate tenure terms.
This compositional variance (amongst other potential ones, such as changes in the bedroom composition of the provided dwellings and/or their location) is a salutary example of the imperative to drill down into the detail and institutional/policy context of subject data before jumping to judgement about headline data and to be wary of soundbite political uses of it. Context is all-important.
Sight should also not be lost that provision trends are a function of previous start levels, which provide a forward but imperfect indicator of future completions; nor that the affordable housing series is particularly prone to cyclical fluctuation related to funding programme changes and their associated delays.
Table 3 simply reports from Table 1011S starts for the April 2018-22 period, by tenure (when known), to provide an indication of future short-term gross completion levels.
New build completions, however, tend to lag for longer than might be expected where a one-to-three-year construction period is assumed. Large scale regeneration projects involving multi-phases invariably straddle many years but could possibly relate to incentives to record starts for programme monitoring purposes or to other unquantified reasons.
Table 3: Affordable starts, by tenure, April to end March, 2018-22
Social Rent | Government Affordable Rent | Intermediate Tenure | Unknown | Total Affordable Starts | |
2018-19 | 8,143 | 25,913 | 25,667 | 1,107 | 60,830 |
2019-20 | 12,108 | 24,523 | 25,642 | 5,972 | 68,245 |
2020-21 | 11,968 | 19,609 | 17,155 | 8,972 | 57,704 |
2021-22 | 14,877 | 13,976 | 17,672 | 16,666 | 63,191 |
Note 1: Social rent includes London Affordable Rent (LAR)
Note 2: Intermediate Tenure total for 2021-22 includes 119 First Homes starts.
Annex Table Five also uses Table 1011C to estimate the number and proportion of affordable dwellings provided using S106 without the use of public grant – in effect through developer cross subsidy realised from sales of dwellings sold at market values then used to help finance affordable social housing dwellings – secured through the planning system and the associated use of S106 agreements.
This table identifies a general trend since the nineties for the proportion of affordable housing across tenures provided through S106 to progressively increase to become its primary funding mechanism, save for some trend interruption in the wake of the Global Financial Crisis (GFC) and for some recent indications of its stalling, probably related to wider conditions in the housebuilding market associated with input and interest rate costs rising in the wake of covid.
Dwellings reported as being provided through nil grant S106 exceeded 50% of total affordable completions in 2019-20.
More detail on how S106 became the primary funding mechanism of affordable (social) housing is provided in Section 1 of The New Infrastructure Levy (IL): Going Round the Mulberry Bush.
Table 1012 reports affordable housing starts and completions, funded by Homes England, combined with the GLA from April 2012, both for starts and completions, between 2009-10 up to 2022-23, reproduced in Annex Table Five.
Further useful background is provided by the latest June 2023 Homes England Housing Statistics publication, while GLA dedicated data can be assessed here.
The affordable housing series is wider in scope and coverage. It aims to provide a complete picture on affordable housing delivered, irrespective of funding mechanism or its source, using more disparate sources, most notably LA annual housing statistical (LAHS) returns.
It is to be expected, therefore, that the affordable completions and starts (where applicable) reported by the DLUHC affordable housing series in its Tables 1000 to 1011 are higher than the combined Homes England and GLA figures that Table 1012 reports.
c44% of 2021-22 total completions of c60,000 dwellings were provided through nil grant S106 – c27,000 dwellings, as Annex Table Five reports.
Added to the c37,000 dwellings reported that year as funded from Homes England GLA combined programmes produces c63,000 dwellings: c5per cent greater than the Table 1011C total.
LAs are asked to only record affordable housing that has not been reported by Homes England or the GLA including affordable housing that did not receive grant funding or developer contributions under planning agreements.
Some nil grant completions could be included in the Homes England/GLA data. Homes England has confirmed to this website that some nil grant S106s are indeed included in its data returns, and it is possible that some LAs double count by including them also in their LAHS returns.
New DHLUHC Table 1013 breaks down affordable provided completions to type of provider, whether LA, registered and non-registered registered providers (RPs), or unknown.
Historically, only non-profit-making organisations, generally and previously known as housing associations, could be registered as providers of social housing or social housing landlords.
Since April 2010 profit-making organisations have been able to register but their output is not meant to be recorded by the affordable housing series, even though it is possible that some such units are included in LA statistical returns.
Registered private providers of social housing (termed RPs in this post) can include organisations providing supported housing and care, local authority subsidiary companies, community groups seeking to develop new housing, commercial developers setting up small subsidiaries to receive Section 106 affordable housing, subsidiaries of investment companies and funds, entities established by registered provider groups, either new parents for group structures or new subsidiaries, as well as small charities, such as alms houses.
According to Table 1013, RPs provided 47,885 of the total 59,356 estimated or recorded new affordable 2021-22 gross affordable (social housing) new supply.
As was highlighted at the beginning of this sub-section, the main drawback of the affordable housing series is that its affordable provision totals are reported gross and do not take account of dwelling losses resulting from sales, demolitions or from other causes. It thereby does not report actual net affordable supply.
The difference between gross and net new affordable supply – as for gross and net total supply the preceding sub-section noted – can be wide and significant.
Most pertinently, the introduction of the Right-to-Buy in 1980-81 led to the losses in the social housing stock resulting from sales progressively outpacing the gross supply of new supply of affordable housing for rent.
Table 678 shows that since 1981 more than two million social housing dwellings were sold. Although sales of RP owned social housing have taken a growing share in recent years, 94% were to local authority tenants across the entire period.
This propelled a reoccurring and generally widening annual net loss of social rented stock, peaking at c98,000 dwellings in 2002-2003.
A January 2023 release on social housing and demolitions 2021-22 updated on nascent but continuing DLUHC efforts to address the absence of a net affordable supply series.
One key output is a seminal time series tracking sales and demolitions of low-cost rental social housing from 1997-98 against the gross new supply of low-cost rental dwellings provided by LAs and RPs.
Figure One (figure 1.7 of the release) provides a graphical representation of that series.
The release explained or claimed that this exhibited secular trend or pattern change was driven mainly by a sharp decrease in sales since 2003-04, as Table 678 reports; by a general decline in the number of demolitions since 2001-02; and, since 2008, by increased gross affordable homes investment.
It did caution, however, that the incompleteness of the sources of the new time series meant that it cannot be taken “as a comprehensive and fully accurate measure of net new supply”, before introducing a more “experimental” statistical dataset aiming to offer a net flow-based measure estimate of annual changes in the net supply of affordable housing for rent, summarising the in- and out-flows to this sector of the housing stock in England.
38,668 new affordable housing units for rent, according to this flow-based dataset, were delivered during 2021-22, while c19,000 low-cost rental dwellings were sold and c7,500 demolished.
Although the LA rental stock decreased by c7,200, the RP stock increased by c18,900, resulting in an estimated annual net total stock increase of 11,700 affordable homes for rent, according to the release, slightly more than the previous year’s 11,200 figure.
The results summarised in Table 4 below – derived from the dwelling statistics reported in DLUHC Table 104 – are supportive of the release’s tentative conclusions, suggesting that they were, perhaps, couched in an over-cautious manner.
Moreover, Table 3 of DLUHC’s Dwelling stock estimates 2022 in release reports a 12,000 increase in the stock of social and affordable rented sub-tenure stock in 2021-22 and over 13,000 on average annually since April 2009, when the loss of stock in the other public sector category is not considered.
Table 4: Average annual change in stock during stated periods, 1992-2022, by tenure
31-Mar | Owner Occupied | Rented Privately or with a job or business | Rented from Private Registered Providers | Rented from Local Authorities | LA+RP+other public sector | All Dwellings |
1992-2009 | 97 | 108 | 84 | -116 | -36 | 168 |
2009-2022 | 89 | 91 | 32 | -19 | 10 | 190 |
1992-2022 | 93 | 101 | 62 | -75 | -17 | 177 |
The existing official published data therefore indicates that during the 2009-2022 continuing annual net gains meant that the total affordable stock (RP+LA+other public sector) grew between April 2009 and 31 March 2022 by an annual net average of above c10,000 dwellings (see Annex Tables Two and Three for more detail).
That net increase was, however, crucially far lower – because of the continuing impact of sales especially and demolitions – than the headline average annual gross increase of c57,000 new affordable housing dwellings completed or provided, reported in the affordable housing series, (see Annex Table Four), during the same period.
As was noted earlier, a key and under highlighted outcome and metric.
New Housebuilding: new build
The DLUHC changed the title of this release from “House building: new build dwellings’ to “Housing Supply: indicators of new supply” in September 2020.
A confusing change insofar that the live tables associated with it are only concerned with new build. It also risks conflating the series with the “Housing supply: net additional dwellings” series described by the department as the “primary and most comprehensive measure of housing supply” and “a leading indicator of overall housing supply”.
Indeed, it was for that reason that the Housing supply: net additional dwellings” series was the first to be described and discussed by this post.
To avoid such possible confusion, this post terms the series in line with what its live tables really report.
The Office of National Statistics (ONS), which continues to publish new housebuilding data according to country and at a pan Great Britian and UK level in its House building, UK: permanent dwellings started and completed by country statistical series.
ONS tables relating to England replicate the live tables below published by the DLUHC, updated to incorporate revisions, unlike the annual statistical release commentaries.
Table 213 covers both new build starts and completions, by sector tenure, both on an annual financial year (from 1969-70) and on a quarterly non- seasonally adjusted basis, (from quarter, Q1, 1978 to Q1 2023 at the time of writing, but as is updated by the quarterly reporting cycle).
Table 222 provides similar but quarterly seasonally adjusted figures.
Table 244 catalogues the longer-term new housebuilding record, broken down by tenure also when provided, but on a calendar year basis, from 1946 onwards.
It can and should be used to identify and review longer term trends and features concerning new build completions and its tenure split, as to when provided, prior to April 2006 in conjunction, as appropriate, with Table 213.
Tables 217, 253 and 253a report dwellings completed and started by tenure, broken down to region (quarterly) since 1990-91 (217), LA district (253, by financial year, 252a, quarterly since 1980-81).
Table 254 reports completions and starts, according to whether it was a house of flat, by bedroom size, and by tenure.
All these tables, as noted above, breakdown according to tenure, as to when started or completed according to provider, in contrast to their final tenure status when occupied.
That status can diverge for reasons that include that a progressively larger proportion of affordable dwellings since the early 1990s have been built by private developers in accordance with section 106 planning agreements.
Although ownership of many of these dwellings may later transfer to housing associations, they are often reported and recorded as private enterprise completions within new housebuilding tables.
The most serious and fundamental drawback by far, however, of the series live tables is that they under-enumerate recent new build completions, in total and across tenures, often by a large magnitude, as the net new supply sub-section earlier highlighted.
Column C of Annex Table One reported then that the annual discrepancy between new completions reported in Table 213 of this series and net supply Table 120 reached an annual average of 24% across the most recent 2017-22 period.
This discrepancy also appears sensitive to the wider economic and construction cycle, and/or other determining factors: new build completions reported for 2014-15 in net new supply Table 120 were 25% higher than such completions reported in the new housebuilding series in Table 244; but in 2009-10, such reported completions were only 3.6% higher (Column C of Annex Table One).
The ONS series likewise consistently undercounts recent new build activity and is incomplete insofar that data from Wales is missing.
The new housebuilding series began in 1946 solely based on local authority building control. National House Building Council (NHBC) data was added from 1985 and then 2007 legislation then allowed data from independent approved inspectors.
The sources of the series data accordingly remain building-control-based, considered the best source to identify the start of new build dwellings (specifically the commencement of construction in laying of foundations) and the timeliest measure of new build completion (as measured by the completion certificate), but in recent years building control-based sources have become increasingly fragmented, contributing to the partial coverage problem identified above.
DLUHC statisticians make allowances for non-response (reported as 78% for independent approved inspectors in Q1 2023) through a process of imputation from past returns, revising the series when late returns are submitted.
The technical notes accompanying the series recognises, however, that data coverage in terms of late and non- reporting is a problem – one that demonstrably has and not resolved by the imputation process.
Although the DLUHC has produced a one page guide to housing statistics which shows users how the new housebuilding series relate to other releases, the precise reasons for the under-reporting of new completions by this series remains to be accurately determined, reported, and rectified, while its seriousness and impact appear to be downplayed by both the DLUHC and ONS.
2 Guidelines and recommendations for the future
That the net new supply series provides the best measure of not only new net supply but also for new housebuilding completions since April 2006 has become progressively better recognised over recent years. It remains, however, a lagged backward-looking metric that does not cover starts.
Although flagged as such by the DLUHC in the relevant official releases, this website considers that the department should go further and advise users that the new housebuilding series should only really be used for two reasons.
First, to consider longer-term trends prior to 2006-2007.
The DLUHC interactive dashboard published within its indicators of new supply (new housebuilding) series, reproduced in , reports new build completions according to the tenure of provider from building control sources until 2005-2006, but subsequently by final tenure using the more accurate net supply and affordable housing series. It should be updated and highlighted in future new net supply and new housebuilding releases and perhaps be made a live table.
Second, as a leading but inadequate indicator of new starts.
Given that recent trends in housebuilding activity are an important determinant of wider macro-economic as well as of future housing market outcomes, greater accuracy new build start data is certainly required if it is to provide a fit for purpose leading snapshot indicator of the direction and scale of current and near-future new build activity.
This will probably require a shift to a mandatory site-based time-sensitive reporting requirement placed on the housebuilder backed up by the necessary enforcement and associated political commitment.
On an interim basis DLUHC/ONS should actively consider on how best to mitigate the demonstrable undercounting of new build starts by the series and upgrade its risk rating.
The net new supply series does not breakdown according to tenure, a drawback related to the problem that the provision totals reported in the affordable series are reported gross, not taking account of dwelling losses resulting from sales, demolitions or from other causes.
That series thereby does not report actual net affordable supply – a fraction of the gross completion totals subject to official fanfare and political soundbite.
This should be kept well in sight, which future affordable housing series could more clearly and transparently highlight.
The DLUHC meanwhile is undertaking work to address a request from the July 2020 recommendation by the Housing Communities and Local Government select committee “on publishing net supply of affordable housing by tenure”.
The ancillary information it has produced – as reported earlier – on net affordable additions by tenure should be both further developed and reported and/or cross-referenced should be moved to the annual net supply and affordable housing release commentaries , as appropriate, as should the accompanying commentary on sales and demolitions, rather than be buried in the technical notes and dashboard of the indicators of new supply series (really the new housebuilding series: the one, as above, that needs a stronger health warning!)
In that light, Annex Table Seven could be updated and customised in parallel with the progressive and timely development of the new experimental flow-based series as an addition to the annual net supply and affordable housing series, insofar that stock-based figures are likely to become less accurate as the decade progresses towards the next 2031 decadal census adjustment.
The New Infrastructure Levy (IL): Going Round the Mulberry Bush
Section 1 of this extended post describes how S106 accidently evolved into the primary source of affordable housing, as Table 1 shows, then reports its identified shortcomings, before pointing out that progressive improvements in S106 practice, attributable to the use of standard templates, learning by doing and from experience, and greater consistency and certainty in national and LPA policy and practice, has weakened the force of some of these criticisms, while alternative mechanisms proposed across successive consultation cycles suffer from their own problems.
Section 2 describes the design and policy history of one such mechanism, the Planning Gain Supplement (PGS) proposed in the 2004 Barker Report and why it was stillborn.
Section 3 described the design and operation of the Community Infrastructure Levy (CIL) and how it was undermined by political mismanagement and neglect related to a lack of overarching commitment to first order objectives, including increasing infrastructural investment closer to needed economic and social levels, and by
design problems, identified in Table 2, that not only afflicted CIL but are inherent to any land value capture mechanism that aims to combine the advantages of national policy certainty with needed local flexibility in implementation.
Section 4 describes the proposed new Infrastructure Levy (IL), its possible advantages which, however, depend upon assumptions that tend to conflict with reality on the ground while it could introduce further complexities and problems, and/or replicate the problems encountered by CIL, before noting that the absence overarching political commitment to increased levels of local infrastructural and affordable housing will render any mechanism ineffective.
Section 5 concludes that the upheaval, confusion, and policy blight that would follow the introduction of replacement IL proceeding fitfully in parallel with the existing CIL and S106 systems withering on the vine for a decade or more, is likely to result in more harm than good. The lesson of the CIL implementation process was clear enough and should be learnt this time round.
It follows that incremental reform to, rather than a complex replacement of, the existing ‘present imperfect’ CIL and S106 systems, focused on the issues identified in Table 2, seems to offer a more sensible way forward.
Such changes should include setting clear process arrangements for the forward financing public funding of infrastructure to help to ‘crowd-in’ future development, the definition and application of development viability with reference to land value mechanisms (whether IL, CIL or S106) that can best reconcile national certainty with needed local variation, securing greater consistency of, and certainty in the application of S106 affordable housing contributions at both central and local levels in a way that could tap effectively into the potential for increased land value, where that was present.
1 Section 106 obligations: an accidental provider of affordable housing
Section 106 planning obligations (S106) are legally enforceable contracts between local planning authorities (LPAs) and developers. They specify the contributions required to make specific developments acceptable in planning terms.
These contributions can be made in cash or kind and can include specific items of infrastructure, such as access roads, new junctions, or, in the case of the largest developments, even new health and school facilities where these are required by the new development in question, as well as more generally affordable housing.
Developer affordable housing contributions involve the provision of a designated proportion of dwellings on affordable terms to a social landlord, including direct on- or off-site provision of rented and discounted low-cost home ownership units, on- or off-site provision of land for free or at a rate below market value, or by making commuted monetary payments or other contributions.
S106 contributions take their title from Section 106 (inserted in by Planning and Compensation Act 1991) of the the Town and Country Planning Act 1990 (TCPA1990).
It provided LPAs with the specific statutory power to, and consolidated the process by which they could require obligatory contributions (commitments) to make schemes or projects acceptable in local planning terms.
Planning obligations (Section 106 or S106) could now be attached to a planning permission or derive from a unilateral undertaking – usually made by developers at planning appeals.
Section 52 of the Town and County Planning Act 1971 had earlier specifically empowered local planning authorities (LPAs) to make a planning permission(s) conditional on an applicant(s) entering into a legally binding planning agreement(s).
Despite the enactment of TCPA1990, planning agreements and conditions sometimes continued to be used in an ad hoc, and, at worst, arbitrary way, raising concerns about a form of ‘legalised bribery’ taking place.
Permissions, for instance, for out-of-town shopping centres, could be, in effect, auctioned to the developer offering the best ‘deal’ to fund infrastructure and facilities that were neither necessarily materially related to the development in scale or kind, nor integrated or consistent with the relevant Local Plan (LP) – see, for example, May 1995 House of Lords case.
Government circulars, departmentally issued to provide non-statutory policy guidance on the local implementation of legislative measures and which can provide material considerations to LPAs to consider when making planning decisions and to the Planning Inspectorate or to the courts when reviewing such decisions, often covered such concerns.
Circular 16/91, circulated in the wake of TCPA 1990, confirmed the government’s policy position that obligations should only be sought or made when a direct relationship between such obligations and the proposed development was established, and when these obligations fairly and reasonably related in scale and kind to the same development – a position sometimes termed, rational nexus, that has since hardly changed.
It also highlighted that the term ‘planning gain’ – capturing for public gain a share of the uplift in development value attributable to a planning permission(s) – neither possessed statutory significance nor backing within the planning legislative framework, specifically cautioning LPAs not to seek cash or in-kind payments for purposes not directly related to proposed developments.
However, Circular 7/91: Planning and Affordable Housing, began to plough a parallel furrow, by extending the policy scope for LPAs to use S106 as a significant source of local affordable housing supply.
It confirmed that a “community’s need for affordable housing is a material planning consideration that may properly be taken into account in formulating local plan policies”, and “they (such policies) can properly be used to restrict the occupation of property for people falling within particular categories of need”, although it went on to add the rider that “planning conditions and agreements cannot normally be used to impose restrictions on tenure, price or ownership”.
Paragraph 12 of Circular 11/95 then made it clear that where it was possible to for a LPA to use either a planning condition or an obligation(s) then it should use the former, as the latter precluded the developer appealing against its imposition.
Notwithstanding its official discouragement of using planning obligations, the same circular also indicated that planning instruments could be used, in effect, as tool of housing policy, although some ambiguity remained (the circular was issued to reflect case law precedent, rather than to declare a new policy direction backed by government commitment: see last sentence below), with its para 97 advising that:
“The courts have held that the community’s need for a mix of housing types – including affordable housing is capable of being a material planning consideration. It follows that there may be circumstances in which it will be acceptable to use conditions to ensure that some of the housing built is occupied only by people falling within particular categories of need. Such conditions would normally only be necessary where a different planning decision might have been taken if the proposed development did not provide for affordable housing and should make clear the nature of the restriction by referring to criteria set out in the relevant local plan policy. Conditions should not normally be used to control matters such as tenure, price, or ownership”.
Margaret Thatcher’s Conservative governments during the eighties curtailed council house building programmes while post-1980 Housing Act Right-to-Buy programmes dwindled their existing stocks.
Housing associations (now Registered Providers, RPs) became the primary source of new social housing let at sub-market rents during the eighties, but at much-reduced volume levels.
Their main funding source was capital housing grant – then called Housing Association Grant (HAG), now known as Social Housing Grant (SHG) – channeled through a public agency founded in 1974: the Housing Corporation (now Homes England).
Although post-Thatcherite governments continued to direct public spending away to other social spending programmes, they did, however, recognise the need for additional affordable housing supply to increase.
In that political light, from the end of the eighties onwards, RPs were given greater freedoms to borrow privately to supplement public grant support, allowing them to ‘stretch’ supply levels, even as the percentage of scheme costs met by grant progressively reduced.
The planning system also came into steadily larger view as an alternative potential mechanism to expand affordable housing supply.
Circular 13/96 acknowledged that a practical way of ensuring long-term control over ownership and occupation was to involve registered housing associations in the provision of the new affordable housing using planning (affordable housing) obligations.
Circular 6/98 reduced the threshold below which it would be inappropriate seek affordable housing obligations to 25 dwellings, save that for Inner London or across other areas “where a robust housing needs assessment provided evidential support for a lower threshold”, a lower 15 dwelling threshold was set. It is now ten dwellings.
Not only was the base on which S106 affordable housing obligations could be levied broadened, but the proportion of social housing completions that used a mix of public and section 106 support (partial grant) rose, as the proportion funded solely from public grant fell.
The shift to the use of S106 as a supplemental and then as an alternative funding source to public grant accelerated as the new millennium progressed.
Evidence submitted to House of Commons in 2011-12 indicated that the number of new affordable homes approved through S106 obligations more than trebled from just under 14,000 in 1998–99 to peak at over 48,000 in 2007–08. An estimated 80% of these approvals were subsequently actually delivered.
As Table 1 reports (itself collated from Table 1000C of the official affordable housing statistical series) the proportion of social rented completions accounted for by nil grant S106 also steadily increased from three per cent in 2002-3 to reach 11% by 2008-2009.
Yet, the future role of S106 remained confused, contested, and fluid on the central government policy development stage.
In December 2001, New Labour’s newly re-elected second term government published Reforming Planning Obligations: A consultation Paper – Delivering a Fundamental Change (DTLR, 2001) that criticised the S106 process, proposing that to secure a “faster, more efficient and more effective planning system”, LPAs should instead use more standardised and generalised tariffs rather than individually negotiated S106 agreements, which in future should be limited to where they were “clearly justified to deliver, for example, site-specific requirements”.
But within two years, in November 2003, another consultation document: Contributing to Sustainable Communities – A New Approach to Planning Obligations, proposed that LPAs should be empowered to offer an upfront pre-set “optional planning charge”, set in advance but variable between LPAs and between different types of development, which developers could choose to pay as an alternative to negotiating both S106 planning and affordable housing obligation(s).
That new policy proposal, in turn, was put on ice by the publication in March 2004 (following an interim report in December 2003) of the Barker report that Section 2 will discuss.
The then-prevailing view on planning obligations was generally lukewarm at best, marked by a sense that their unpredictability and uncertain impact justified a shift towards alternative mechanisms, such as up-front standard and fixed tariffs.
Shelter, for example, had, in its response to the government’s December 2001 consultation, stated that “We agree with the government’s analysis of the faults of the current system of planning obligations. We consider that a ‘tariff’ system will offer much in the way of clarity of expectations on developers, faster procedures, and easier quantification of the benefits and how they are applied”.
Circular 05/2005 was published into this slipstream of prevailing and continuing policy uncertainty concerning the future scope and coverage of planning obligations.
While confirming the optional planning charge outlined in the November 2003 consultation would not be introduced until the government decided its response to the 2004 Barker report, including to her flagship PGS proposal, its focus was rather on the policy acceptability of planning obligations and the process/procedure used to negotiate and secure them in the context of the “improvements to the current system which the Government would like to make in the interim period before further reforms are brought forward”.
In practice, the circular remained extant – as did Circular 11/95 – until it was replaced by the National Planning Policy Framework in March 2012. It thus proved more of an unintended consolidation and watershed than an interim response.
Its Annex B reaffirmed that that planning obligations could be used to:
- prescribe the nature of a development, such as requiring a proportion of a development to be affordable;
- compensate for loss or damage caused by a development, such as a loss of an amenity by securing in-kind or cash from a developer;
- mitigate an impact of a development, for example, through the funding of transport, health, or educational provision improvements to “make acceptable development that otherwise would be unacceptable in planning terms”.
A ‘functional or geographical link’ between such obligations and the development should exist save for affordable housing, and they should be “fairly and reasonably related in scale and kind to the proposed development and reasonable in all other respects”.
The Global Financial Crash (GFC) then intervened to throttle the housing market and thus reduce the scope for developers to cross subsidise affordable housing from market sales. Many developments stalled and even across developments that were then subsequently built out S106 affordable housing obligations were often scaled back or not implemented.
Many commentators argued that public investment in affordable housing should be increased as part of a classis Keynesian domestic counter cyclical fiscal response to the GFC.
Housing capital expenditure instead took the brunt of fiscal austerity measures that George Osborne, chancellor of the 2010-15 Conservative and Liberal Democrat government, put in hand to ostensibly reduce the deficit but also part of a wider strategy to ‘shrink the state’.
Average grant levels were cut by up to 60% in total. Funding for new social rented housing – largely replaced by an affordable rent sub- tenure offered at c80% rather than 50% market rental levels – ended as policy presumption shifted towards providing affordable housing without public grant subsidy.
RPs, working in partnership with both councils and developers, were forced to work ever harder to devise and implement new affordable housing provision and funding models.
This turbo charged the tendency already begun during preceding decades for RPs to become developers of schemes, using sales of market housing to cross-subsidise rented dwellings let generally at sub-market levels, to purchase dwellings off-peg from developers to then offer on affordable terms, often in accordance with S106s agreed and made with LPAs.
An associated and intensifying secular trend was for such developer RPs to grow larger in size and turnover through takeovers, consolidation, and merger, as well as from organic growth. This was to increase their borrowing capacity and balance sheets and to benefit from economies of scale and scope.
The impact of fiscal austerity on national affordable housing capital budgets and on local budgets generally meant that when the housing market again took off at least across economically buoyant and areas concentrated around London and other high housing value areas that RPs increasingly relied on nil grant S106 to provide social housing.
Nil grant S106 affordable completions increased more than fivefold from a 2011 trough, occasioned by the GFC, to exceed 30,000 during 2019-20 – accounting for more than 50% of total affordable completions that year (see previous link to Table 1).
Between April 2017 and March 2021, the proportion of social rent completions enabled by nil grant S106 in England exceeded 50% each successive year, while for intermediate tenures, the proportion so enabled touched 65% in 2017-18, although subsequently that proportion has dropped.
S106 without public grant had become the primary funding source of affordable housing: an essential component of the mixed public and private funded welfare state across the housing sphere.
In many ways, a remarkable outcome. It represented, at first glance, a part privatisation of the funding of social and affordable housing, enabled by locally negotiated S106 agreements that, in effect, represented a locally levied and collected development tax or charge on speculative market developments, with its value or proceeds provided-in-kind or hypothecated for local affordable housing as a contractual commitment(s) linked to specific development(s) .
These outcomes were a product, not of first order political design or agency or competing party ideology or preference, but primarily one of incremental pragmatic responses of stakeholders responding at a local level to the inability of both the housing market and the planning system to deliver affordable housing or balanced communities in tenure and social compositional terms and to changes in the wider political and policy environment.
Planning policy at a national level initially largely followed evolved practice on the ground ratified by judicial case law decision, and then responded to conditions of post-GFC fiscal austerity.
S106 was also not specifically designed by central government to effectively recycle windfall landowner and development gains into affordable housing and other public purposes; indeed, until the nineties using it for that purpose was officially discouraged, if not prohibited.
The academics that have advised the government and House of Commons select committees on mechanisms to capture land value estimated that by 2018 that c30% increased land value resulting from residential development of greenfield sites was captured by the combined operation of CIL and S106, with up to another 20% captured by national capital gains and stamp duty land taxes.
The accidental antecedents of S106 partly explain why the level and composition of developer affordable S106 contributions lack predictability, related to uncertainties caused by contingent market conditions, top variant site attributes and circumstances, to the availability or otherwise of SHG, as well to the relative negotiating position/skills of the parties.
The process overall has tended to be piecemeal, reactive, cumbersome, hampered by the fact that information that is shared between the parties has tended to be asymmetrical and imperfect.
The non-exhaustive list of problems catalogued below have often cited in successive consultations by both government and stakeholder respondents as a reason to replace S106:
obligations are mostly attached to major housing schemes that many authorities only infrequently face and progress, causing problems related to LPA lack of experience and capacity in dealing with such applications;
- the complexity of such large-scale schemes and lack of policy certainty on contribution amounts and rates can result in protracted negotiations that consume much local authority and developer time and other resources, to the especial detriment of small and medium housebuilder enterprises (SMEs);
- asymmetries in negotiating expertise exist between the two parties, leading to unsatisfactory public policy outcomes related to above, for example, Southwark case example;
- a site- and locally negotiable system, rather than one subject to certain requirements known in advance, mean that both local authorities and developers are not always aware of the level of planning contributions that might reasonably be expected from a given development, resulting in obligations varying between areas and applications otherwise substantially similar;
- besides such local discretion in treatment, such variation is an inevitable by-product of a process sensitive to changes in market conditions (a rising or falling housing market impinges on development values and developer profits and hence perceived, claimed, or actual scheme viability) that can also result in substantial downward negation or revision of previously agreed negotiations as, for instance, did occur in the wake of the GFC, and could be occurring now with the recent housing market downturn;
- affordable housing levels achieved on a site-by-site and LPA level can therefore diverge markedly from published local policy requirements, which in the past has and can lead to developers to assume less than policy compliant levels of affordable housing when bidding for land, resulting in higher land prices and development costs generating a self-fulfilling circular process;
- A stated headline affordable policy requirement – say 35% – in any case cover a range of compositional permutations of social rented and intermediate tenure options that in realisation vary in value to the LPA and in cost to the developer both over time and between LPA’s;
- associated problems of lack of process transparency;
- other potential sources of contribution, including commercial and smaller developments, are left untapped;
- S106 scheme contributions towards community infrastructure and/or site mitigation can be meshed more to stakeholder budgetary imperatives rather than local needs;
- possible tendency of some local authorities to misuse Section 106 to delay or discourage development, by asking for unreasonably onerous levels of developer contributions;
- possible generation of perverse incentives in favour of high-density housing schemes deemed most likely to maximise contributions and to protect developer profit levels, thus risking over-development or sub-optimal social outcomes, such as compressed space and other standards;
- long time lags between the negotiation, the agreement, and the receipt of contributions;
- inadequate monitoring of the delivery of originally negotiated obligations, whether due to their renegotiation, to changes to planning applications or their non-progression in full or part, or to simple shortfall when the development takes place, can result in LPAs not getting the full benefit of contractually committed obligations. A May 2022 audit of affordable housing delivery, annually undertaken by the London Borough of Southwark, for example, identified in 21 cases of apparent under-provision of social rented units and 39 pertaining to intermediate, with another nine no responses, indicating a potential significant under delivery problem. There is little or no reason to suppose that a similar problem does not exist across other such authorities.
This long and apparently damning inventory of problems and issues associated with S106 fails, however, to recognise the progressive improvements in practice, such as use of standard templates, learning by doing and from experience, and the movement towards more consistency and certainty in national and LPA policy and practice, all of which has gathered pace in recent years.
Focused initiatives such as the Mayor of London’s Affordable Housing and Viability Supplementary Planning Guidance (2017 SPG), incorporated into the 2021 London Plan, that introduced a streamlined Fast Track Route for applications that include commitments to provide at least 35% cent affordable housing, and 50% on public or redeveloped industrial land has provided greater policy certainty to developers and London LPA’s hat by embedding the costs of defined and more certain affordable housing requirements into land values has served both to increase the level of achieved contributions and to speed up the planning process.
Recent proposed June 2023 updates to London Plan Guidance (LPG) on Affordable Housing and Development Viability also provide pointers to future replicable good practice.
Undoubtedly S106 is a second-best public policy response to the need to fund and provide additional affordable housing and connected local cumulative infrastructural requirements.
But that bald statement begs the question as to what is and would be the best response.
The parallel and co-ordinated reform of public and private and business models to mainstream affordable housing provision most efficiently at optimum volume and public subsidy levels combined with a distributional fair land value tax attached with minimal distortionary economic deadweight effects would be one candidate. Like others, however, it is not immediately realisable for a mix of political and institutional reasons.
And an evolved and known second best is still better than third or fourth best or even possibly improved second best alternatives that, however, will involve upheaval and are uncertain in outcome.
At root such alternatives will suffer also from similar or other problems intrinsic to all land value mechanisms that seek to combine certainty with flexibility, when a ‘one-size fits all’ approach rubs against the reality of divergent spatial and site characteristics and circumstances, as subsequent sections will now go on to demonstrate.
2 Barker’s Planning Gain Supplement (PGS): a partly hypothecated national tax to support local infrastructural funding
Gordon Brown, a chancellor forever focused on stamping his authority on New Labour domestic policy, appointed Kate Baker, a former Bank of England economist to examine how improved supply responsiveness of the housing system could reduce the impact of rising real house price levels on the wider macro economy.
Her March 2004 (following an interim report in December 2003) Barker Review Final Report (Barker) concluded that Section 106 in its existing form it “did not offer the best method to achieve needed higher levels of housing supply”.
It proposed a national direct levy or tax on development betterment – the Planning Gain Supplement (PGS), to be levied when full planning permission was granted.
Barker envisaged that PGS would generate proceeds sufficient to cover the estimated Section 106 contributions that (in the absence of PGS) would have been made plus additional resources to boost housing supply and for associated infrastructural and other requirements but set not so “high to discourage development”.
Section 106 planning obligations (S106) could then be “scaled back” to cover site-specific impact mitigation and affordable and/or social housing requirements only (R24).
To finance their wider cumulative infrastructural requirements, Barker envisaged that local authorities (LPAs) should receive from central government a direct but unspecified share of the PGS proceeds generated within their areas.
Should the government decide against introducing PGS, Barker suggested that it alternatively should then press ahead and introduce instead an up-front pre-set and fixed tariff or charge that could still be set to vary between LPAs and types of development, however.
This had been proposed in the November 2003 consultation document Contributing to Sustainable Communities – A New Approach to Planning Obligations” that developers could choose to pay on a scheme-by-scheme basis as an optional alternative to negotiating S106 planning and affordable housing obligation(s).
However, Barker emphasised that this alternative was a second-best response that was likely to involve continuing prolonged and costly section 106 negotiations covering large and complex schemes.
As is conveyed by the above, Barker painted her canvas with a broad brush, leaving much of the crucial detail left to be filled in later, including:
- the difficulties of establishing the point in time when the uplift in value on which PGS should be levied;
- whether the computation of current use value should reflect ‘hope value’; (projected planning uplift attributed to an expected or possible future planning permission);
- whether PSG should be levied on the landowner or on the developer or on both;
- the precise and respective future coverage and impact of PSG and Section 106 on affordable housing provision;
- the impact of a national uniform tax levy on the development viability of sites possessing variant geographical, locational, and physical characteristics;
- whether low value brownfield development should be exempted;
- the PSG rate itself, and whether it should be a uniform UK rate or made regionally or locally variable, or applied differently across the devolved administrations;
- whether it should be applied across all developments save for householder improvements, or be targeted towards housing developments above a defined minimum threshold value;
- whether the supply of land available for development would be reduced by landowners withholding it as PGS was capitalised into lower land prices;
- whether, and in what proportion, PSG should be re-distributed between authorities, rather than simply directly allocated back to the originating LPA;
- the need or otherwise for transitional arrangements to cover existing planning applications and industry practices, such as option agreements, where the developer had had paid the landowner for an option to purchase their land in the future.
The canvas then began to be filled in by a chain of government consultations, select committee reports, subsequent responses, and then policy announcements pertaining to PSG, including the HM Treasury response to 2005 consultation; the 2006 Pre-Budget report; the Planning Policy Statement 3 (PPS3) issued in November 2006; Planning Obligations: Practice Guidance; the November 2006 Select Committee Report on PSG; the Government response to November 2006 report; the Changes to Planning Obligations December 2006 consultation; and the November 2007 government response to Valuing and Paying for PSG consultations.
The upshot, broadly taken across the piece of that process, was that PGS, when implemented, should:
1 Be set “at a modest rate across the UK” – some commentators took that to mean c20%: in short, a simple and modest (depending on viewpoint and/or interest) flat rate national tax on development, provided with limited exemptions.
Alternatives could include a lower rate for brownfield sites possibly supplemented by tax reliefs or credits targeted to support urban regeneration, “subject to further investigation”.
2 PGS revenues should be separated from the local government funding settlement.
At least 70 per cent of PGS revenues sourced from a local area should be hypothecated (ear-marked) to support infrastructure priorities within that same area.
3 Liability for PGS would not arise until after a developer – following the granting of full planning permission – had applied for a PGS Start Notice, signifying that they intended to commence site development.
4 That liability would then be calculated by subtracting the current actual use value (CUV) of a site (actual site values were preferred over taking a measure of average local values due to their variability and heterogeneity – each site is different – from its post-planning permission value (PV).
So: (PV – CUV) x PGS rate (%) = PGS liability.
Two separate valuations therefore would be required to determine PGS liability: one, to establish the CUV of the development; and the second to establish its PV.
5 PSG for each eligible site was to be paid by its developer (the entity implementing the planning permission) on the assumption that it possessed a notional unencumbered freehold interest with vacant possession (FHVP) of the site in question.
The government had concluded that site developers were best placed to accommodate the costs of PGS during the normal commercial negotiations they concluded with landowners to bring sites into development.
Having only one legal entity to account to HMRC for the site PGS liability, it was envisaged, would simplify the valuation process.
6 Section 106 should be scaled back to cover only “direct impact mitigation” at the site level, including the physical environment of development sites: their access connectivity; the direct mitigation of any arising adverse environmental impacts, relating, for instance, to landscaping, or other specific archaeological, environmental protection considerations; or other related site requirements.
The crucial – albeit by then established – exception was that securing affordable housing in a residential or mixed-use development at a proportion set within the relevant Local Development Framework (LDF) Plan should remain within the scope of S106.
7 The provision of such affordable housing was considered to constitute an on-site delivery issue that needed to be integrated from the outset into the site development process.
This was considered consistent with the wider achievement of mixed communities, in terms of their tenure and price offer, as well as their household compositional mix, including families with children, single, and older people.
The November 2006 PPS3 (see earlier link) had required LPAs to set an overall (plan-wide) affordable housing target(s), split, where appropriate, between social and intermediate housing categories, based on “an assessment of the likely economic viability of land for housing within the area, taking account of risks to delivery and drawing on informed assessments of the likely levels of finance available for affordable housing, including public subsidy and the level of developer contribution that can reasonably be secured”.
This represented an official acknowledgment that S106 affordable housing obligations had become integral to national and local affordable housing provision supply.
The national minimum indicative minimum size threshold for such affordable housing obligations was reduced to 15 dwellings. Local authorities, however, were offered the discretion to set a lower threshold, where that was “viable and practicable”.
8 Social or community infrastructural requirements, including leisure, educational, health facilities, in future, would fall outside scope of Section 106, to be funded from PGS or other sources.
In summary, to meet three different requirements:
- the on-site mitigation of adverse consequences of development;
- the funding of local infrastructural requirements connected with new developments;
- the provision of local affordable housing,
the government, on the back of the Barker report, proposed two primary policy instruments.
First, S106, scaled down to the still considerable twin-tasks of making a development acceptable in planning land use terms and of expanding affordable housing supply.
Second, a mechanism, PGS, a national tax on the uplift in site development values when crystallised by relevant planning approval(s), to fund necessary supporting community infrastructure.
The cumulative infrastructure funding issue
Site-related planning considerations can straddle wider community-related educational, transport, and other infrastructural needs.
Take, for instance, a site access connector road – clearly a site-related consideration – feeding into a new relief road, where that, given the expected impact of the new development on traffic flows, was also assessed as necessary to reduce congestion across the wider settlement spatial area,
When built, however, such a relief road could well reduce future traffic congestion within the wider area – even with the addition of the traffic generated by the new development, to below to what was experienced before it was built – at least if and until a new congestion ‘tipping point’ was reached when congestion became worse than it was before it was opened.
A new level crossing or road bridge over a railway that Network Rail, for instance, deemed necessary due to the increased traffic it expected a new development would generate, is another example of such a ‘tipping point’ effect.
They can apply to increased provision of school places, GP surgeries, and other items of community infrastructure that expand future system capacity across a wider pool of users than future residents of a proposed development but are lumpy in terms of their associated fixed cost requirements, when may not always be possible or appropriate to expand provision incrementally on existing sites, such as providing a new classroom.
Logically, these ‘tipping edge’ and ‘cumulative funding’ problems can be overcome – and often are – by a S106 contribution made proportionate to the assessed impact of a new development on existing and future local cumulative infrastructure needs,
Indeed, B21-24 of Annex B of Circular 05/2005 advised that LPAs should set out in advance the need for such wider (not confined to individual site mitigation purposes) supporting cumulative community infrastructure, such as health and educational facilities, and the likelihood of a contribution towards them being required.
In such cases, a direct relationship between the development and the supporting infrastructure required and that the contribution sought was fair and reasonable in scale should be both demonstrated. A clear audit trail should then be maintained between the contribution made and the infrastructure provided.
It went on further to say that developer contributions could be pooled, if necessary, across different developments and local authority areas and that “In some cases, individual developments will have some impact but not sufficient to justify the need for a discrete piece of infrastructure. In these instances, local planning authorities may wish to consider whether it is appropriate to seek contributions to specific future provision”.
Yet such contributions, especially when they need to be combined with existing LPA and/or external agency resources available for infrastructure works, often prove insufficient to allow the desired infrastructure to proceed prior, or in parallel, with site development.
They can also prove difficult to quantify and apportion to individual items of infrastructure and on what planning and provision basis.
Whether the impact of the development on needed infrastructural provision constitutes a ‘tipping point’, can consequentially risk become becoming a source of negotiating complexity, contention, and delay.
In the case of the relief road example, if the contribution only augmented the existing pot available for such a project but not enough to allow it to proceed, congestion would worsen in the meantime. Similarly, school and GP surgery excess demand and overcrowding could result.
Such ‘tipping point’ and associated cumulative funding co-ordination problems are increasingly highlighted or even exploited as reasons to resist such new development, as discussed in The 2020 Planning White Paper: Key Lessons.
PGS, development viability and affordable housing obligations
Another issue not resolved by the post-Barker consultation policy development process was the extent that the retention of section 106 affordable housing obligations could be supported and paid for by developers within a new regime that also included PGS.
In short, could a PGS levied, at say, a national 20% cent uniform rate across England co-co-exist with S106 affordable housing as well as some limited site mitigation obligations, without its introduction undermining the viability of future developments and then ultimately housing supply?
The 2007-2010 Brown government itself recognised that for section 106 to operate effectively in parallel with PSG, then the legal, policy, and funding pegs on which affordable contributions were to be hung needed to be made clearer and more certain, concluding that “a contribution by the developer in the form of, or equivalent to the value of, the land necessary to support the required number of affordable units on the development site would represent a reasonable starting point for negotiations”.
That treatment, however, still left open on how such land contributions could be combined with the proposed PSG, as well as other valuation issues connected to geographically or spatially variant land values.
As it turned out, the proportion of planning obligations accounted for by land contributions progressively fell over subsequent years.
Why did the PGS fail even to reach the runway?
Post-war policy experience of taxing development betterment values at a national level was not encouraging.
The three main legislative attempts to do so in 1947, 1967, and 1976 proved singularly unsuccessful, both in terms of revenue raised and in securing greater land supply for development.
Developers held back on the expectation that the high levels of tax involved (100% in 1947) would prove unsustainable and would be reversed by a successor government.
The prospects of the future success of PGS were, therefore, not promising from the outset.
Notwithstanding the lower rates envisaged by Barker, PSG could still involve a disincentive for developers to seek permission, or then to start work.
Practical issues concerning its timing also remained unresolved. The post Barker consultations proposed that valuation would occur when full planning permission was granted for a development with payment due 60 days after works commenced.
But development values could change between the date that planning permission was granted for the development and the date when it commenced: the scope and cost of remedial or other site preparation work could increase, for instance.
The largest developments also often involve multi-phasing over a prolonged period, the treatment of which would have likely complicated the operation and timing of PGS, quite likely encouraging developers to structure and sequence schemes to minimise their liability to pay it.
Alternatively, if PGS was assessed against final development value, measurement and timing issues could remain, while a delayed receipt profile could prove a problem for LPAs needing to fund supporting infrastructure – especially if they were prevented from forward-financing such works.
These issues will likely pertain to the emerging new Infrastructure Levy, discussed in Section 4, when introduced.
In any case, a hammer was thrown into the post-Barker policy development process when the 2006 Pre-Budget Report indicated that PSG would only be implemented, if “after further consultation it continued to be deemed workable and effective; and, in any case, no earlier than 2009”.
Hardly a ringing commitment to begin with, reflecting doubts within and outside government as to whether PGS was workable.
Delaying the earliest date of its introduction to the year prior to a general election, in effect, represented a pre-announced death sentence for PGS.
Developers, unsurprisingly, exploited the enveloping uncertainty to mobilise against PGS, with their lobbying efforts coalescing around the introduction of alternative standardised tariff approaches, involving a fixed per square meter rate, rather redolent of the standardized tariff approach that had been proposed in another earlier December 2001 Reforming Planning Obligations consultation.
Some LPAs, including Milton Keynes and Ashford, responding to continuing central encouragement to “experiment using such standard charges”, did set such tariffs.
The most high-profile example was the Milton Keynes ‘roof tax’. It involved a fixed tariff set at £18,500 per dwelling and c£66 per square meter of commercial floor space and was designed to raise £311m towards the c£1.7bn total scheme costs of extending the UK’s largest and most successful new town.
This tariff, however, did not cover the cost of affordable housing: section 106 contributions of c£316m towards affordable housing were still needed, but overall the tariff was considered an effective and efficient way of funding infrastructure.
Such a proportionate and certain tariff was considered conducive to streamlined development planning and delivery and to securing broader stakeholder acceptability.
But by 2008, the UK, like other advanced economies, was entering the grip of the Global Financial Recession (GFC) that, inter alia, threatened to bankrupt the domestic housebuilding industry.
An election was also approaching, when, for the first time for a generation, the formerly hegemonic New Labour ‘project’ – already running out of political steam and ideas – faced the real prospect of electoral defeat.
Whatever remnant government enthusiasm for PGS rapidly ebbed away until it was finally put out of its misery and discarded in favour of the Community Infrastructure Levy.
3 The Community Infrastructure Levy (CIL)
Introduced in the 2008 Planning Act, CIL became operative on the 6 April 2010 through regulatory statutory instrument 2010/48 (CIL Regulations 2010). It was then retained by the incoming 2010-15 Conservative and Liberal Democrat Coalition government. CIL was not adopted in Scotland.
CIL was designed to act as a specific standalone statutory source of local community infrastructural funding (except for affordable housing), replacing the blurred and uncertain role that S106 provided in default for that purpose.
Unlike the previously proposed PGS – a national tax – it was designed to be locally set and collected and to be voluntary.
A 2011 DCLG Overview of CIL laid out the government’s aim and justification for the scheme, setting forth the expectation or hope that it will prove “ fairer, faster and more certain and transparent than the system of planning obligations which causes delay as a result of lengthy negotiations. Levy rates will be set in consultation with local communities and developers and will provide developers with much more certainty ‘up front’ about how much money they will be expected to contribute”, enabling “the mitigation of cumulative impacts from development”.
It envisaged that CIL would be levied across smaller developments untouched by S106, noting that (then) “only 6 per cent of all planning permissions brought any contribution to the cost of supporting infrastructure”.
Regulation 122 linked the Levy to a parallel scaling back of planning obligations, limiting such obligations, save for the provision of affordable housing, to site specific measures directly related to the development, that were fairly and reasonably in scale to it, and were necessary to make the same development acceptable in land use planning terms.
It continues as a core feature of CIL and S106, providing continuity to guidance dating back to Circular 16/91, while putting the treatment of planning obligations that Circular 05/2005 set out onto a statutory footing.
Regulation 123, as enacted in 2010 (later amended, prior to its recension in 2019), prescribed that after a CIL charging schedule (CS) had been approved and published, LPAs could not use a planning obligation(s) to fund or provide items of infrastructure that it had included in its ‘Regulation 123 list’ – one detailing items or types of infrastructure intended for local CIL funding – or where such a list was absent, from supporting the provision of any item of infrastructure (double dipping).
Otherwise, only five or less planning obligation contributions could be pooled to help fund for an item of infrastructure not locally intended to be funded by CIL and included in its regulation 123 list (pooling restriction).
These restrictions aimed to encourage LPAs to adopt CIL as their future source of funding for local cumulative infrastructural requirements and to confine S106 to site specific and affordable housing provision obligations, avoiding any overlap funding of local infrastructure between CIL and S106, with CIL becoming the preferred vehicle for the collection of pooled contributions.
Pooling restrictions were lifted in 2019, however, while ‘regulation 123 lists’ were superseded in 2020 by a requirement on LPAs to produce annual infrastructure funding statements, defining developer contributions received (both through CIL and section 106 obligations) and detailing how they had been spent.
Subsequent published Guidance in 2014 remains extant, as updated. Its main provisions are summarised below.
- CIL is a voluntary and local charge on local new development providing over 100m2 additional floorspace – complications, however, soon arose concerning the precise definition and application of additional, occasioning subsequent and successive revisions to the regulations.
- LPAs must define local CIL rates in a local Charging Schedule (CS). Charges become payable when full planning permission is granted and “material operations” commence on site.
- CIL charges involve a straightforward pound per square metre rate, but such rates can vary or differentiate according to the type and size category of developments and their area location, as well as to whether it counts as a ‘strategic’ within each LPA (such different charging classes must be defined in the approved CS).
- Each proposed CS, prior to its formal adoption, is subject to a defined consultation process and to a local viability review/test, followed by a Public Examination.
- When setting its CS, LPAs are required, according to the guidance, “to strike an appropriate balance between securing additional investment to support local development and the potential effect of the Levy on their viability”.
- On adoption, CS rates set across each defined charging class are payable as specified and applicable. They are consequently not negotiable nor variably discretionary on a site-by-site basis, outside or contrary to the provisions of the applicable CS.
- In short, the local LPA decision whether to adopt CIL is voluntary, but CIL liability when due is each development’s intended gross internal metre square floor addition times the applicable rate set out in the CS for that development, indexed broadly in line with construction costs: its application is then not discretionary or variable.
- Following the enactment of the 2011 Localism Act, LPAs were empowered to design CSs that encouraged the devolution of planning to a more local level, including making provision for the earmarking of a proportion of CIL receipts to support new chargeable development subject to a designated and approved Neighbourhood Plan.
- The scope of exemption or reliefs from CIL were widened to encompass social housing, charitable, self-build, residential annexes, and additions, and to some cases of demolishment, of refurbishment, and of change in use – these were also subject to subsequent definitional and other regulatory revisions.
- CIL proceeds cannot be used to fund the provision of local social or affordable housing.
They can, however, fund a very wide range of other local infrastructure, including roads and other transport infrastructure, drainage schemes, flood defenses, schools, hospitals and other health and social care facilities, parks, green spaces, and other environmental improvement, as well as leisure and other local facilities, “arising from the cumulative impact on local infrastructural needs of successive developments, including those made subject to the Levy”.
CIL progress and operation in practice
A Review of CIL operation and progress commissioned in 2016 but published in February 2017 to accompany the Housing White Paper (HWP), noted that although it had been slow to start, the process of CIL introduction and of CS adoption, five years from its outset, had begun to pick up and accelerate.
Yet, by August 2015 only 93 LPAs (27%) had adopted a CS, reflective of an introduction period marked by frequent and, according to LPA and developer respondents, often confusing, regulatory changes, as touched on above. Another 109 LPAs were identified as working towards CS adoption.
When added to an already onerous and cumbersome adoption process, such changes tended to undermine timely and effective implementation of CIL by LPAs.
The narrowing of the charging base occasioned by the regulatory extension of exemptions and reliefs also prompted complaints from many LPAs concerning consequent loss of potential receipts.
By mid-2015 around 200 (58%) authorities had either adopted a CS or had begun the process to do so: representing a partial and delayed rather than a comprehensive and universal response to CIL, reliant as it was on local introduction and implementation.
Where LPAs, however, had put in place a CS for two years or more, average year-on-year revenue yield, according to the review, had risen from an average of £0.2m per charging authority in 2012-13 to £0.5m in 2013-14, before rising sharply to reach £2m in 2014-15.
That upward but lagged trend from a very low base reflected that receipts could not begin to be generated until the CS consultation, examination and adoption process was completed and then the ensuing time lag between CIL liability notice issue and revenue receipt – an issue that is likely to be repeated with IL.
CIL in 2015, according to respondents, represented a relatively minor development cost of around two to three percent of total market development value. As an average computed across all charging authorities that figure masked higher charges levied on developments across high value areas more able to withstand higher CIL rates.
A more technically-based review, A New Approach to Developer Contributions, (CIL Review Team Report, 2017 or 2017 Review), also published to accompany the February 2017 HWP, suggested that CIL raised 15% to 20% of cumulative infrastructural requirements, leaving the remainder to be found by LPAs.
Local authorities were then suffering from the concurrent infliction of post-2010 fiscal austerity that reduced some relevant revenue budgets by more than 50%.
This review went on to note that CIL was generally levied only at a “significant” rate on residential and retail development: other commercial uses to encourage local “economic growth” usually attracted a zero or low rates.
Relying on CIL to fund supporting infrastructure for large developments also served to shift development risk onto LPAs despite developers often being best placed to shoulder such risk.
Liz Peace, the chair of that review, in her later evidence to the 2018 Select Committee on Land Value Capture said it was difficult and, for the very largest developments “almost impossible to apply the formulaic CIL approach”.
Where, for example, a new school was required, developers “did not want to pay that into a pot and wait for the local authority to build you a school in however, any years’ time it would be: you wanted the ability to do that on your site in kind”.
Her review concluded in 2017 that “CIL is a more appropriate mechanism for capturing infrastructure funding to mitigate the cumulative impact of smaller scale developments. However, it would be more appropriate to have maintained s106 as a mechanism for delivering on-site infrastructure requirements for large-scale sites. The issue of upfront infrastructure cost for large-scale sites is still an obstacle to delivery whether under CIL or s106”.
It proposed replacing CIL with a low level, broad but certain and mandatory Local Infrastructure Tariff (LIT): “a twin-track system of a (low level) Local Infrastructure Tariff (LIT) combined with Section 106 on larger sites”.
By bringing smaller and nonS106 sites into the contribution net and thus increase proceeds beyond levels then currently realized by CIL, such an LIT would thus capture the “best of both worlds”, as well as offer regulatory simplification and process streamlining when integrated with the Local Plan process, while the retention of S106 on larger sites would allow more substantial infrastructure needs to be met in a timely manner by the stakeholder/agents best placed to do so.
A standard, but locally sensitive, national £ per square metre formula “pegged and calibrated to local prevailing values”, was suggested, set between 1.75 and 2.5% of the sale price of a standardised 100 square metre three-bedroom family home divided by 100, which the review posited should obviate the need for a complex Public Examination process, removing layers of complexity and potential delay, and would have a marginal impact on viability within low value areas.
How it would operate in practice was far from clear, however, as the government later highlighted.
The 2017 Review acknowledged that replacing CIL would involve upheaval and associated transitional issues but concluded, in effect, that the certainty provided by a mandatory low level LIT was worth such disruption, even though a low level LIT would generate insufficient resources to pay for affordable housing in addition to much other supporting and cumulative infrastructure requirements, requiring S106 negotiation of affordable housing requirements to continue.
Essentially, the 2017 Review was itself unable to juggle the conflicting pressures that Table 1 will shortly catalogue, most notably that between the advantages offered by certainty and flexibility: a low level certain and uniform tariff set low enough not to undermine development viability across low value areas or development types will not secure the maximum possible feasible land value capture across high value areas/development types and thus require much cumulative infrastructure to be funded by other methods and sources.
Certainly, the government did not take on board the review’s proposals for LIT to replace CIL. It chose instead to undertake a March 2018 consultation focused on the combined operation of section 106 and CIL (2018 consultation), describing the current system of developer contributions “too complex and uncertain”.
The proposals this consultation made were largely limited to “first step” short-term incremental modifications to the existing combined CIL/S106 developer contributions regime.
These aimed to streamline in time and process terms the statutory CIL adoption process, to allow the pooling of section 106 contributions in CIL-adopted LPAs (later extended to all areas in para 25 of the government’s response to the consultation), along with the publication of annual Infrastructure Funding Statements.
It did flag, however, that “in the longer term… one option could be for contributions to affordable housing and infrastructure to be set nationally, and to be non-negotiable”.
Like the 2017 Review, it also extolled the Mayor of London CIL scheme – a low-level tariff charged across all London boroughs confined in scope to funding key transport infrastructure, mainly CrossRail – as an effective mechanism to finance visible a strategic infrastructural item(s), noting that since its introduction in 2012, £381 million had been raised against a £300 million target, without much fuss.
The Local Democracy, Economic Development and Construction Act 2009 had created and empowered new Combined Authorities (CAs) to carry out the same functions as the Mayor of London (the direct election of metro-mayors for such CAs was also allowed in 2014) and to charge CIL.
By 2016, CAs covering the former county jurisdictional areas of Greater Manchester, South, and West Yorkshire, and the West Midlands, (councils which had been abolished with the Greater London Council, in 1986) had been freshly created to strategically plan and coordinate regeneration and economic development activity across their respective conurbations/sub-regions.
The 2018 consultation, in that light, also proposed that CAs should be empowered to introduce a low-level Strategic Infrastructure Tariff (SIT) on the Mayor of London model to “increase the flexibility of the developer contribution system, and encourage cross boundary planning to support the delivery of strategic infrastructure”.
Subsequent progress on that proved slow, however. Successive governments have preferred to progress devolution deals with individual CAs.
A later 2020 Review of the wider operation of CIL and its impact alongside the planning obligations system, confirmed that the tempo of CIL introduction and implementation had continued to quicken during the second half of the decade.
Mainly based on survey responses from LPA and other stakeholders, focused on the 2018-2019 financial year, it reported that in April 2019, just under half – 155 of 317 potential LPA charging authorities in England (after the reorganization and boundary reorganization of that month, and exclusive of Mayoral, Combined, National Park authorities) – were by then charging CIL.
Given that another 67 were progressing CIL, around two thirds of English LPAs, nearly a decade after its introduction, had either adopted or issued a CS.
By 2018-19, the value of CIL levied by LPAs had risen to £830 million (not necessarily collected), with a further £200 million levied by the Mayor of London,
compared to a combined developer contribution (S106 + CIL) figure of c£7bn for that year, including £4.7bn for the provision of affordable housing provided through S106.
The c£1bn contribution made by CIL to that £7bn total remained relatively small beer.
CIL coverage is very geographically uneven. Over half of contributions were accounted for by London and South-East LPAs in 2018-19, reflecting their higher locational development values with nearly all London authorities charging CIL compared to 21% across the North-West.
Many Northern and Midlands LPAs, where development values were generally much lower, were correspondingly less able to levy CIL at significant level, even on residential developments – at least without either eating into potential affordable housing provision or threatening the commercial viability of some developments.
By the same token, CIL rates, when set not to undermine perceived development viability across such areas, were reported as barely sufficient to justify local implementation cost. Lack of local capacity to implement CIL provided a further and related problem.
LPAs in that position have generally continued to shun CIL.
In operation, it remains spatially concentrated – both in adoption and receipt generation terms — within the more economically buoyant and affluent parts of the country that has left some swathes of the country almost untouched.
Was CIL doomed by design or by central government mismanagement and neglect?
Two key deliverables were expected from CIL. First, it should help to streamline the development process and produce associated efficiency and timeliness benefits.
Second, to generate net additional resources for local infrastructural provision without any associated loss in affordable housing provision.
Successive reviews, summarised above, identified long gestations in the CIL adoption process, followed by inevitable delays in building up or augmenting receipts to reach a point sufficient to fund lumpy required community infrastructure items.
When combined with a central proscription on LPAs forward funding infrastructure on the back of future expected CIL revenue flows, these delays put an effective lid on the short- to medium term infrastructural funding capacity of LPAs.
That lid, along with the transitional problems engendered by having to operate in parallel for a prolonged multi-year period the previous S106 system for planning permissions that had been agreed prior to local CIL adoption, were intrinsic to CIL design.
Another problem was that CIL viability testing (assessment of what developers could be expected to pay, depending on assumptions made) was often made across an individual LPA, rather than at a more granular area or project, basis.
The upshot was that viability was often assessed locally on a pan-LPA ‘worst case’ basis, thereby reducing potential total future receipt generation capacity, especially across low value areas, further fueling LPA perception across such areas that CIL was not ‘really worth the candle’ for them.
Frequent changes in the regulations – S106 pooling of obligations and the fluctuating technical treatment of the coverage, extent, and timing of reliefs provided prime examples – caused further confusion and uncertainty for the stakeholders that needed to operate the new system, as did the imposition of second or third order objectives, such as the decadal tack towards neighbourhood planning.
While the discretion and flexibility provided to LPAs in devising charging schedules did, however, provide some scope for variations in local development conditions and values to be taken on board, such local variation lessened certainty: in short, a ‘one-size fits all’ more certain approach rubs against the reality of divergent spatial and site characteristics and circumstances.
Practice could vary significantly between LPA; a tendency that was driven also by differences in local institutional implementative capacity.
Taken across the board, these scheme features tended to confuse, if not discourage, LPA staff and other key stakeholders, including developers, in their implementation effort, dashing initial hopes that CIL would prove “fair, fast, simple and transparent” in operation.
These problems help to explain why CIL remained a work in progress a decade after its introduction, and why it took that long for scheme receipts to even approach the levels that were anticipated at its inception.
Table 2 below identifies issues and problems that will continue to apply, regardless of whether CIL and/or Section 106 is either reformed or replaced by IL.
These need to be mitigated and managed rather than compounded by policy actions across design and implementation stages.
Table 2
Issue and/or Design Parameter | |
1 | Simplicity, uniformity, and certainty at a national level versus flexibility of treatment and incidence at a local area and site level. |
2 | Securing revenue-generation sufficient to meet locally cumulative infrastructural requirements versus development viability, whether at an area or project basis. |
3 | The definition and assessment of development viability and its constituent parameters, including assumed developer profit and landowner premiums. |
4 | The related extent that national or even LPA-wide tariff-based systems and possible supplemental mayoral strategic infrastructure levies and other parallel mechanisms, notably site negotiable S106, can achieve increased public land value capture. |
5 | The funding and provision of lumpy infrastructure projects that become cumulatively ‘necessary’ at a point before sufficient resources from slowly uncertain accumulating revenue funding streams are realized to pay for them – the tipping point and cumulative funding problem – at least in the absence of centrally provided capital subsidy, delegated forward funding approval(s) or alternative new local funding sources. |
6 | Securing the co-operation and funding input of other public authorities (such as county councils with education powers or Network Rail) or agencies (such as the Highways Authority) that possess funding profiles and priorities often different from that of LPAs. |
7 | The ability and capacity of new school and improved transport connectivity provision not only to make a marginal new development acceptable in planning terms, but also to facilitate or to make possible future development – the ‘crowding-in’ funding effect central to strategic regeneration schemes, such Barking Riverside and Oxford and Cambridge Arc. |
8 | The receipt gestation and other transitional problems that any new scheme would involve and/or need to overcome. |
9 | The related prospect of having to operate legacy systems, including CIL and S106, in parallel with a prolonged introduction of a new mechanism. |
10 | The establishment of robust local processes that prioritise infrastructure needs and then match associated spending profiles to supporting funding streams or sources and that then effectively and transparently monitor resultant outcomes. |
11 | The resourcing and capacity of LPA planning departments to operate in an efficient and timely manner such schemes in accord with their purported objectives. |
This section began by noting that CIL was introduced as an alternative to a proposed mechanism, PGS: an explicit national tax on development value crystallised by planning permission.
Although CIL, unlike PGS, was designed to be voluntary and locally based, allowing some local flexibility in rate-setting and treatment, it still constituted – both in intention and effect – a local levy on development value: proceeds could be used to plug existing or to meet future deficiencies in local infrastructural provision not necessarily directly related to any chargeable development.
Its introduction reestablished the principle of taxing land value betterment, albeit this was only tacitly recognized by government at the time.
CIL was undermined by design and transitional problems leading to its patchy local implementation, crucially compounded by a continuing lack of overarching central government policy clarity and certainty.
Any steadfast national public policy commitment to securing increased infrastructural investment in line with local affordable housing requirements and economic development needs likewise was notable only by its absence.
Such an absence of overarching political commitment and drive will invariably undermine any replacement to CIL, namely the new IL, included in the Levelling-Up Bill expected to receive Royal Assent in 2023. To that, we now turn.
4 The emerging IL
The August 2020 the Planning for the Future White Paper (PWP), announced an intention to replace the Community Infrastructure Levy (CIL) and the current system of planning obligations with a new nationally set, value-based flat rate charge: the Infrastructure Levy (IL).
The IL did not emerge into the PWP out of thin air. Its antecedents can be traced back decades to the often-official espousal of alternative tariff approaches to S106, some of which were discussed in previous sections, grounded on a perception that these could offer greater predictability and certainty and thus reduce delays and costs.
S106 obligations, in any case, could include tariff-like requirements set on a per dwelling basis. Barker herself in her 2004 report was receptive to such a treatment.
The PWP took on board the tentative long-term preference of the 2018 consultation (itself influenced by the 2017 CIL Team Review) for a nationally set and non-negotiable levy to replace CIL and S106.
In that light, it proposed that CIL and Section 106 should be consolidated into a nationally set, mandatory value-based flat rate Infrastructure Levy (IL), levied as a fixed proportion of the final development value of sites or schemes above a minimum threshold at the point of occupation.
The PWP expected the new IL to raise more revenue and to deliver at least as on-site affordable housing as the existing combined CIL and S106 developer contribution system did without the “months of negotiation of Section 106 agreements and the need to consider site viability”.
It would also deliver more of the infrastructure that existing and new communities required by “capturing a greater share of the uplift in land value that comes with development”.
Permitted development rights were to be included in the scope of IL, so that additional homes delivered through this route could provide funding support for new infrastructure.
LPAs could specify the forms and tenures of the on-site affordable provision required, working with a nominated affordable housing provider (Provider), who could purchase the dwellings at a market-discounted rate.
That discount (the difference between the price at which the unit was sold to the Provider and the market price) would then be considered and costed as an in-kind delivery component of the IL that would then be subtracted from the developer’s IL liability for that site, prefiguring the ‘Right to Require’ included in the March 2023 consultation, discussed below.
Few of the 44,000 respondents to the consultation that followed on to the PWP felt that the new proposed levy would in practice increase on-site delivery of affordable housing, however.
Most, including the Royal Town Planning Institute and Shelter, expected it instead to reduce such provision. A survey of social housing providers found that only four per cent of respondents believed that the PWP proposals would deliver more homes for social rent and help to deliver mixed communities.
Although linking IL liability to realised development values was welcomed by some commentators, many also pointed out that its corollary was that some infrastructure necessary for development completion would need to be forward financed by LPAs, subjecting them to both development and funding risk, echoing a criticism made by the 2017 Review of CIL.
The PWP had indicated that LPAs would be permitted to borrow against IL revenues to forward fund infrastructure, as well as be bound by a new nationally determined local housing requirement, which they would have to deliver through their Plans at a local level consistent with the stated government aspiration of “creating a housing market that is capable of delivering 300,000 homes annually, and one million homes over this Parliament”, focused on areas facing the highest affordability pressures.
But when in parallel to the August 2020 PWP consultation, the government proposed associated interim changes to the standard method of assessing local housing needs that would produce figures in aggregate more aligned to its 300,000 national target, following NIMBY opposition within and outside parliament during that autumn, they were withdrawn within three months.
Proposed changes to the NPPF, published in December 2022, according to assessments undertaken by Lichfields and Savills, will reduce future housebuilding levels to around half of the that target, to c155,000 or lower (not taking account of the impacts of any prolonged housing market downturn).
Legislative provision for the IL to replace CIL in England was made in Part Four of the Levelling-up and Regeneration Bill (LURB) introduced into the Commons in May 2022.
The policy paper that accompanied LURB described IL as a “simple, mandatory, and locally determined Infrastructure Levy”.
That shift to a locally determined rate represented a key departure from the PWP design, which, following previous consultations, proposed a nationally determined rate.
As such, it reflected recognition that it was not possible to combine certainty linked to uniformity with the flexibility in rate-setting needed to both to maximise potential land value capture across high value areas and to maintain development viability across low value areas, given the greatly variant development and site circumstances that prevail across and within LPAs.
During LURB’s passage through the Commons, MPs expressed concerns that the indeterminacy and lack of design detail of IL risked future complexity and uncertainty – contrary to stated intention, as well as doubts as whether it would secure developer infrastructural and affordable housing contributions comparable to the current combined CIL and S106 system, let alone more.
In March 2023, DLUHC issued a technical consultation on the detailed design of IL, indicating that further consultation would follow when the necessary secondary regulations needed to enact it were published.
According to LURB (as amended) and the March technical consultation, IL will:
- Largely replace existing CIL and S106 contributions towards community infrastructure and affordable housing in England (not Wales), except for the London Mayoral Levy.
- Apply to all types of development including permitted development, except for defined exemptions.
- Be calculated and collected as a set percentage of the Gross Development Value’ (GDV) of completed and sold developments above a minimum threshold level (on a £ per m2 basis), below which it will not be charged, “broadly meaning that the Levy is charged on the increase in land value created by a development”. Provision for staged or interim payments may be made, subject to the government response to the March technical consultation and later regulatory development. Constituting, in effect, a tax on completed sales value of a development, rather than a set and then fixed percentage of the additional floorspace approved at point of planning permission, regardless of its future value, IL should, according to the government, allow “developers to price in the value of contributions into the value of the land, allow liabilities to respond to market conditions and removes the need for obligations to be renegotiated if the gross development value is lower than expected; while allowing local authorities to share in the uplift if gross development values are higher than anticipated”.
- Rates and minimum thresholds to be locally set that could vary according to sub-area or type of development, according to a typology of development typical to each individual LPA.
- Charging schedules must pay regard to development viability and will be subject to public consultation and Examination, subject to Secretary of State intervention. In that light, rates and minimum thresholds set across applicable site typologies should “balance the need to capture land value uplift with the need to ensure that development remains viable” and that landowners are sufficiently incentivised to release sites for development.
- Be mandatory. Deadlines for its implementation at LPA level will be centrally prescribed, with the rider that each LPA will have at least 12 months to implement.
- Involve introduction of a new ‘Right to Require’ for LPAs, allowing them to determine a non-negotiable proportion of IL that they should receive as in-kind onsite affordable home contributions of value “at least as much onsite affordable housing” as does the existing system. The precise measurement of that benchmark, involving the quantification of value of the affordable housing so provided and the associated detailed operation of the ‘right-to-return’, will be subject to subject to the government response to the March consultation and later regulatory development.
- Require developers to deliver infrastructure defined as “integral” to the operation and physical design of a site – such as on-site play areas, site access and internal highway network or draining systems – through planning conditions. Where this is not possible, integral infrastructure will be delivered through targeted planning obligations known as ‘Delivery Agreements’. All other forms of infrastructure – ‘Levy funded’ infrastructure – mostly community infrastructure, will be collected in cash through a ‘Core Routeway’, save for the operation of the ‘Right to Require’. The dividing line between ‘Integral’ and ‘Levy-funded’ infrastructure will be set in subsequent regulations, policy, and guidance, informed by the March 2023 technical consultation process.
- Restrict S106 otherwise to an ‘Infrastructure In-Kind Routeway’ where “infrastructure will be able to be provided in-kind and negotiated, but with the guarantee that the value of what is agreed will be no less than will be paid through the Levy (using the Core Routeway). A ‘S106-only Routeway’, where IL will not be collected, will apply when GDV is not calculable or where buildings are not the focus of development, such as minerals or waste sites. LPAs to set out in their local Plans the routeway applicable to distinct kinds of site after future regulations set an overarching framework for IL to operate in, also subject to further consultation.
- Allow forward funding through borrowing and use of reserves by LPAs to finance local infrastructure, subject to further regulatory development.
- Be staggered in implementation to allow a ‘test and learn’ approach to be applied over several years, so “allowing for careful monitoring and evaluation, in order to design the most effective system possible”. The earliest expected time for ‘test and learn’ LPAs to introduce IL is expected late 2024-25 with operation beginning in 2025-26.
- Require LPAs to prepare and publish Infrastructure Delivery Strategies, setting out how they intend to spend IL income, with other infrastructure providers required to assist their preparation, subject also to Public Examination, and:
- Sites permitted before the introduction of IL in each LPA will continue to be subject to their CIL and section 106 requirements.
- It may be possible for LPAs to spend IL receipts on recurrent service provision, subject to future regulatory regulation.
As ever, and as reported above, much will depend upon future detail, including how securing ‘at least as much’ affordable housing will be measured – a metric that in size and tenure composition terms differs significantly between authorities and can change over time with changing local circumstances and needs.
The technical consultation suggested that the most appropriate measure may be the value of the average cumulative discounts of affordable housing secured over an extended period at a LPA level, to reflect differences and changes in type and wider market conditions secured over the period selected.
It further noted that across some high value areas, the total value of the in-kind affordable housing provided could exceed the total IL liability.
Likewise, the consultation recognised that where the threshold for the Infrastructure In-Kind Routeway is set – which could range from a 500 to 10,000 dwelling qualifying threshold – will have significant implications for the final design of IL. Another big problematic issue with an uncertain answer.
A lower threshold would allow greater scope for developers to deliver infrastructure as an in-kind contribution, while a higher threshold is likely to be associated with greater uncertainty and negotiation.
For instance, as to whether additional community infrastructure, such as a new school or GP surgery, was required to mitigate the direct impacts of – and thus were integral to – the site, or rather reflected wider cumulative impacts of population growth, and/or both.
The opportunity, problem, and risk profile
The primary potential advantage posited for the introduction of IL is that it possesses the potential to raise more revenue in a more certain way than can CIL.
First, it would be mandatory and have wider coverage than the combined discretionary S106 and CIL system.
Second, its calibration to a percentage of final development value rather than to a fixed percentage of additional development floorspace approved at point of planning permission, as is the case with CIL, allows for greater development upside – whether that results from wider market conditions, the commercial success of a particular development, or the innate profitability potential of some types of developments – to be captured for public purposes.
Back in May 2019, the Scottish Land Commission advised Scottish ministers that a financial modelling exercise it had conducted with the Scottish Futures Trust, comparing the emerging model of an Infrastructure Growth Contribution Levy (IGC) – then contemplated for possible introduction in Scotland – with the Community Infrastructure Levy already established in England, had concluded that IGC would offer a more effective tool for land value capture.
This was attributed to the IGC’s “non-linear formula” calibrated to development value and because it would apply to “most developments”.
IGC, it was envisaged, would continue to operate alongside S106 (S75 in Scotland) and unlike IL would be levied at point of planning permission, but has not been subsequently introduced.
Most recently and relevantly, modelling and case study evidence assembled by a research team highly experienced and expert in the area reported in an evaluative study (the 2023 study), commissioned by the DLUHC and published in February 2023, suggested that substantial scope existed for IL contributions to exceed total developer CIL plus S106 contributions in the case of greenfield residential developments located across LPAs with high housing values.
This modelling, across a range of LPA case examples, compared potential IL proceeds obtainable at an estimated lower bound – calibrated to the scale of total developer contributions expected from within the existing system from a policy compliant scheme – and an estimated upper bound defined “as the maximum rate at which IL could be set whilst maintaining benchmark land value (sufficient to incentivise the landowner to release) and a 15% internal rate of return (IRR) to the developer”.
Proceeds from levying IL on warehousing, purpose-built student accommodation, and some other types of development largely untouched by the current scheme, could also increase aggregate proceeds beyond existing levels.
Other potential advantages could include greater certainty as to the scope and coverage and quantum of developer contributions, thus reducing the need for negotiation.
The 2023 study went on to point out, however, supported by qualitative local authority interview evidence, that most of the potential advantages posited for IL, depend upon assumptions that tend to conflict with reality on the ground or it could introduce further complexities and problems, and/or replicate the problems encountered by CIL.
The core driver and justification of IL is to increase proceeds for infrastructural investment. But increased CIL rates and extended its coverage to include permitted development, commercial development, and reduced exemptions could do likewise.
The government, reprising the findings of the latest published August 2020 CIL review, itself recognised in its recent March 2023 technical consultation that, when charged, CIL increased developer contributions available for infrastructural provision.
60% of CIL charging authorities reported increases in land value capture following its introduction, while 38% of non-CIL charging authorities believed that it could enhance value capture.
An incidence shift to a value-based levy on final realised development value might offer the prospect of greater proceeds and upside for LPAs, especially during the rising period of national and local economic and housing cycles.
But equally, it could result in downside risk and could involve prolonged asymmetrical negotiation and scrutiny with uncertain outcomes – a problem and issue that was raised during the consultations concerned with PGS.
IL proceeds are still likely to be geographically concentrated in high value areas, while the truncation of S106 will tend to break the contractual link between scheme development and infrastructural provision that it can provide.
Achieving “a similar level of affordable contributions” based on past contributions is likely to prove problematic to measure.
Setting and measuring the benchmark in a way that reflects the messy reality of divergent past practice will prove complex and challenging and is likely to be mired in confusion and uncertainty.
Even if the past pattern of developer contributions was achieved in practice and they reflected current requirements, it would not represent a net system improvement, certainly when transitional and implementation costs are factored in, unless IL was also successful in generating additional overall proceeds that could then be used for local community infrastructural development.
That begs the question as to the overall point of such a complex and indeterminate exercise, if it is to simply measure whether the local operation of IL is likely to provide as much affordable housing contributions as before, even though that level – even if accurate – may not provide a good base to meet current and future housing need requirements, consequently requiring further negotiation at a local level to realign them in line with changing national and local policy and other conditions.
Some further problems are obvious and stark: the setting of charging schedules will not necessarily synchronise with local Plan-setting processes, and will not in the future, unless the local Plan-making process becomes much more streamlined and truncated. That seems simply wishful thinking rather than a credible assumption.
More likely is that the introduction of IL will further complicate the Plan-making process, providing more excuse and reason for delay at a local level, thus not only self-defeating much of the purported purpose and intention of IL, but further undermining the wider working of the planning system.
IL will also need to run in parallel with a legacy CIL and Section 106 system for many years, that is if it gets off the ground: precisely the same transitional problem that bedeviled CIL across its early years, engendering the associated confusion and uncertainty that made it a target of criticism and replacement of previous successive consultation cycles, as a range of stakeholder organisations underlined in a June 2023 letter to the Secretary of State.
The long and apparently damning inventory of problems and issues associated with S106 that section 1 documented have long been the butt of successive government consultations, but as that section pointed out, progressive improvements in S106 practice, attributable to the use of standard templates, learning by doing and from experience, and greater consistency and certainty in national and LPA policy and practice, has weakened the force of some of these criticisms.
Proposed replacements, including PGS, the use of standardised tariffs, LIT, and now IL, all recognised the need to retain S106 in some shape or form.
As section 3 discussed, and Table 2 identified, many of the problems connected with CIL were a product of political mismanagement related to a lack of overarching commitment to first order objectives, including increasing infrastructural investment closer to needed economic and social levels, and/or to design problems inherent to any land value capture mechanism that aims to combine the advantages of national policy certainty with needed local flexibility in implementation.
Increased levels of public investment and the setting of supportive arrangements for LPAs to forward finance necessary local infrastructure provision consistent with economic and housing supply outcomes, also stares into the jaws of the real fiscal crisis of the state: unwillingness or inability of government or political parties seeking electoral majorities to tax or borrow sufficiently to provide resources to secure the outcomes expected and/or needed.
A related danger exists that allowing IL proceeds to be used to support recurrent revenue budgets that they become a substitute for central government revenue support and/or local tax sources or stockpiled rather than used to fund local cumulative infrastructural requirements.
Some of the authors of the government commissioned 2023 evaluation study of IL have questioned whether significant simplifications to S106 and CIL could achieve similar goals with less damaging disruption and delay, for example, by: using a fixed tariff instead of CIL for smaller sites (say, up to 100 dwellings for residential and an equivalent for commercial) for affordable housing and site mitigation with no exemptions so better linking funding to requirements (retaining CIL only for Mayoral CIL (London and combined authorities) for sub-regional/regional infrastructure; retaining Section 106 for larger for more complex sites requiring discussions and negotiations while using a partnership-type approach, as suggested by the Letwin Review, for very large sites, and, more ambitiously and optimistically, ensuring that Local Plans are in place that clearly state infrastructure requirements.
5 What should happen in 2024
IL will not become operative until 2024 at the earliest when its initial introduction could coincide thereabouts with a general election that autumn.
A new government, if it secured a working majority would then be able to decide whether to proceed with IL, as the incoming Cameron government did in 2010 with CIL, whether combined with parallel or interim reforms to CIL and S106 and to what extent, or to shelve it altogether.
The core concern and conclusion of this website is that the upheaval, confusion, and policy blight that would follow the introduction of replacement IL proceeding fitfully in parallel with the existing CIL and S106 systems withering on the vine for a decade or more, is likely to result in more harm than good.
The lesson of the CIL implementation process was clear enough and should be learnt this time round.
The design and transitional problems that afflicted CIL, set out in section 3, were largely the result of policy uncertainty and fluctuation, a necessarily long gestation period combined with slow and patchy take up, all compounded crucially by a continuing lack of overarching central government policy commitment, all risk repeating with IL.
It simply seems astonishing that the government appears to believe that introducing another complicated reform attached with a long receipt gestation and learning curve period that will still need to run for many years in parallel with, the existing CIL and S106 legacy systems – running with three or more horses, in effect – will prove a positive catalyst and support of local infrastructural and affordable housing supply, rather than either policy blight and upheaval or both for LPAs for much of the next decade or beyond.
The Laurel and Hardy song concerning the successive unsuccessful efforts of the comic but relatable duo, as removal men, to transport a grand piano down a tenement block staircase rather comes to mind:
“We were getting nowhere … so we decided to have another cup of tea” – paraphrased here to – “after many years of getting nowhere, we were finally getting somewhere, if not that different in destination from where we started from, but after another cup of tea (aka: policy review/initiative in this case) we decided to start again from the beginning and get nowhere again for a while”.
Unfair poetic license, perhaps, insofar that the process undertaken by DLUHC has served to highlight the potential for more land value on greenfield sites to be captured and has suggested a more systematic approach to the costing and the obtaining in kind affordable housing contributions.
That said, it must be expected that the net present value of the distant and uncertain benefits that IL might generate a long time in the future, if realistically discounted, will be low at best and more likely negative. And, of course, a decade on past form it will be time for another disruptive reform.
Putting in hand ‘working with the grain’ incremental reform to, rather than a complex replacement of, the existing ‘present imperfect’ CIL and S106 systems, focused on the issues identified in Table 2 seems to offer a more sensible way forward.
Such changes should include setting clear process arrangements for the forward financing public funding of infrastructure to help to ‘crowd-in’ future development, the definition and application of development viability with reference to land value mechanisms (whether IL, CIL or S106) that can best reconcile national certainty with needed local variation, securing greater consistency of, and certainty in the application of S106 affordable housing contributions at both central and local levels in a way that could tap effectively into the potential for increased land value, where that was present.
There also could well be merit in introducing as a mandatory default a low level LIT for those LPAs lacking a CIL schedule.
As the previous section noted, CIL coverage could be widened and deepened. CAs or at least the Metro Mayors could be empowered to levy a SIT where they could demonstrate that its proceeds are needed to unlock locally economic enhancing development through pump priming specific infrastructural additionalities, such as new transport links and stations.
Allowing LPAs to retain higher proportions of locally levied business rates could facilitate local infrastructural provision assisted by prudential borrowing.
In that light, the second core conclusion of this website, is that any new government should address and progress the first order design issues that Table 1 set out that before committing to IL or any new scheme.
Ideally, some variant of IL could be piloted as a demonstration project alternative in Scotland, where CIL is not levied, but that depends upon the consent and support of the Scottish government.
Most fundamentally of all, any future reform to be successful requires the necessary overarching political and policy commitment to be present on a sustained basis. Without that, nothing is likely to succeed.
The 2020 Planning White Paper: Key Lessons
This extended post outlines the main proposals of the PWP before explaining why they were mainly stillborn, mainly because it had unrealistic aims not matched by demonstrable capacity or commitment to implement them – identified as a foundational weakness of modern UK politics, tending to become ever more entrenched.
It goes to explain how that weakness meant that when the NIMBY elephant in the room reared its head, the government not only backtracked but reversed policy direction, using some case examples to illustrate practice and issues at the local level and its interaction with national policy, and the resulting implications.
The concluding section looks towards 2025 beyond the next election to the prospects for housing and planning reform, suggesting that a 300,000 national target is over optimistic, a banner for political show, rather than a feasible, if challenging, policy objective, and that a more realistic 250,000 rising to 275,000 target that underpinned and correlated with supporting planning reform and increased land value capture and first order economic objectives might well offer faster and more effective progress, but only if seriously sought and supported by the necessary overarching central government policy priority, clarity, and certainty, which is a prerequisite for any progress.
1 Antecedents and summary of the PWP
Early in 2020, two Policy Exchange (PE) reports, Rethinking the planning-system for the 21st-century and the more eclectic topic-based Planning Anew were published that emphasized the negative part that the planning system – especially across high housing demand areas – plays in reducing new housing supply, in pushing up prices, and in redistributing income and wealth from renters to homeowners.
The system’s discretionary, cumbersome, over-detailed, extended, and uncertain characteristics, including its use of mechanistic “largely unpredictable’ future projections of economic and housing need over a 15 year or more period inherently subject to uncertainty, required “‘wholesale change” allowing it to be freed from the continuing legacy of the 1947 Town and Country Planning Act, itself established to further a “command and control” economy.
The Building Better, Building Beautiful Commission Living with Beauty, also published a report, which offered two central conclusions.
In its eloquent own words, these were, first, “We do not see beauty as a cost, to be negotiated away once planning permission has been obtained. It is the benchmark that all new developments should meet. It includes everything that promotes a healthy and happy life, everything that makes a collection of buildings into a place, everything that turns anywhere into somewhere, and nowhere into home. So understood beauty should be an essential condition for the grant of planning permission”.
Then, second, “good quality housing development costs more to deliver. Whilst data is limited in this regard, anecdotal evidence across the projects studied suggests that the cost premium might range between 10% and 22%. Our analysis showed that this could be offset by the value premium, concluding that following a quality agenda is a viable choice. The choice to adopt a higher quality route need not preclude cheaper housing. Both may be equally profitable and both may sit comfortably alongside each other offering choice to consumers at different price point.”
All three reports influenced the August 2020 Planning for the Future White Paper (PWP), which then prime minister, Boris Johnson, in his usual customary hyperbolic style, described, in its forward, as “radical reform unlike anything we have seen since the Second World War” to “tear down” the existing crumbling, cumbersome, and complex planning system.
The PWP then proceeded to set out its stall in more somber terms. It diagnosed the system’s core problem its reliance on a discretionary rather than a rules-based Local Plan process. Most planning consents – contrary to general European practice – were made on a case-by-case basis rather than by reference to clear set rules, causing up a third of consents to be subsequently overturned on appeal.
Another fundamental failing was it “simply does not lead to enough homes being built, especially in those places where the need for new homes is the highest”, pointing out that adopted Local Plans provided for 187,000 homes per year across England – far short of the government’s ambition of 300,000 new homes annually.
Such structural under supply made housing increasingly expensive, compared to European peers, such Italy, Germany, and the Netherlands, where “you can get twice as much housing space for your money compared to the UK”.
Consultation and participatory arrangements often crowded out or ignored the voices of the young and others, which, as they were the very people that depended upon new developments meeting their needs to proceed expeditiously, exacerbated entrenched inequalities.
The PWPs proposed cornerstone reform in response was a shift to a rules-based tri-zonal system of development control, comprising:
- Growth areas suitable for substantial development; outline approval for development would be automatically granted if it was in conformity with the forms and types of development specified in the applicable Local Plan;
- Renewal areas suitable for some development, such as gentle densification; and,
- Protected areas where – as the name suggested – development would be restricted.
Local Planning Authorities (LPAs) in future were to complete the plan-making process within a newly required time limit of 30 months.
General development management policies would also be set nationally, obviating the time and resource costs involved in assembling a long list of local development “policies” of varying specificity.
Local Plans under this new regime would instead concentrate on site- and area-specific requirements and on local design codes. A core set of “visual and map-based” digitally based local requirements for development would be limited to “setting out site- or area-specific parameters and opportunities”.
Concerning housing delivery, a new nationally determined, binding housing requirement would be set for LPAs to deliver through their Local Plans, focused on areas where affordability pressure is highest, consistent with the government’s “aspirations of creating a housing market that is capable of delivering 300,000 homes annually”.
The PWP also signaled future measures to speed up build up delivery rates across large sites, to provide better information to local communities, to promote competition amongst developers, to assist SMEs and new entrants to the sector, as well as to improve the data held on contractual arrangements used to control land.
Another strong focus was on ‘beauty’, broadly defined as good design rooted in a local ‘sense of place’, reflecting a reaction against burgeoning ‘cereal box or ‘identikit’ drearily designed developments that had become almost a ubiquitous feature of the periphery landscape of ‘middle England’ market towns, amid deteriorating quality and space standards.
Highlighting the need to deliver more of the infrastructure existing and new communities require by capturing a greater share of the uplift in land value that comes with development, the PWP also announced an intention to replace the Community Infrastructure Levy (CIL) and the current system of planning obligations with a new nationally set, value-based flat rate charge: the Infrastructure Levy.
This would “raise more revenue than under the current system of developer contributions, and deliver at least as much – if not more – on-site affordable housing as at present” and “enable us to sweep away months of negotiation of Section 106 agreements and the need to consider site viability”, and will be considered separately in a succeeding dedicated post.
In general, the PWP was a curious and interesting mix of high-level free market, social democratic and communitarian principles, partly reflecting, perhaps, the divergent drivers of a post-fiscal austerity Boris Johnson government that needed Janus-like to accommodate both its disparate new “Red Wall’ and its traditional ‘middle England’ sources of electoral support.
It is difficult to dispute that the nine key criticisms the PWP made of the existing planning system possessed at least some validity nor that much of its vision was appealing, when less than 40% of English LPAs in early 2023 possessed an up-to-date Local Plan, spurring developers to make speculative applications or to make appeals against permission refusal, or when the long gestation period involved in their production can cause them to be already out-of-date when finally adopted.
Features not inconsistent with the PWP’s conclusion that the existing planning system was generally not fit for purpose; or, indeed, at its worst, when measured against its purported objectives, self-defeating.
2 Why the PWP was stillborn
The PWP was, itself, self-defeating, however.
Its ‘big bang’ upending of the system that it seemed to inherit from the Policy Exchange in preference to a more ‘make do and mend’ incremental approach was always going to be at the mercy of both national and local public government commitment and/or capacity.
But any grounds for optimism that local LPAs, following years of under-resourcing, could cope with introducing such a new system in the timescales set was whimsical or flimsy, at best.
Even more crucially, the lack of an accompanying national robust evidence-based, funding and policy framework to the PWP indicated unrealistic aims not matched by demonstrable capacity or commitment to implement them.
A not unusual feature of modern UK government and politics, it must be said – a foundational weakness tending to become ever more entrenched.
That weakness was soon to be exposed, with the PWP likely to prove a prime case example.
Unless overcome, such foundational weakness will almost certainly render ineffective any successor attempts at reform in the face of the political and institutional challenges and conflicting objectives that any future reform would have to both balance and surmount.
Trampled by the NIMBY elephant in the room or a flawed method or both
The PWP failed to adequately address the political reality (partly picked up in its own diagnosis) that low turnout in local elections combined with the disproportionate tendency for older homeowners – as well as with their growing share of the general population – to participate in them, is a systemic barrier against development proceeding at a level anywhere close or consistent with the achievement of the government’s overarching 300,000 annual new supply target.
On the ground, local councillors generally face greater pressure from often vocal and well organized existing and established resident groups to refuse permissions to build local extensions to settlements and/or high-density urban developments, under the banner of protecting the ‘character’ of their area and/or avoid adding to local infrastructural shortfalls, than they do to step up local housebuilding.
Such new development could or should in the future help local young people needing access to affordable accommodation or in-migrants that are seeking to work in growing sectors of the economy, such as IT and biotechnology – often located in high values areas, including the Oxford and Cambridge Arc.
But as the future benefits of such developments are dispersed and delayed, their potential future beneficiaries are, unsurprisingly, far less likely coalescence into a local organized grouping and/or to participate in development specific consultations than are existing residents agitating against proposed specific local developments in real time, the disbenefits of which are concentrated within their communities.
To suppose that better designed proposed developments, even with higher proportions of affordable housing, will necessarily placate such local opposition was always going to be optimistic: established residents enjoying a high-quality local environment often oppose new development because it threatens the ‘character’ of their area, spoiling their views and their peace and quiet.
This is even when such proposed developments will lie beyond their neighbourhoods or are close to transport modes (in the case of existing high density urban areas) or are on greenfield sites on the periphery of their home settlement boundary.
Relatively affluent residents seldom welcome new social housing or other developments that might mitigate against house price appreciation or impact upon school catchment areas: self-interest rather than altruism tends to prevail.
That NIMBY elephant in the room was always going to translate into local political reluctance or refusal to designate the proposed growth or even renewal areas.
When it reared its head at Westminster to protest the prospect of increased centrally set local housing targets, much of the integrated vision of the PWP began to fall apart at unseemly speed, even before it was translated into legislation.
Concurrent with a wider consultation on the PWP, proposed changes to the local needs assessment algorithm or formula or the standard method for assessing local housing need (standard method)), “to make assessing the minimum number of homes needed in an area easier, cheaper and more transparent”, were also, in August 2020, put out to consultation.
The standard method was first implemented in the 2018 iteration of National Planning Policy Framework (NPPF) to produce the objectively assessed housing need (OAN) figure for each LPA, providing a starting point for its housing provision policies and its setting of local housing requirements.
The underlying formula starts with the projected average annual household growth over a consecutive ten-year period starting with the current year, using Office of National Statistics (ONS) 2014-based household projection base data.
This annual growth figure (baseline figure) is then adjusted according to the local ‘affordability ratio’ based on the latest ONS data on local authority median affordability ratios (local median house price divided by gross annual workplace earnings).
If the median house price is more than four times the average earnings of someone who works in the area, the average household growth baseline figure is revised upwards according to an adjustment factor.
Any resulting increase is subject to a 40per cent cap above the average annual housing requirement figure set out in the existing policies when adopted within the last five years and for LPAs with strategic plans more than five years old, 40per cent of whichever was higher of the projected baseline household growth figure, or the most recent number taken from the LPAs spatial development strategy.
The proposed revisions to that 2019 standard model, which included the complete elimination of the cap, were designed to ensure “that the new standard method delivers a number nationally that is consistent with the commitment to plan for the delivery of 300,000 new homes a year, a focus on achieving a more appropriate distribution of homes, and on targeting more homes into areas where there are affordability challenges”.
It was envisaged that they would then become part of the future process for setting any binding housing requirement, to be determined separately.
Using currently available data, the revisions generated a national housing need of 337,000 (in England): a figure, which, the consultation advised, would constitute the “starting point for planning and not the final housing requirement”, with the surplus reflecting that not all homes planned for are built, as well as to allow for a land buffer to compensate for the drop-off rate between permissions and completions.
The consultation went on to recognise that the revised method at a local authority level would affect individual authorities differently, with 141 authorities (excluding London boroughs) facing an increased requirement of a quarter or more over and their current plans or existing standard method numbers.
Many of these authorities were located across Conservative southern heartlands, while the revised method generally generated lower housing numbers in city authorities in the Midlands and North, often Labour controlled.
Regardless of whether the revised figures constituted a ‘target’ or a ‘minimum’ or something else (for the record, the consultation made it quite clear that “the standard method identifies the minimum number of homes that a local authority should plan for in an area”), that LPA performance and progress towards reaching such higher figures could be taken into account as material planning consideration by the Planning Inspectorate (PI) when determining developer appeals against consent refusals, soon induced intense opposition to the change within the ranks of Conservative MP’s and council figures, especially those representing ‘Middle England’ metropolitan suburban and shire county constituencies.
In the autumn of 2020, a 8 October Commons debate on a successful motion calling for the government to delay any planned implementation of the changes to the standard method for assessing local housing need, articulated many of the concerns and issues raised.
Theresa May, speaking as the MP for Maidenhead, advised that her borough’s housing target would increase by 21%, so strengthening the implication that its green belt would need to be built on.
She went on to add that despite her neighbouring Council, Wokingham Borough Council, delivering new homes over and above its target during the previous three years, under the revised method, its current annual target of 789 homes would double to over 1,635 homes.
Philip Hollobone, MP for Kettering, also advised the chamber that North Northamptonshire’s target would increase from 1,837 a year to 3,009 a year, when “since 2011 on average we have only managed to build 1,640 a year and at the very height of the market the maximum that was achieved was 2,100, the target is completely unrealistic and undeliverable”.
MPs of all parties cautioned against ‘over development’ across London and south-east or in the words of one “making Kent a patio”, at the risk of undermining the Levelling-Up agenda.
Many suggested that instead of relying on unattainable ‘top-down targets’ that failed to take account of local circumstances and preferences, forcing developers sitting on planning permissions to build out quicker and/or providing more affordable housing would prove more effective in increasing supply.
Jeremy Hunt, the MP for South-West Surrey, and the current chancellor, for example, after expressing concern about the threat to his constituency that a 20% higher housing target posed to ‘its beautiful countryside’, pointed out that the average income in his constituency was £39,000 when the average house price was £447,000, requiring a first time purchaser to have a £60,000 income to afford an entry-level house, way out of the reach of a nurse, a police officer or a teacher.
He concluded that the proposed revised method would make that problem worse, not better, as “ simply increasing the housing targets does not help them, because the price of new stock is set by the price of existing stock, and all that happens is land banking, which is why in my constituency currently, only 28% of all the housing permissions granted are actually being built out”, while emphasising the need to ‘carry people’ in favour of local development.
Later that month, John Halsall, Conservative leader of Wokingham Borough Council graphically complained in an interview with Planning magazine that if the revised method goes ahead, “we’re really utterly stuffed. Not in a million years could we get a five-year supply. We’re just an open goal for any developer to score in ….I doubt there’d be a Tory council left in the South East afterwards. The government is well aware of the extent of the opposition now.”
Indeed, it was. A U-turn soon followed.
In its response to the consultation published in December 2020, the government announced, barely over three months after its proposed revisions went out to consultation that the standard method would be retained.
This was, however, attached with a big cavil: a 35 per cent uplift would be applied to the cap generated by the standard method to Greater London and to LPAs covering 19 most populated cities and urban centres in England: Birmingham, Liverpool, Bristol, Manchester, Sheffield, Leeds, Leicester, Coventry, Bradford, Nottingham, Kingston upon Hull, Newcastle upon Tyne, Stoke-on-Trent, Southampton, Plymouth, Derby, Reading, Wolverhampton, and Brighton and Hove.
In an accompanying ministerial statement, then Secretary of State for Levelling Up, Housing, and Communities (the Housing Secretary) Robert Jenrick, said the government had “heard clearly” that the building of homes should not be at the expense of “precious green spaces” and that instead it would be done better in urban areas.
This was despite evidence showing that there was and is not enough brownfield land to meet housing needs in any region, especially so in London and across other areas where demand and need is strongest.
It had taken less than four months, therefore, for the PWP’s radical ambition to wilt into political expediency.
The May 2021 Queens Speech, nevertheless, did, still go on to promise “laws to modernise the planning system, so that more homes can be built, will be brought forward”.
The concurrent wider consultation on the PWP had induced 44,000 responses, mainly negative, focused on concerns on its lack of detail on how the zonal system would work or how necessary associated infrastructural works would be funded, including that it would become a ‘developer’s charter’ that would increase the market value of land located in designated growth areas at the expense of affordable housing levels and of local community accountability.
In that vein, the Housing, Communities and Local Government Select Committee in June 2021 published a report that noting the lack of detail or supporting evidence provided in the PWP recommended the government should reconsider its proposal to move to a zonal-based system with different planning rules applying depending upon zone.
It also disagreed with shifting public engagement from individual planning applications to the Local Plan stage, insofar that “far more people engage with individual planning proposals”, expressing concern and that proposed change risked reducing public involvement in the planning process.
That same month, the Conservative loss of the Chesham and Amersham by-election concentrated government minds even further on the real political downside risk of pressing ahead with planning reforms designed to help secure a higher housebuilding target as, inter alia, a means of expanding the numbers of new homeowners expected to imbue Conservative values in tune with their new tenure status.
Instead, it was perceived that pressing ahead with planning reforms could induce a loss of seats to the Liberal Democrats and/or encourage Labour and the Liberal Democrats to cooperate to make inroads into the ‘Blue Wall’ of supposedly safe Conservative seats, many of which were around London and other high value areas.
Given that watershed political moment, there was little surprise, therefore, when the new Housing secretary, Michael Gove, briefed MPs in March 2022 that in place of a standalone Planning Bill designed to replace and transform the existing post-1947 planning, a slimmed-down version of the PWP would be delivered as part of the Levelling Up legislation that he would pilot through the Commons during 2022.
The subsequent Levelling Up and Regeneration Bill (LURB) omitted the PWP’s flagship proposed shift to zonal planning and a system shift to rules-based rather than discretionary planning decision-making.
It did include, however, some significant PWP proposals, namely, requiring LPAs to start work on new Plans at the latest five years after adoption of their previous Plan, and then to adopt their new Plan within 30 months; and the production of centrally defined National Development Management policies that would have precedence in the case of any conflict with Local Plan policies.
Then that autumn, in November 2022, a large number of Conservative MPs signed an amendment to LURB, put forward by Chipping Barnet Conservative MP Theresa Villiers, supported by Bob Seely MP for the Isle of Wight (who had initiated the 8 October debate two years previously) to make “centrally set” housebuilding targets “advisory and not mandatory” that “should not be taken into account when determining planning applications”.
Villiers, a longstanding advocate of not building high rise blocks on suburban sites and of protecting Green Belt and other greenfield sites, earlier that year was instrumental in getting the Transport Secretary to block on a legal technicality an application, by Transport of London (TfL) to build 351 flats, of which 40% by habitable room would have been affordable, on a car park TfL owned adjacent to Cockfosters Underground Station, given outline or ‘in principle’ approval by Enfield Council (ref: 21/025/FI/FUL).
The Labour controlled Enfield Council and the Greater London Assembly (GLA) concluded that the scheme, even though it involved tall buildings not in an area designated by the existing Plan for them, would result in ‘less than substantial harm’ to the setting of the Grade II listed Cockfosters Underground Station and to the adjacent Grade II registered Trent Park and Trent Park Conservation Areas, while its public benefits in terms of public realm improvements and the provision of affordable housing outweighed identified harms.
Villiers campaigned against the development because it would involve building four blocks from five to 14 stories in height, “out of scale and character with the surrounding area”, and result in an associated reduction of ‘park and ride’ car parking spaces from 336 to less than 50, replicating concerns she also had about a similar application for High Barnet Underground station, this time in her constituency.
Although the development offered, by unit, 39per cent low-cost rent – 11per cent London Affordable Rent (social rent) and 27per cent London Living Rent – with the remaining 61% to be let at between 60 and 70per open market rents, this was less than the Mayor of London 50per cent affordable housing target on public land despite public grant input. Some objectors doubted that overall the majority of development would be affordable to local keyworkers.
Villiers and other signatories to the Commons motion emphasized that they were not ‘against new housebuilding’, only that it should not be imposed in excessive density on inappropriate sites in such a way that would change the character of a local area and/or threaten Green Belt or other green open space land.
In a December 2022 Ministerial Statement the Housing Secretary, Michael Gove, to all intents and purposes, accepted or caved into that position.
Under the Community Control heading, he stated:
“I will retain a method for calculating local housing need figures, but consult on changes. I do believe that the plan-making process for housing has to start with a number. This number should, however, be an advisory starting point, a guide that is not mandatory. It will be up to local authorities, working with their communities, to determine how many homes can actually be built, taking into account what should be protected in each area – be that our precious Green Belt or national parks, the character or an area, or heritage assets. It will also be up to them to increase the proportion of affordable housing if they wish”.
My changes will instruct the Planning Inspectorate that they should no longer override sensible local decision making, which is sensitive to and reflects local constraints and concerns. Overall this amounts to a rebalancing of the relationship between local councils and the Planning Inspectorate, and will give local communities a greater say in what is built in their neighbourhood”.
The accompanying changes to the NPPF included:
- weakening the presumption towards sustainable development “where meeting (housing) need in full would mean building at densities significantly out of character with the existing area”;
- removing the requirement for LPAs to review local Green Belts, “even if meeting local housing need would be impossible without such a review”;
- ending the obligation on LPAs to maintain a rolling five-year supply of land for housing where their Local Plans are up-to-date, and, in all cases, the requirement for the maintenance of up to an additional 20% buffer over and above that level;
- The presumption in favour of sustainable development operative where delivery falls below 75% of a local planning authority’s housing requirement over the previous three years will be ‘switched off’ by an additional ‘permissions-based’ test where sufficient permissions have been granted for homes more than 115% of the authority’s housing requirement over the applicable Housing Delivery Test monitoring period.
- Where authorities are well-advanced in producing a new plan, transitional arrangements over two years would allow them to show a rolling four year instead of a five-year supply of land consistent with the delivery of local housing requirements;
- LPAs can take account of past over delivery of housing when setting or reviewing local housing targets;
- increase community protections afforded by a neighbourhood plan against developer appeals – the relevant amendment to the NPPF, in effect, lifts the para 14 presumption in favour of development within an area where a neighbourhood plan (NP) has been adopted for five years or less, regardless of its LPA’s wider land supply and housing delivery position, as long as the NP also contains policies and allocations to meet its identified housing requirement;
The proposed NPPF confirmed that the broader ambition of the PWP had been sacrificed on the altar of Nimbyism.
The government had even regressed from the position that had prevailed prior to the publication of the PWP, undermining the operation of the existing standard method, which, as it had itself highlighted, resulted in figures that even if they had been achieved in total would still undershoot its overarching annual 300,000 new supply target.
According to assessments undertaken by Lichfields and Savills, the proposed revisions to the NPPF will reduce future housebuilding levels to around half of the that target, to c155,000 or lower (not taking account of the impacts of any prolonged housing market downturn).
Mechanisms of central government compulsion over LPA’s reluctant or even recalcitrant to plan for and facilitate increased local housing supply accordingly were watered-down and then reversed in face of local Nimbyism, in apparent fear of its perceived central and local electoral significance.
A sizeable minority of Conservative MP’s, including Simon Clark, Secretary of State for Levelling Up, Housing and Communities from September to October 2022 during the brief Truss administration and MP for Middlesbrough, lobbied against the changes, making the point that they would lead to less housebuilding retarding future the prospects for economic growth and the interests of the young and others needing new development for their economic and social future.
Liz Truss, however, despite railing against the ‘anti-growth’ coalition during the Conservative leadership contest that preceded her elevation to the premiership, had promised to dismantle ‘Stalinist top-down’ centrally set housing targets, in the process rather neatly encapsulating the conflict between prioritising higher growth and housebuilding and assuaging the populist NIMBY concerns especially pronounced within party and conservative voting electorates, between ‘blue’ and ‘red’ wall current and future sources of any Conservative parliamentary majority, and between retaining the vote of elderly owners and winning the future support of the aspiring young and middle-aged cohorts, many of which have been and face being priced out of home ownership.
Short-term political tactical considerations in the event overrode any semblance of strategy, although by the same token, the proposed revisions to the standard measure were themselves badly scoped and thought-out and politically cack-handed in implementation insofar they clearly not underpinned by careful modelling of the results and consideration of or preparation for their immediate political impact that they would foreseeably generate.
That tactical failure itself was related to the fundamental foundational weakness of the PWP as a strategic political project provided with unrealistic aims not matched by demonstrable capacity or commitment to implement them.
3 Nimbyism and planning policy and practice at the coalface
Another unintended but significant consequence of the PWP – again opposite to its declared intention – was that many LPAs delayed producing or updating their Local Plans. Although this was ostensibly to wait until the shape of the new system became clearer, for some LPAs the associated uncertainty provided a convenient reason or excuse not to zone or identify more land for housing: something they didn’t really want to do in any case.
Wealden Council
Take Wealden District Council (WDC) in East Sussex, a largely rural district. More than half of its land space is designated within the High Weald Area of Outstanding Natural Beauty (HWAONB) along with other important Sites of Special Scientific Interest (SSSI), Local Nature Reserves and Ancient Woodland, which constrains future development.
Yet it is also an area of high housing need and worsening housing affordability: the 2021 median Wealden house price was 13.76 times median local earnings, higher than then southeast regional average (10.74) and across England and Wales (8.92).
Its elderly over-65 population in 2019 accounted for 26 per cent of the overall population, compared to 19.5per cent regionally and 18.4per cent nationally with the total number of people aged 65 and over is projected to increase by 56per cent over 20-year 2019-2039 period.
WDC paused its Local Plan consultation in 2022 citing the policy uncertainty surrounding the PWP. It then further delayed the process to respond to the December 2022 consultation on the proposed revisions to the NPPF and other planning issues connected to the Levelling-Up agenda discussed in the previous section discussed.
That response (WDC response) noted that while its current Local Plan, Provision of Homes and Jobs 2006-2027, adopted in February 2013, anticipated the delivery of 9,440 dwellings between 2006-2027 or 450 dwellings per annum (dpa), its objectively assessed housing need (OAN) figure when assessed under the standard method introduced in 2018 subsequently rose to 1,212 dpa (or 24,240 new homes in total over a 20-year period)
It argued that this large disparity between the adopted housing requirement and current local housing needs was too large for WDC to close in the absence of a new Plan provided with new sites.
In that light, the WDC response went on to largely endorse the government’s changes to the NPPF and LURB Bill, but with significant cavils.
Most notably, it asked the government to go further and remove altogether the five-year deliverable housing land supply (5YHLS) measure that since 2018 has been calibrated to the standard housing need measure, for LPAs (including those without an up-to-date local plan, such as WDC).
This was because the application of both the 5YHLS and the Housing Delivery Test (HDT) measurement “has and will continue to create confusion for the wider public, particularly where local planning authorities ‘pass’ one measurement, but ‘fails’ the other”.
Instead, the HDT, coupled with the proposed ‘additional permissions-based’ test included in the revised NPPF that would ‘switch off’ the application of the presumption in favour of sustainable development where an authority can demonstrate sufficient permissions to meet its housing requirement, should be used as the primary metric.
This would “support a plan-led system, by preventing LPAs who are granting sufficient permissions for new homes from being exposed to speculative housing development”.
The Council’s consultation response also contained much relevant commentary on emerging planning policy.
It advised that very few of our neighbourhood planning groups preparing neighbourhood plans in Wealden District are looking to allocate housing sites, perhaps, in part because of a perceived negative reaction from parishioners at the referendum stage if they did, but also because of the amount of work involved in assessing and allocating sites for only two years of protection from further speculative housing development, and, accordingly, it agreed with the proposal to extend that period to five years.
WDC does not include any Green Belt land, and its response expressed concern the proposed change in the review of Green Belt boundaries would result in LPA’s submitting local plans with potentially significantly lower housing numbers that could consequently result in their neighbours facing additional pressures to meet an increased amount of unmet housing need, even though many of which already face significant challenges in meeting their own identified housing need for other reasons (such as national landscape and ecological constraints).
Highlighting that that considerable areas around cities in the north are surrounded by Green Belt (Manchester, Liverpool, Sheffield, and Leeds, for example) the response questioned whether development supporting the policy programme set out in the Government’s Levelling-Up agenda can be realised given that there may be limited opportunity for the required 35per uplift in their housing need figures of the 20 most populous urban areas, which was supported as making “the optimal use of brownfield land, in sustainable locations, to meet national housing need”, to be realised.
In that light, the response went on to note Wealden District is overlapped by five housing market areas, including the urban areas of Eastbourne and Royal Tunbridge Wells, which abut Wealden District to the south and north respectively, and that whilst neither of these neighbouring local planning authorities feature in the top 20 most populated cities and urban areas, WDC District faces similar issues in the respect of potential unmet housing need from its neighbouring urban authorities.
A need for further ‘guidance’ was recorded on how it can develop its ‘alignment policy’ (replacing the Duty to Co-operate that will be repealed when LURB is enacted) with its neighbours.
WDC as of 1st April 2022 had almost 7,700 (net) dwellings either provided with detailed planning permission, outline planning permission, or with a resolution to approve planning permission.
Although the response recognised that some of the larger sites cannot be completed within a five-year period, it argued that all new sites for housing should be commenced within a short period of time upon the granting of a detailed planning permission and the discharge of pre-commencement conditions. WDC had sought shorter time limit conditions (rather than the traditional 3-year period) for the commencement of those schemes to incentivise those developers to build out quickly.
Instructionally, WDC suffered two planning appeal defeats in 2022, which the council withdrew from following legal advice that it would be “defending the indefensible”.
The first appeal involved 200 homes on land west of Station Road in Hailsham (planning reference WD/2020/2509/MAO), and the second, a mixed use development comprising 700 new homes, a new school and community facilities at Mornings Mill Farm, Eastbourne Road, Lower Willingdon (planning reference WD/2021/0174/MEA).
Hailsham, a market town of 23,000 residents, is the largest Wealden urban settlement, while the Mornings Mill Farm site is located between Polegate (largely a commuter and local transport hub settlement, itself located between Hailsham and Eastbourne) and Lower Willingdon, essentially now an outer suburb of Eastbourne, but lying within WDC.
In both cases planning committee members went against planning officers’ advice, invoking ‘saved’ 1998 LP policies that were out-of-date and highways and environmental objections that the respective inspectors later confirmed were baseless, causing them to award costs against WDC of £440,000 due to the unnecessary delays occasioned as to what they defined as WDC’s unreasonable behaviour.
Because WDC could only demonstrate a 5YHLS of 3.66 years, because its Local Plan was out of date, and because of the scale of its unmet housing need, the planning inspectors granted outline planning permission, even though the two applications in question involved greenfield sites beyond – at least in part (the majority of the Morning Mill Farm site lies inside – the indicative “strategic development areas (SDAs)” set out in the council’s 2013 Core Strategy Local Plan (CLSP), which recognised that the 1998 development boundaries set in the existing adopted Local Plan would have to be breached to deliver necessary growth that the CSLP assessed is required to 2027, while the out-of-date 1998 Plan was based development required up until 2004.
Both outline approvals require 35per cent affordable housing. It was, in one of the schemes, capped at that level at the instigation of the council, to allow CIL contributions towards local infrastructural enhancements to be generated by 65% rather than a lower level of market housing.
These two cases clearly show a preference for the then Council to restrict development in locations that, according to the relevant inspectors, were ‘in principle’ suitable and sustainable and which were needed given WDC’s wider housing supply requirements.
An application for 300 new homes on the settlement edge of Hailsham at Old Marshfoot Farm (ref: WD/2017/0458MAO) had secured outline planning permission in 2018 against some strong local resident opposition. Local councillors had subsequently expressed regret about their decision in face of continuing resident opposition and were advised by officers that they could not revisit it. That memory may have played a part in the subsequent planning history of the above two cases.
Prior to the May 2023 local council elections, WDC had indicated an intention to publish its new Plan for consultation in late summer/early autumn 2023 to include new proposed site allocations and development management policies.
That revised timetable was itself made subject, however, to the highly qualified rider “to the actual timing of the NPPF updates and extent of the final changes and so remains uncertain”. As the Council, following those elections, then passed from Conservative control to no overall control, added uncertainty and probable further and extended delay can be expected.
Windsor and Maidenhead
Windsor & Maidenhead Borough Council adopted its Local Plan (2013-33) in 2022, nine years after its inception, and four years from when it was first submitted for Examination to the Planning Inspectorate. Its predecessor had been adopted in 2009.
This 2013-33 Plan set a 712dpa/ 14,240 dwelling requirement over the twenty-year plan period and made associated provision for some “moderate Green Belt release” to allow that full Objectively Assessed Need (OAN) figure for housing and identified employment needs to be met.
The Planning Inspectorate Examination report, in that light, had noted: “Essentially, the scale and type of housing and employment needed in the Borough cannot be met on non-Green Belt sites. Whilst the need for such development is not unique to Windsor & Maidenhead, the socio-economic effects of not providing it, taken together with the inability to accommodate it elsewhere, do amount to the exceptional circumstances necessary at the strategic level to justify altering the established Green Belt boundaries through the Local Plan, (para 101)”.
However, in February 2023, barely a year after the Council adopted its new Plan, its leader wrote to the Department of Levelling Up, Communities and Housing (DLUHC) to request flexibility in meeting the total OAN figure the remaining plan period, insofar that the Council was “paying the price” for adopting its new Plan in February 2002 abiding by government instructions at the time, when otherwise it would have “paused the examination process, like other local authorities have done, until greater clarity was given”.
Indeed, following Gove’s December 2022 ministerial statement, during a period covering less than four months, another 26 LPAs paused their Plan preparation. All except a handful specifically cited the continuing uncertainty on future local housing numbers they will be required to deliver and the associated impact on their five-year land supply and utilization of brownfield and/or greenfield land positions.
Figure One shows that by the end of March 2023, over 55 LPAs had delayed or stayed the progression of their Local Plan because of PWP policy uncertainty. They were mainly concentrated in high value/cost areas around London and adjacent counties most in need of additional affordable housing.
Balancing beautiful design and conservation with needed development
Whilst he was undermining the practical and realistic progression of the government’s purported overarching annual 300,000 new supply objective/target, Michael Gove in his capacity as Housing Secretary had continued to uphold the canon of beauty and good design, telling the Centre of Policy Studies at a November 2022 seminar: “We will see the wide adoption of design codes. We will use all the powers we have to make sure that developments which are not aesthetically of high quality don’t go ahead”.
The former co-chair of the Building Better, Building Beautiful Commission was had already been appointed to head up the creation of a new government design body, the Office of Place, with a remit to roll out and evaluate the National Model Design Code (NMDC) – a toolkit to enable every council and community to create their own local design requirements and codes in accordance with the PWP’s vision.
Changes incorporated into the updated July 2021 iteration of the national planning policy framework (NPPF) and its proposed December 2022 successor underscore that LPAs should ensure that new developments support “beauty and placemaking”, primarily through the preparation and use of local design codes in line with the emerging National Model Design Code.
The Wealden consultation response had complained that the proposed December 2022 NPPF emphasised the importance of beauty, but that the suggested means of assessment (the National Design Guide and National Model Design Code) did not provide a means to do that.
‘Beauty’ is subject to subjectivity and can vary with the beholder, and perceptions can change over time. That said, the definition and importance accorded to good design defined in relation to spatial context and circumstance clearly constitutes an important albeit contestable dimension of sustainability, as demonstrated in a recent case, involving SofS decision discretion.
In April 2023 the SofS decided (taken on his behalf by the relevant Minister, Rachel Mclean) to refuse planning permission for the Turnden, Hartley Road, Cranbrook (Turnden) development.
The application involved the construction of 165 new dwellings (ref. 20/00815/FULL) within the High Weald Area of Outstanding Beauty (HWANOB).
The application had previously been approved by Tunbridge Wells Borough Council (TWB) and, following a public inquiry convened after the SofS called-in the scheme for decision, the appointed planning inspector had recommended full planning permission approval be granted.
This was because additional to the provision of 40per cent affordable housing (34 rented and 34 shared ownership), the scheme offered a “package of exceptional benefits”, including a biodiversity net gain of 21 per cent, landscape, and recreational enhancements, which, overall, “added up” to the ‘exceptional circumstances’ that under the NPPF is required to justify a development in an AONB.
The existing Local Plan of TWB was adopted in 2009 and it has been unable to demonstrate a 5YHLS for over six years. The proposed replacement Local Plan 2020-2038 (the eLP) is currently subject to Examination.
The entire Turnden site, which includes the Phase One 36 dwelling Turnden Farmstead (reference 18/02571) development separately approved and now close to completion, was allocated under draft policy AL/CRS4 for residential development and significant green infrastructure as part of the eLP.
Permission was granted February 2020 for the construction of up to 180 dwellings on the land at Brick Kiln Farm immediately north (LPA Reference 16/502860). This will subsequently extend the settlement boundary of Cranbrook up to the boundary of the application site. In addition to this, the approval of
Over the 2020-2038 eLP plan period, TWB’s housing requirement is 12,204 (678 dwellings per annum), more than double the previous 300 per annum figure.
The annual affordable housing component of that is 391 compared to delivery of an average c82.
Based on its current policy affordable housing threshold of 35per cent, TWB would require annual net total supply to increase to c1000 dwellings.
The inspector confirmed that as TWB cannot currently show a five-year housing land supply, paragraph 11(d) of the NPPF indicated that planning permission for Turnden should be granted unless: (i) the application of policies in the Framework that protect areas or assets of particular importance (in this case the HWANOB) provides a clear reason for refusing it; or (ii) any adverse impacts of it being granted permission significantly and demonstrably outweigh the benefits, when assessed against policies in the NPPF taken as a whole.
He concluded “that it is not an overstatement to say that it is rare for a scheme to deliver such a package of exceptional benefits, on a site located adjacent to a second tier settlement, delivering much needed housing, including affordable housing above the rate required by the development plan, in a highly constrained area, and which delivers landscape enhancements with limited associated harm, as well as biodiversity enhancements, while developing only a small proportion of the overall site and in doing so provides a strong long term settlement edge. …. (para838) given the limited extent of harm including to the HWAONB, in the context of the area’s particular housing needs and constraints alongside the wider substantial benefits that would be delivered, exceptional circumstances exist to justify the proposed development and it would be in the public interest. In the current circumstances, therefore, the combined adverse impacts would not significantly and demonstrably outweigh the benefits, when assessed against the policies in the Framework taken as a whole”.
His recommendation, however, was overturned by the SoS, mainly because the scheme design was not accessed as of a high standard reached through thoughtful regard to its setting and layout, rather “being of a generic suburban nature which does not reproduce the constituent elements of local settlements”, leading to a conclusion that its design rather than being a benefit of the scheme, as suggested by the inspector, was a neutral factor.
Overall, although the combined weight of the benefits was “substantial” they failed to constitute “a package of exceptional benefits”, while the borough’s current five-year land supply shortfall was “slight”.
The applicant, Berkeley Homes, in the wake of that refusal announced its intention to seek judicial review of the SofS decision that then was self-voided in May 2023 due to an inaccurate five-year land supply figure which was cited in the SofS’s Decision letter. Future developments are accordingly awaited.
The case examples illustrate some key realities that impinge on the planning coalface.
These include:
- Translating a national aspirational 300,000 new home target to a minimum local figure through the operation of a mechanistic formula subject to contestable assumptions was always likely to lead to local opposition.
- Insofar that the above target cannot be met by concentrating development and densification on brownfield sites within England’s twenty most populous urban areas, the achievement of such a national target will inevitably require densification of urban and suburban areas of a nature that can be perceived as ‘character-changing’ – resisted even within those areas, as at Cockfosters – as well as the extension of settlement boundaries onto previous countryside and greenfield sites, invariably involving some change in rural character and views, occasionally, including some release of Green Belt land.
- Some element of central compulsion is and will continue to be required to increase housing supply at the local level, as left to themselves LPAs – exposed to well organized and vocal opposition to new developments from ‘insider’ residents often for reasons that often are understandable and defendable according to their own perspective and interests –will tend to bow to such pressures, especially outside the urban concentrations, which could even be described as local democracy or community accountability at work.
- A problem with existing mechanisms of central compulsion, including the use of the Planning Inspectorate to overturn local planning refusals following developer appeals, is that some speculative relatively low density ‘executive box’ or otherwise inappropriate developments are approved, weakening incentives for future developers to select the most sustainable sites and provide dwellings in location and composition of the most local benefit. In many ways, the worst of all worlds occurs where the planning process is elongated by delay and obfuscation at a local level resulting in increased scheme costs and the ultimate realisation of less local benefit, such as this .
- The relationship between new speculative market developments – the primary provider of new housing – and the meeting of local housing needs is often tenuous and weak. The phase one Turnden Farm scheme in Cranbrook, for instance, only offered c32% affordable housing, comprising completely shared ownership (SO) dwellings – contrary to the local affordable housing policy that required 75% social rent. These units, as a minimum, will require a £99,000 market share to be purchased along with monthly rental and service charge outgoings of at least £632 in a location that will rely largely upon car use (it is a close to a mile from the nearest shops and will be served by limited public transport). The Registered Providers (RPs) consulted by TWB considered that it was not a suitable location for affordable housing and declined the council’s invitation to make an offer for the proposed shared ownership properties.
- The policy uncertainty engendered by the PWP process and then the December 2020 NPPF revisions during the lead up to the May 2023 local council elections, which will continue to the expected forthcoming 2024 general election and then most probably with a new government initiating and no doubt embarking a further round of fresh reforms and associated consultations, led to LPAs demonstrably delaying the progression of new Local Plans provided with an up-to-date locally determined 5YHLS, hoping that the NPPF revisions, if further tweaked, could release them from the presumption of sustainable development applying regardless of their 5YHLS position. An effective Local Plan-based system presupposes that they are prepared, consulted, examined, and maintained within or very much closer to the timescales set in the PWP and then LURB: an outcome that most LPAs are not geared up to achieve, or as shown, many are even desirous of insofar that it requires them to identify more local sites for development to meet higher housing need figures.
- Greenfield former agricultural sites should offer the most potential land value capture for public benefit, but the case examples offer some evidence that District Council LPAs could be less sharp and systematic in their attempts to maximise affordable housing contributions from developers than they need or should be. The achievement of 35per cent affordable housing, where it is composed mainly of accommodation of intermediate housing that is still locally unaffordable could be improved upon, or at least be more tightly defined. That said, it is very difficult for individual LPAs to buck the existing speculative housing model, which itself needs to change for sustainable higher levels of affordable new housing supply to be achieved, an issue that will be subject to dedicated consideration in a later extended post.
4 Future Prospects
The May 2023 election results led to the loss of over 1,000 Conservative councillors with the largest losses occurring across the South-east. There nearly all district councils, as shown in this BBC graphic, ended up under no overall control, but with the Medway and Thanet towns and Brighton and Hove shifting to Labour, and Eastbourne to the Liberal Democrats, while in Surrey Heath, Michael Gove’s local council also came under Liberal Democrat control.
If his backtracking on the PWP and standard method was designed to bolster Conservative local electoral performance, the effort was not successful, and could have proved counterproductive insofar as it highlighted fluctuating government policy.
Evidence suggests that expressed electoral support for new housebuilding and NIMBYism is quite evenly split. The Centre for Policy Studies recently pointed to polls showing support for local housebuilding and for lower and more stable house prices. But such polls are predicated at the general abstract, rather than the more focused local decision-making individual application level.
Similar such polls also indicate that most people believe that public expenditure on public infrastructure and services should increase; that result does not necessarily translate into electoral support for taxes perceived to directly impact on future household budgets.
It seems likely given some shift to support to local resident group candidates that local concerns over development played a part in the dislodging of incumbent Conservatives in places like Wealden, Windsor and Maidenhead, and Tunbridge Wells.
Although the Conservatives lost control of South Gloucestershire Council to no overall control following a strong showing by both the Labour and Liberal Democrats, where it was reported Labour’s messages of providing more homes ‘resonated’ more strongly than did the Conservative’s recent move away from a pro-housebuilding stance, but that seems empirically to be an exception to the general tendency that local electorates increasingly dominated by older age and higher income groups proved antipathetic to councils perceived pliant to new developments considered detrimental to their local living environment, whether that was true or not given the applicable planning context, as was demonstrated again at the case example councils mentioned above.
In the wake of the May results, Sir Keir Starmer put Labour in the vanguard of the ‘builders’ against the ‘blockers’, promising that Labour would reverse the proposed changes to the December NPPF connected with lower local housing targets, it would be more flexible on Green Belt land release and that it would ensure more “high quality, genuinely affordable housing’ through planning reform and by giving local councils more powers to compulsorily purchase land for housing at lower cost.
Meanwhile, Ed Davey, claimed for the Liberal Democrats the mantle of record council house builders and that his party’s approach was “community not developer-led”, unlike the “the Tories who get 25 per cent of their money from developers”. Their preferred national housing target is 380,000 – patently a meaningless throw-away without demonstrable policy and capacity backing.
All the main party leaders strive rhetorically to reconcile such claims of community accountability with the increased housebuilding that is needed economically and socially, without explaining how they would overcome local resistance to building by consent rather than by more refined methods of central compulsion.
Given that Labour is committed to ‘ironclad’ fiscal responsibility and the wider need for increased financial support for the NHS on top of its borrowing for Green-related investments, it is difficult to discern the prospects for significant increases in public investment on affordable housing, unless housing was subsumed within its wider stated economic mission.
More likely, if elected, it would encourage and preside over more self-financed council housebuilding, as well as put greater emphasis on increasing the proportion of affordable housing requirements taken by social rent.
The problems it would face other than its self-imposed fiscal restraint, include the limited number of Labour Councils elected outside London, the north-west, and some other urban centres with their own housing stocks, and the fact that social housing and its allocation processes largely does not cater or appeal to ‘aspirational strivers’ priced out of market housing.
The economy certainly requires more and better social transport and housing infrastructure to foster further agglomeration of high skill and value-added activities in areas, such as the Oxford and Cambridge Arc.
Labour has indicated that it will rekindle that project. Again, however, it has not spelt out how it would other than relying upon local initiative, the sources of which are not apparent.
High interest rates, and construction costs, as well as wider economic uncertainty is likely to mean new private housebuilding activity will continue to flatline over the short-to medium term. Given that and above considerations, a 300,000 national target appears over optimistic, a banner for political show, rather than a feasible, if challenging, policy objective, seriously sought and supported by the necessary overarching central government policy clarity and certainty.
A more realistic 250,000 rising to 275,000 target that underpinned and correlated with supporting planning reform and increased land value capture might well offer faster and more effective progress.
Please submit comments/questions to asocialdemocraticfuture@outlook.com
Land Value Capture: Potential and Limits
What is land value capture? Broadly defined, it involves mechanisms to transfer or use (capture) uplifts in land value for public benefit and purposes rather than for private gain.
Across east Asia, society-specific institutional models of effective direct public land acquisition, development, and commercial release have comprehensively captured land value increases for public benefit.
South Korea, Singapore, and Hong Kong, in different ways have used state ownership and management of development land to help finance the provision of mass housing and transit systems, allowing direct tax burdens to be kept low, a combination that over recent decades have been integral to their wider, cumulative, and transformative sustained economic development outcomes.
Western European countries, including France, Germany, and the Netherlands, allow greater scope for public authorities to finance sub regional and local regeneration projects and supporting infrastructural investment through land adjustment and pooling mechanisms embedded in their planning systems.
These tend to deflate the component of development cost taken by land acquisition allowing sponsoring public authorities to at least partially recover public infrastructural investment that then unlocks further future predominately private investment in housing and employment-creating enterprises with local self-sustaining multiplier effects.
Previously in the UK, the post war New Town Development Corporations were able, using long-term fixed rate public loans (initially at 3%), to purchase mainly agricultural or other land at or close to their existing use values to develop them for housing and commercial purposes.
That made it possible, according to a 2006 government-commissioned evaluation of the programme and its transferable lessons, to reduce the unserviced land cost component of houses in Harlow and Milton Keynes only about one per cent of housing costs at the time.
Through subsequent disposal of property assets and rising nominal real rental income rolls some of the early New Towns, including Harlow, Bracknell, and Stevenage accumulated surpluses sufficient not only to repay their Treasury loans but to remit substantial sums back to the public purse.
However, their sensitivity to the wider economic performance of the local sub-regional economy they were situated, as well as to the higher interest rates less buoyant national economic environment that shrouded the stagflationary seventies and recessionary early to mid-eighties, led to growing financial deficits for others. Runcorn, for instance, was still in deficit in 2006.
Land value capture mechanisms in their broadest sense can include land, property, and capital taxes covering all landowners. These tax increases in land value or real estate (combined land and property value treated as an imperfect proxy for land value) are taxed recurrently or on transfer.
Such treatments possess the potential advantage of horizontal equity – all owners benefiting from a similar increase in value are taxed (subject to thresholds, allowances, and exemptions) on the same basis and progressive to the extent that liability is increases with property values.
In the UK no recurrent pure land tax – the most economically efficient tax – is levied. The main property tax in England, council tax, is calibrated to 1991 dwellings valuations that do not separate but combine dwelling and land values. It is levied on a demonstrably regressive basis, poorly or negatively related to current values and household income.
Business rates, currently revalued every five years, are partially but imperfectly calibrated to changes in underlying land values. Capital gains tax is also payable on land transaction profits, but a lower and less progressive rate than is income.
As the fiscal austerity ushered-in by George Osborne in 2010 dragged on well into the decade, an overlapping technical and political consensus on the need for increased land value capture grew.
Self-imposed constraints on public infrastructural and housing investment, political unwillingness to levy salient taxes directly on income and expenditure, declining levels of owner occupation within younger age groups (Generation Rent) amid wider concerns on wealth and generational inequalities, provided political drivers. Studies, such as Griffiths of the Institute for Public Policy Research (IPPR) in 2011, helped to provide evidential foundations.
The emerging consensus increasingly interlinked rising land values to housing market imperfections and malfunction, to housing unaffordability, and to falling levels of, and access to, owner occupation, as well as to infrastructural shortfalls relative to national housing and economic needs.
Given the undeveloped and limited role that general land and property taxes play in the current UK taxation system and the political problems and obstacles involved in increasing their scope, land value capture mechanisms of greater specificity attracted most of the available policy attention.
S106 accidently had become a de facto tax on development value and betterment, while the Community Infrastructure Levey (CIL) was introduced in 2010.
The London CrossRail project was partially funded from 2010 onwards by a Business Rate Supplement, followed in 2012 by a dedicated Mayoral Community infrastructure Levy. Both additional levies helped to forward finance this piece of strategic regional infrastructure, which did not come on stream until 2022.
In the short time CrossRail has been operating, usage rates have surpassed expectations. Ample grounds for confidence exist that its future total economic (taking account of not only fare income, but of wider external economic impacts on reduced journey times, congestion, and increased connectivity) benefits will exceed costs.
On the other hand, the linkage between individual contribution of the levies and benefit from the project was delayed; some business owners subject to the additional rate faced increased contribution costs and went of business (for a variety of reasons) before the project was completed. No direct link between contribution and benefit existed, whether derived from increased business profits or capitalised higher land and business premise capital values.
Attention on land value capture peaked across 2017 and 2018. In the wake of the June 2016 Brexit referendum vote, the resulting ouster of David Cameron and George Osborne from 10 and 11 Downing Street, followed by the installation of Theresa May as prime minister, the government’s political commitment to fiscal austerity waned as it became more outwardly sympathetic to an interventionist approach to housing policy, extending beyond the demand-price-and profit-augmenting Help-to-Buy scheme.
May’s government, in February 2017 published a Housing White Paper (HWP). Its title – Fixing our Broken Housing Market – spoke volumes on the sea change on Conservative party thinking that had taken place since the eighties on the private operation of the housing market. Much of its diagnosis echoed that of Griffith earlier in the decade.
The 2017 Conservative manifesto committed a future Conservative government to “work with private and public sector house builders to capture the increase in land value created when they build to reinvest in local infrastructure, essential services and further housing, making it both easier and more certain that public sector landowners, and communities themselves benefit from the increase in land value from urban regeneration and development”.
Policy changes that followed either side of the June 2017 general election included tightening up on the central definition and monitoring of new local housing targets; the setting of a national annual new housing target of 300,000 dwellings; an increased affordable housing budget; and making it easier for councils to self-fund new council housing again.
Shelter earlier in 2017 had published New Civic Housebuilding. Its core argument was that the speculative market model incentivises developers to squeeze development costs to maximise what they can bid and pay for land sites and thus not lose them to rivals.
They then trim back affordable and other planning obligations, development quality and space standards, and project build out rates to maximise or at least maintain their expected profit levels.
The illustration was made of a developer providing 500 homes comprising 15% affordable housing, no school, a smaller park, and a slow build out rate, paying twice as much (£40m cf. to £20m) for the underlying land than a rival one offering 50% affordable obligations, a school, a larger park, and a faster build out rate. In Shelter’s reading, the additional £20m paid for the land meant a corresponding loss in community and public benefit.
It proposed, in response, a new ‘Civic’ housebuilding model that by “bring(ing) in land at a lower, fairer cost” and channelling competition between firms to raise “the quality and affordability of homes, would be supplemental and in preference to the existing speculative market and directly funded public delivery models.
New Home Zones should also be introduced as “an exceptional planning tool to deliver very high-quality schemes in addition to what the speculative market is building”, covering large scale developments (over 500 units).
Land assembly and acquisition and planning consent for such zones should be both fast tracked and combined through the Nationally Significant Infrastructure Project (NSIP) planning process, compressing development profiles to 12–15 months.
Another key proposal was that the 1961 Land Compensation Act should be amended to take no account of prospective planning permissions; certificates of appropriate alternative development would also cease to apply.
Later that year, Thomas Aubrey, then Director of the Centre for Progressive Capitalism (now the Centre for Progressive Policy) and Derek Bentley of Civitas likewise argued for the 1961 Land Compensation Act to be amended to exclude prospective planning permission from being taken into account for compensation purposes.
Changing the CPO rules, according to Aubrey would allow public authorities to capture the rise in land values resulting from expected or permissioned change to residential use, estimated at c £9.3bn per annum (over £185bn over 20 years).
The land so acquired could then be serviced with supporting infrastructure, thereby unlocking its potential for residential or commercial development. It could then be either sold back at its new enhanced market development value to private developers and/or retained in public ownership (in full or part) to generate a permanent revenue stream.
In August 2018 a public letter to the Communities Secretary, the late James Brokenshire, signed and supported by a diverse range of campaigning organisations, public stakeholders, and MPs, co-ordinated by the centre-right Onward think tank (subsequently republished on-line, as per link), encapsulated the overlapping technical and political consensus that had emerged.
“The root of England’s housing crisis lies in how we buy and sell land. When agricultural land is granted planning permission for housing to be built, the land typically becomes at least 100 times more valuable.
We, the undersigned, believe that more of this huge uplift in value should be captured to provide benefits to the community. If there was more confidence that more of the gains from development would certainly be invested in better places and better landscaping; in attractive green spaces; and in affordable housing and public services like new doctors surgeries and schools, then there would be less opposition to new development and much better infrastructure. The Government should think radically about reforming the way we capture planning gain for the community.
First, they should monitor the implementation of their welcome changes to Section 106 to ensure that councils deliver and developers do not continue to wriggle out of their commitments.
Next, they could give local government a stronger role in buying and assembling land for housing, allowing them to plan new developments more effectively, share the benefits for the community and approve developments in places local people accept.
Most importantly, they should reform the 1961 Land Compensation Act to clarify that local authorities should be able to compulsorily purchase land at fair market value that does not include prospective planning permission, rather than speculative “hope” value”.
The Conservative parliamentarian, and former Head of Policy for David Cameron, Sir Oliver Letwin, who had been commissioned in Autumn 2017 to: “explain the significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand, and (to) make recommendations for closing it”, published his draft report in June 2018.
It reported that there were then approximately 107 sites in England with permission for approximately 393,000 units, associated with an average build out rate of 15.5 years, or 6.8% per year.
Letwin’s analysis and prescriptions shared similarities with the Shelter Civic Housebuilding report, focusing on slow build out rates inherent within the existing speculative market business model. Its core3 commercial driver was to limit releasing dwellings for purchase to a level (market absorption or build out rate) commensurate with them maintaining target sales prices and hence their target capital return.
Although accelerating that build out rate could significantly increase housing supply, the “homogeneity of the types and tenures of the homes on offer on these sites, and the limits on the rate at which the market will absorb such homogeneous products, are the fundamental drivers of the slow rate of build out”, according to Letwin.
In September 2018 a Housing Communities and Local Government Select Committee Report on Land Value Capture was published.
One of its central conclusions was that as the value of land arising from granting of planning permission and of new infrastructure was largely created by public action, then a “significant proportion of this uplift (should) be (made) available to national and local government in new infrastructure and public services”, through reforms to existing taxes and services, to compulsory purchase powers and compensation arrangements, or through new mechanisms of land value capture.
The committee had considered evidence (as did Barker) that practice in some other European Union (EU) countries can involve the freezing of land values when land is vested for housing use by a local authority.
It noted that across these countries, compared to the UK, land accounts for a smaller proportion of total residential development value, build rates are much higher, and they exhibited much more steady house price trends: outcomes all supportive of the wider macro-economic ends of steady, balanced non-inflationary growth.
The committee also noted (para 105), however, that during its visits to Friberg in Germany, and to Amsterdam in Holland, local municipalities did not acquire land at either existing or full use value but instead at a value “that offset the cost of providing the infrastructure and services associated with making a development viable”.
In October 2018, Letwin published his final report. It recommended that planning policy for sites providing over 1,500 units in high demand areas should be revised.
LPAs should be given the power to designate areas within their local plans to be developed only as single sites in conformity with a masterplan and set quality design codes, designed to diversify the mix, size, and type of units provided.
Such diversification would then allow LPAs to capture more land value and secure faster build out rates.
Government funding support would be made conditional on S106 conformity with such principles.
LPAs should also be provided with clear statutory powers to compulsorily purchase the land designated for such large sites at prices “which reflect the value of those sites once they have planning permission and a master plan that reflect the new diversity requirements …. to the point where they generate a maximum residual development value for the land on these sites of around ten times existing use value rather than the huge multiples of existing use value which currently apply”.
Their exercise would involve either use of a Local Development Corporation (LDC) or Local Authority Master Planner (LAMP).
LDCs would have a remit to set a masterplan and design codes(s) for designated sites and then obtain private finance to pay for the land and infrastructure through a specially established special purpose vehicle, before then “parcelling-up” the land to sell to different builders in accordance with its masterplan and design code(s).
A Local Authority Master Planner (LAMP) would sell the land to a privately financed Infrastructure Development Company (IDC), which would then provide the infrastructure and promote the same diverse housing offer.
The government response to his recommendations was lukewarm. In March 2019, the late James Brokenshire, the Communities Secretary, in a ministerial statement agreed that the “increased costs of diversification should be funded through reductions in residual land values” but cautioned that the report’s recommendations had been received with some scepticism within the housebuilding industry.
He went on confirm that while the government was committed “to improving the effectiveness of the existing mechanisms of land value capture, making them more certain and transparent for all developments”, his focus was “on evolving the existing system of developer contributions to make them more transparent, efficient and accountable”.
UK politics by then had long been dominated by Brexit, which now, to all intents and purpose, took over the entire show. Since May’s botched 2017 general election campaign, she had struggled in vain to secure a parliamentary majority for her compromise exit deal.
Her failure to do so culminated in her long-anticipated resignation and replacement by the opportunist Boris Johnson in July 2019 on a promise to ‘get Brexit done’, whatever.
Sir Oliver, old Etonian and former Thatcherite who had evolved into a Conservative ‘one nation’ Remainer grandee in manner and conviction, had the party whip taken away from him by Johnson in September 2019 and then retired at the December election that Johnson and his key advisor, Dominic Cummings, had engineered.
Johnson was returned with an eighty-plus mandate to get, indeed, ‘Brexit done’. Letwin’s report remained on the library shelf as he receded into principled retirement.
The growing overlapping technical and political consensus that had grown for the need for land value capture and wider housing market reform was discernible enough for commentators to note that the Communities Secretary, Sajid Javid, appointed by May when she became prime minister in July 2016 and in that post until April 2018, sometimes sounded more like a ‘Labour Housing Minister’. Toby Lloyd, the author of the 2017 Shelter report, had become May’s housing advisor.
The actual housing minister from July 2016, Gavin Barwell, who after losing his Croydon seat in the June 2017 general election became Theresa May’s chief of staff, in a subsequent book, identified delays and problems that Javid and himself faced progressing the HWP, noting that long-awaited Treasury and 10 Downing Streets responses to departmental policy submissions were “often contradictory”.
May’s chancellor, Philip Hammond, was a fiscal conservative wary of housing policy actions that could increase the deficit and undermine fiscal rules.
And, in any case, the HWP was more well-meaning rhetoric than a base for concrete policy change consistent with the refashioning of the housing system and market it desired – at least without overarching political and institutional drive and commitment. That was absent, whether due or not to the on-going all-consuming Brexit hiatus.
Public policy action in practice was largely limited to changes to the S106 viability process – again led by judicial decision – and to the compulsory purchase legal framework.
S106 viability methodology and process
After the introduction of CIL, the next major landmark in planning policy and practice was the publication in March 2012 of the National Planning Policy Framework (NPPF).
The original 2012 NPPF commendably consolidated 44 previous central government policy or guidance documents into one 65 page document.
It confirmed that the commercial viability of a development was a material consideration, which LPAs could take account of when setting, or, in the case of stalled schemes, when reviewing planning obligations.
Paragraph 173 advised LPA’s “To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing landowner and willing developer to enable the development to be deliverable“.
Paragraph 205 went on to advise that where obligations were being sought or revised, LPAs should take account of changes in market conditions over time and, wherever appropriate, exercise flexibility sufficient to prevent planned development stalling.
Further dedicated guidance issued in 2014 on viability (2014 viability guidance) further noted that “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”.
A site was viable if the value generated by its development exceeded its total cost and offered sufficient incentive for the land to come forward and then for the development to be undertaken.
The most common way of measuring project viability was (and is) to subtract its expected Gross Development Cost (GDC) from its Gross Development Value (GDV), leaving its Residual Land Value (RLV).
If its RLV was positive and greater than the Benchmark (or Threshold) Land Value (BLV) – defined as the price at which a reasonable landowner would be sufficiently incentivised to sell – the scheme was deemed viable: (GDV-GDC=RLV)>BLV.
The 2014 viability guidance advised that in all cases, estimated land or site value should meet three policy requirements:
- Reflect emerging policy requirements and planning obligations and, where applicable, any Community Infrastructure Levy charge;
- Provide a competitive return to willing developers and landowners;
- Be informed by comparable, market-based evidence wherever possible.
Their order of priority was left open, however. Should local Plan-set S106 and CIL requirements override evidence adduced from past market sales of comparable sites? And what was an ‘acceptable’ return for landowners and developers?
Developers and their advisers could over- and under-estimate expected values and costs, respectively.
Different assumptions to determine BLV that could include current use value, a premium above that value, alternative use value, as well as market values extrapolated from, say, average sale values for comparable sites, could be applied.
Local S106 and other policy requirements could also be set at different points across the economic and housing cycle not necessarily coincident with conditions prevailing at the time of viability consideration at either Plan or individual scheme level.
The heterogeneity of sites and their associated development value potential also do lend themselves to the application of standard assumptions or requirements.
The 2014 guidance also encouraged the use of scheme-based development viability appraisals to assess the impact of affordable housing obligations on the overall commercial viability of previously agreed section 106 affordable housing obligations, as well as planned new developments, undermining the principle that viability should be assessed as part of the Plan-making process.
These issues and problems remain, but developers (despite many of them receiving substantial public support) during the post GFC years exploited them.
They continued to overpay for land. By reducing site RV to below or close to its BLV they made the argument that LPA enforcement of local policy-defined section 106 obligations – often previously agreed- would now make their scheme(s) unviable. Averaged market values of (sometimes) comparable sites that did not reflect S106 or other planning requirements was also used to the same purpose.
Indeed, the inference many developers took from the 2014 viability guidance was that affordable housing obligations should be considered a variable parameter (their incidence in scale and timing was conditional on not making a development inviable), whereas the need to provide a(undefined) competitive return to a willing landowner and developer was the fixed primary parameter that must be achieved regardless of context, history, and circumstance.
Such entrenched circularity (overpaying for land made developments unviable, with the resulting unviability then used to justify to reduce the level of housing and other obligations: a process that then further encouraged developers to over pay for land, and so on) provided the backdrop to the April 2018 Parkhurst Road High Court judgement.
This provided a judicial review of earlier 2015 and 2017 planning inspector inquiries convened to consider previous refusal(s) by the London Borough of Islington Council (LBI) of planning applications from the developer, Parkhurst Road Ltd (PRL). The refusals were primarily on the ground that insufficient affordable housing had been offered consistent with LBI published and approved Plan policies.
LBI further contended that the price which PRL had paid for the ex-Territorial Army site was excessive, since it did not properly reflect the policy requirement to maximise the affordable housing component on the site in the context set by LBI’s 50% borough-wide strategic affordable housing target.
The borough suggested that a viability assessment should look at comparable sites that had been recently granted planning permission in accordance with relevant policies. The prices paid for such land, suitably adjusted, could then be compared to EUVs for those sites to ascertain an appropriate premium or uplift additional to EUV for the Parkhurst Road site.
That approach aligned with that adopted Mayor of London’s Affordable Housing and Viability Supplementary Planning Guidance (2017 SPG), incorporated into the 2021 London Plan that stated that a market value approach should only be accepted where it can be demonstrated to properly reflect policy requirements and take account of site-specific circumstances.
LBI assessed the BLV value of the site on that basis as £6.75M – around a half of the £13.25M paid by Parkhurst, but still significantly above the site EUV.
The judge, Mr Justice Holgate, concluded that LBI’s assessment of the BLV site value was correct, based as it was on its set affordable housing policy requirements. These, he added, could not be ignored nor set aside by a developer claiming that ‘comparable’ site valuations were higher, where such valuations did not take account of the borough’s affordable housing requirements.
In short, he concluded, LPAs when determining site BLVs, should “reflect“, and not “buck,” relevant planning policies (including those for the delivery of affordable housing); on the other hand, the proper application of those policies should also be “informed by,” and not “buck” an analysis of market evidence reflecting those policies.
On the other hand. an “arbitrary” EUV plus valuation, Justice Holgate went on to say, should also not be applied, where viability evidence of comparable market values that did reflect relevant planning policies and requirements was presented. One or more planning requirements or objectives could then be relaxed where if they would render a development non-viable, according to a viability case “which uses (inter alia) land values which have adequately taken planning policies into account”.
It may be noted in passing that Justice Holgate – understandably, concerned as he was with the law rather than with economics – did not delve further into the extent that ‘market’ evidence could reflect imperfect rather than efficient housing market operations.
Subsequent published 2019 Viability Guidance confirmed that “under no circumstances will the price paid for land be relevant justification for failing to accord with relevant policies in the Plan”.
LPAs should apply existing use value plus’ (EUV+) as a calibrating mechanism to measure BLV with any hope value disregarded, save, apparently, where an alternative use value (AUV) when fully compliant with up-to-date development plan policies could be implemented on the site in question including evidence for market demand for such use.
Specifically, BLV should:
- be based upon existing use value, “not the price paid and (it) should disregard hope value” (but note AUV rider above)
- allow for a premium to landowners (including equity resulting from those building their own homes) that “should provide a reasonable incentive for a landowner to bring forward land for development while allowing a sufficient contribution to fully comply with policy requirements”;
- reflect the implications of abnormal costs; site-specific infrastructure costs; and professional site fees.
Such BLV appraisal values then should fully reflect all relevant policies, local and national standards, including the cost implications of the Community Infrastructure Levy (CIL) and section 106 obligations.
Compared to the 2014 version, this latest 2019 iteration of the viability guidance also appeared to reduce the ‘required return’ to a ‘minimum return’ which was ‘reasonable’ rather than ‘competitive’.
It suggested that 15-20% of gross development value (GDV) should be taken for plan viability purposes as an assumed presumably ‘reasonable’ return to developers (profit parameter). This could vary, however, according to the type, scale, and the risk profile of planned development(s).
Specifically, a lower return may be more appropriate “in consideration of delivery of affordable housing in circumstances where this guarantees an end sale at a known value and reduces risk”.
Developers should also account for and price potential risk within their assumed return: it was for them, not plan makers or decision makers, to later mitigate these risks.
Noting that there may be a divergence between benchmark land values and market evidence the guidance, plan makers “should be aware that this could be due to different assumptions and methodologies used by individual developers, site promoters and landowners”.
LPAs, consistent with the revised 2018 national planning policy framework, should set out the contributions expected from development(s), including the levels and types of affordable housing provision required, along with education, health, transport, flood and water management, green and digital infrastructural requirements. These should be supported by evidence for their need and not undermine their deliverability.
The guidance reiterated that viability assessment should occur primarily at the plan making stage, although it recognised that “in some circumstances more detailed assessment may be necessary for particular areas or key sites on which the delivery of the plan relies”. The onus was put upon developers to justify the need for any further viability assessment at the application decision-making stage.
LPAs were charged at the plan-making appraisal stage to use ‘site typologies’ to set different requirements for different types of development and locations consistent with their deliverability.
This could involve plan-makers making use of average historic land values and costs to allow them to “come to a view on what might be an appropriate benchmark land value and policy requirement for each typology”.
In summary, it took government many years to catch up with abuse of the appraisal process by developers who demonstrated their willingness as profit-maximising organisations to adopt ‘take a mile, if given an inch’ approach to public policy adjustment to the impact of the GFC on the housing market and construction industry.
It is likely that such practice helped to fuel the overlapping political and technical consensus in favour of increased land value capture that that grew last decade.
The 2019 appraisal policy practice government guidance remains extant. Recently republished RICS guidance interprets and operationalises its application as a professional standard for surveying practitioners.
Tension, and a degree of uncertainty, remains concerning the application of EUV+ valuation of Benchmark Land Value and the related issue as to extent that hope value should be eliminated in its computation. The distinction between hope and alternative use values appears unclear and possibly contradictory.
The premium element of EUV+ and its ranking and ordering relationship to the developer profit and set policy requirements remains indeterminate, and, perhaps, inevitably so given site heterogeneity and changes to the wider economic and housing market environment.
The experience of CIL suggests that a focus appraisal undertaken at Plan-making will be reliant on local capacity, while the use of average historic market value data and their shortcomings could result in misspecification of viability and/or a worst-case assumption applied. In any case, most LPA’s do not have an up-to-date Local Plan, which are seldom refreshed at the expected five-year intervals.
Compulsory Purchase Order (CPO) reform
To begin to understand policy development and issues across this devilishly difficult and confusing area, some history is needed.
The 1947 Town and Country Planning Act nationalised both the private right to develop (undertake construction and/or change its use) sites and to profit from any increase in their development value (betterment).
Development henceforth could only proceed subject to planning permission. A 100% development charge would also be levied on betterment. Owners could now only realise, net of the charge, the existing use value of their land.
But in 1954, Winston Churchill’s successor Conservative government abolished development charges. Local authorities, however, retained the right to acquire land at its existing use value thus facilitating continuing council house building at manageable public cost, as did New Towns.
As the demand for land suitable for development rose in response to the government’s wider housebuilding drive, its market value, when traded, increasingly took account of its future prospective use, while land acquired publicly did not.
The resulting dual or ‘two-price’ system threw up the horizontal inequity that landowners with similar plots could get different values depending on whether their land was subject to public acquisition or not.
The 1959 Town and Country Planning Act ended that dual system by making provision for CPO compensation at what it termed ‘fair market value’ in conformity with the principle of ‘equivalence’: requiring the forced seller to be placed in the same position as they would have been in the absence of the CPO acquisition.
In practice, local authorities acquiring land for new council building schemes now had to pay prices reflecting its future perspective or ‘hope’ residential value.
But, as was pointed out at the time and subsequently, the 1959 Act did not address other horizontal inequities resulting from a system where development control and rights continued to vest with the state, but land value uplift or betterment could be realised by private actors.
Some landowners could benefit and realise betterment from the granting of planning permission. Others could not because their land was not zoned for development or because permission was refused. This remains the case.
The 1961 Land Compensation Act (1961LCA) then consolidated statutes dating back to Victorian times and codified case law.
But by common consent it did so in a confused and conflicted manner. That was, perhaps, inevitable insofar that the case law that it tried to codify was sometimes contradictory and the statutes that it attempted to consolidate, rather than to reform or replace, reflected changing circumstances and assumptions occurring over a century.
In Victorian times, for instance, compulsory purchase powers were generally sought and obtained by private competing profit-making operators, such as railway and water companies by privately sponsored specific Act of Parliament, and local juries decided compensation on that basis.
A 2003 Law Commission review of Compulsory Purchase compensation arrangements, in that light, noted that the “The current law of compulsory purchase is a patchwork of diverse rules, derived from a variety of statutes and cases over more than 100 years, which are neither accessible to those affected, nor readily capable of interpretation save by specialists”.
Nevertheless, 1961LCA remains the principal source statute governing the assessment of CPO compensation, notwithstanding that many of its provisions have been amended significantly by subsequent pieces of legislation, sometimes substituted then back into it.
Its Section 14 (s14) gave statutory status to the ‘no scheme’ principle, whereby for compensation purposes any impact on plot value attributable to ‘the scheme’ subject to the CPO was to be disregarded as if no such scheme existed or it was ‘cancelled’ on the valuation date (the date when compensation was determined or when it was taken in possession, if earlier).
It went on to provide for the payment of compensation at market value to reflect permissible and prospective planning use (hope value) and in respect to appropriate alternative development (AAD), “in (the) circumstances known to the market at the relevant valuation date”.
At first glance, interpretation of the ‘no scheme’ or the project disregard rules seems straightforward. If land is to be acquired, compensation should reflect its fair market price “taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise” after applying the assumption that the ‘scheme’ subject or giving rise to the CPO requiring the acquisition was ‘cancelled’ – in effect, did not exist.
Assessing potential hope value is inherently problematic, however. To do so also involves postulating what uses the subject land in question could have been put to in the absence of ‘the scheme’.
For instance, some or all of it could have been zoned for housing or other alternative uses sometime in the future, even though its existing use was agricultural and there was no current planning provision for its future use for housing.
The wider the scope that ‘the scheme’ is in area and purpose, the more difficult it is likely to become to isolate what might have happened in its absence: a wider regeneration scheme possessing sub-regional importance with multiple underlying purposes is likely to affect many more owners, take longer to bring to fruition, and have much more extensive and varying impacts over time.
In the words of the Law Commission, especially when the scheme has a long life, this “may involve a speculative exercise of rewriting history”. Or, put another way, gazing into a crystal ball.
This issue arose in a 1974 Court of Appeal case (Myers v Milton Keynes Development Corporation, MKDC) presided over by the then Master of Rolls, Lord Denning.
In short, MKDC had acquired 324 acres of Myer’s land (designated as part of a New Town scheme to provide housing) at twice agricultural value.
A lower court held that the assumed planning permission was a direct result of the acquiring authority’s ‘scheme’ that must therefore be ignored when assessing compensation.
The Court of Appeal decided, however, that the landowner was rather entitled to 20% of residential value. This it deemed as fair representation, in essence, of hope value pertaining to the assessed likelihood that in the absence of the CPO ‘scheme’ – in this case an extension to Milton Keynes New Town – planning permission for residential use would have been granted sometime in the future.
Such continuing uncertainties provided the backdrop to a consultation on compulsory purchase reform that the former Department of Communities and Local Government (DCLG) and HM Treasury conducted in March 2016 (following an earlier one in March 2015).
Predicated on a central premise that the application of the ‘no scheme’ application as interpreted by case law had in practice become more complex and uncertain over time and that it needed to be made “clearer, fairer, and faster”, it sought views on government proposals to establish the principle of the ‘no scheme world’ fairly and effectively in the valuation process by codifying it in statute, involving a:
- clearer definition of the project or scheme that should be disregarded in assessing value;
- clearer basis for assessing whether the project forms part of a larger ‘underlying’ scheme that should also be disregarded;
- more consistent approach to the date on which the project is assumed to be cancelled;
- broadening of the definition of the ‘scheme’ to allow the identification of specified transport infrastructure projects that are to be disregarded within a defined area, over a defined period of time – meaning that where land is acquired for a wider regeneration or redevelopment scheme that is directly linked (facilitated or made possible) to a ‘relevant’ transport infrastructure project, the definition of ‘the scheme’ should include that project.
The uplift in values caused by the public investment in the transport project, regardless of whether it is carried out before, after, or at the same time as the regeneration or redevelopment, should, therefore, be disregarded for compensation purposes, the consultation proposed.
In its published response to that 2016 consultation, the government acknowledged that extending the definition of ‘the scheme’ to exclude the impact of specified transport infrastructure on land values could result in claimants receiving less compensation than they might otherwise have done, but nonetheless noted that “it is right that the public purse, rather than private interests, should benefit from increases in land values arising from public investment”.
These proposed changes were largely enacted in Section 32 of the Neighbourhood Planning Act 2017 (NPA2017) inserted into 1961LPA, replacing former ss6-9 with new ss6A to 6E.
The current legal position is where land is acquired for regeneration or redevelopment facilitated or made possible by a relevant transport project, the definition of ‘the scheme’ will include that project, regardless of whether it is carried out before, after or at the same time as the wider regeneration or redevelopment.
Where different parts of the works comprised in such a transport project are first opened for use on different dates, each part is then to be treated as a separate relevant transport project but only where “regeneration or redevelopment was part of the published justification for the relevant transport project”.
All subsequent development across the whole areas covered by Mayoral Development Corporations and designated New Town or Urban Development is now to be disregarded for the purpose of assessing CPO compensation.
The amount of compensation payable in respect of the compulsory acquisition of the ‘original’ or ‘subject land’ can also be reduced by the quantum increase in the value of the same person’s interest in any adjacent or contiguous ‘other’ land at the relevant valuation date resulting from ‘the scheme’.
However, if the revised ‘no scheme’ assumptions do not apply, the new ss6A-E limit still allows compensation for prospective hope value to be assessed in accordance with s14LPA61.
New powers were also given to the Secretary of State to create Locally-led New Town Development Corporations (LNTDCs) that a local authority, or more than one local authority, would be responsible for, and for Transport for London and the Greater London Authority to jointly acquire land through compulsory purchase on behalf of each other for mixed-use transport, housing, and regeneration purposes.
The Housing Minister, Kit Malthouse, subsequently told the 2018 Select Committee on Land Value Capture (see previous reference link) that he considered the revised ‘no scheme’ principles that NPA 2017 enacted had rendered any further reform of LCA1961 unnecessary.
The published report of that Committee, nonetheless, concluded that (para 111) “the Land Compensation Act 1961 requires reform so that local authorities have the power to compulsorily purchase land at a fairer price (and that) the present right of landowners to receive ‘hope value’—a value reflective of speculative future planning permissions — serves to distort land prices, encourage land speculation, and reduce revenues for affordable housing, infrastructure and local services”.
It went on to propose (para 112) that such a ‘fairer price’ should be set by an “independent expert panel”, before noting (para 113) that enhanced CPO and land assembly powers, alongside further reform of LCA1961, “would provide a powerful tool for local authorities to build a new generation of New Towns, as well as extensions to, or significant developments within, existing settlements”.
Within two months the government published its November 2018 response to the Committee’s report.
This confirmed its commitment to capture increases in land value for the benefit of local communities while cautioning (para 11) that “changes to land value capture systems can have profound impacts on the land market in the short term, even where they are sensible for the long term”.
Compensation for hope value (i.e., value based on the land’s development potential) should be limited to values (para 30) reflecting “the prospects of obtaining planning permission for an alternative development in the absence of ‘the scheme’, taking into account the risks, uncertainties and costs associated with implementing such a development, including the costs of providing the affordable housing, infrastructure and supporting facilities required to make the development acceptable in planning terms, as well as any Community Infrastructure Levy liability”.
Previous government policy guidance, including the 2018 ministerial statement earlier referenced, that developer S106 contributions provide the primary mechanism for LPAs to capture land value uplift, was reiterated.
The government wanted to let recent reforms, including the NPA2017, to ‘bed-in’ while it continued “to monitor their practical application and (to) remain open to considering practical improvements to the (CPO) framework”, including “bespoke mechanisms of land value capture”. The “Oxford-Cambridge Arc and Housing Deals” were mentioned specifically in that regard.
Indeed, the changes made alongside the greenfield amendment recorded below, appear designed to facilitate a strategic project, such as the Oxford and Cambridge Growth Arc promoted by the National Infrastructure Commission in 2017.
It has suffered from recent policy uncertainty, however, culminating in Michael Gove, reportedly, ‘flushing it down the toilet’, and dismantling the responsible civil service team, although government lip service to its progression still surfaces.
More fundamentally, the respective roles of central government, local authorities remain unclear: it covers too wide an area for a top-down New Town Development Corporation approach, but little evidence exists that constituent LPAs possess either the willingness or capacity to drive progress either at individual LPA or collective sub-regional level. Accordingly, the new 2017 NPA CPO compensation arrangements accorded to New Town Development, whether nationally or locally-led and Mayoral Development Corporations, still may not be applicable across much of the area.
While the government accepted the principle that a greater proportion of land value should be captured for public benefit, it also continued to reiterate that its reforms did not change the bedrock legal principle that compensation should be based on the market value and were made to simply make the CPO process clearer and simpler.
After a four year pause in CPO reform, the Levelling-up and Regeneration Bill, introduced into the Commons in May 2022, put forward further provisions to ensure that where greenfield land is acquired for development that is facilitated or made possible by a relevant transport project, then that any uplift on land values resulting from that that and any linked transport scheme would likewise be disregarded for compensation purposes.
Further government amendments incorporated into Clause 175 of the Bill put the onus and cost of applying for a Certificate of Alternative Development (CAD) under s17 of the LPA1961 onto the landowner/developer.
Compensation will still be payable for ‘hope value’ on the basis that the LPA would have granted planning permission for the alternative use “more likely than not” in the absence of the scheme subject to the CPO.
These amendments also empower LPAs to define planning conditions that it would have attached to any such ‘more likely that not’ hypothetical permission. These, presumably, could include infrastructural and affordable housing obligations impacting on potential compensation values.
In March 2023, the government tabled further amendments at the House of Lords Committee stage, that included 412D to clause 175.
This goes further, insofar – if passed and enacted – it would allow a Minister confirming a compulsory purchase order to direct, in certain cases involving affordable housing, health or education, that compensation should be assessed on the basis that no new planning permission would be granted for the land (and thus eliminate hope value from any compensation payable).
To make the order in the case of affordable housing, the acquiring LPA must state the number of affordable homes to be created and be satisfied that the direction is justified in the public interest.
The effect of that direction could be subsequently reversed if the acquired land is not subsequently used as planned or if a statement of commitments accompanying the CPO was not fulfilled within ten years of the order becoming operative.
In April 2023, the government indicated that it intended it to make changes to the compensation arrangements where valuation takes into account prospective planning permission but directions eliminating or capping hope value should be on a scheme-by-scheme basis and be limited to carefully defined circumstances, but where directions are made they should remove hope value entirely from compensation.
It concluded that certain public sector authorities (eligible acquiring authorities) such as LPAs, Homes England, Development Corporations, and the Greater London Authority (GLA) will be able to seek directions from the Secretary of State that CPO compensation should take no account of the prospects of prospective planning permission (hope value) or establishing appropriate alternative development via a Certificate of Appropriate Alternative Development (AAD) in relation to affordable (including social housing), education provision, and health facilities.
Should hope value be eliminated?
Since the mid-fifties, real land prices (adjusted for inflation) have exhibited bouts of greater volatility within a wider secular medium to long term trend for them to exponentially outpace real house prices (see Figure 1).
Real house prices, in turn, have outpaced average earnings and real disposable incomes, especially and concentrated across the economically buoyant areas of the country.
These trends were accelerated by the financial liberalisation of the eighties that enabled easier mortgage availability at higher income multiples and the secular trend fall in real interest rates that started in the mid-nineties (only recently arrested) that reduced the cost of servicing a mortgage of constant value, which also allowed homebuyers to borrow more relative to their income and price of the home they were purchasing.
Both acted to increase effective monetary demand for housing and hence the demand for residential land.
The supply of developable land, subject to both planning restriction and developer market behaviour, is much more inelastic (less sensitive to price change) than is housing demand, as authors, including Griffith and Letwin, have demonstrated and reported.
The relationship between land and house prices is a complex one that acts both ways. In practice, as described above, market residential land values reflect both market failures and public policy choices.
Construction (C) or build costs increased far less – driven largely by material, labour, and regulatory costs – than did land (L) values that consequently accounted for increased proportions of the total residential plot value.
If C is taken to include other development costs, including financing and marketing, and P for developer profit: H = L+C+P; it follows that the share of combined land and profit share of a dwelling speculatively sold means that L+P=H-C.
By 2020, according to the most recent ONS data, land underlying dwellings accounted for 86% of the total estimated value of land.
Some hard facts can help to paint the real picture. This chart researched and produced by BuiltPlace – an independent group of housing analysts and researchers – highlights how the listed housebuilders have managed to capture the majority of the uplift in house prices in their profit rather than land values.
Staggeringly, average gross profit per plot built by Persimmons in 2022 exceeded £76,000. That year, profit and land costs combined accounted for 43% of total sale price, compared to c38% back in 2010.
Essentially, landowners and developers have been able during the last decade to capture progressively larger windfall gains from changes in land use values in the form of land values and profits.
Such gains are crystallised by planning permission but can also include prospective hope values based on the expectation of future such permissions. They, in effect, represent income transfers from purchasers.
It is that tendency that helped to give rise to the growing pressure documented earlier for hope value to be removed entirely as a potential component of compulsory purchase compensation.
Opponents of such a shift, such as the Compulsory Purchase Association riposte that compensating owners at less than market value is inherently unfair and potentially incompatible with the European Convention on Human Rights, that it would risk inciting opposition to new developments involving compulsory purchase, and it would slow down the process, increase costs, and thereby self-defeat any purported intention to increase infrastructural and housing supply.
Private property rights to windfall and/or super profit gains need to be balanced against competing public interests, such as promoting sub-regional and national economic growth, shared prosperity, and increasing the supply of, and access to, affordable housing, as well as against competing private individual rights to access housing suitable for their needs consistent with their wider effective economic and social participation in society.
The ’human rights’ angle can therefore sometimes be used as a red herring diversion motivated by special pleading or political preference. Governments restrict individual rights for wider economic and social ends for a variety of reasons and purposes: to weigh the confiscatory and deadweight effects of taxation levies against the need for collectively financed services that they can finance, for instance. Such balancing is the meat and drink of democratic politics.
The real issues revolve around balancing competing degrees of fairness, which tend to merge into shades of grey rather than demarcate into black or white, and the likely effectiveness of interventions in achieving their purported objectives.
In that light, Richard Harwood KC and others argue that CPO compensation is already based on the value of land either in its current use or on the prospect of a planning permission, with that prospect taking account of set planning policy design, size and other quality standards, of infrastructural provision and support, and affordable housing requirements.
In any case, they add, the CPO compensation code does not determine market prices. And, crucially, landowners and developers need to be incentivised to release and use land for housebuilding. Accordingly, further change to the CPO compensation arrangements is neither needed nor desirable.
They recognise from a legalistic perspective that a potential case under European human rights legislation is only conceivable where the gap between compensation and market value is especially large, likely to be confined to greenfield sites. Those are the sites, however, where the landowner windfall gain is likely to be largest providing greatest scope for land value capture for public benefit.
Isolating and attributing land value uplifts specifically to the impact of schemes and their facilitating public investments is inevitably going to be an imprecise exercise subject to contestable assumptions, especially where it involves the delineation of when and to what extent prospective hope value – derived from the prospect of a future planning permission – should be compensated.
It has been a refreshing feature of recent debate on the topic largely has attempted to accommodate that nuanced reality through informed discussion, eschewing polarised and entrenched ideological-based political positions.
On the other hand, it can get a bit circular and semantic, namely that it is OK to compress market values by public policy requirements and interventions but not to cap compensation (even at a premium above existing value) for the same purpose.
In that context, a case can be made that elimination of compensation for hope and alternative use value would further simplify the process and discourage rent-seeking speculative behaviour by developers and land agents.
The core principle of social democracy is to focus on securing the effective and sustainable outcomes – the best that can be achieved in invariably messy ‘present imperfect’ conditions, using individually fair and accountable processes.
The line of least technical and political resistance – following on and progressing on what Harwood describes as a “new consensus on land value capture, which emphasises the effective working of the planning system” would appear to embed design, infrastructural and affordable and housing obligation requirements in a more certain manner.
This means both definitionally and in meshing them to and within future viability assessment and local plan-making process and practice.
Such greater planning certainty should help to deflate land values generally, as well encourage voluntary sales at a premium above existing values at a fair and effective level, consistent with closing local infrastructural and affordable housing provision requirement funding gaps and with providing a reasonable incentive for voluntary land sale.
Letwin’s proposal of a maximum residual development value for the land of around ten times existing use value rather than the huge multiples of existing use value that can sometimes apply seems a reasonable starting point to assess at least the allowable premium for voluntary sale of greenfield sites.
It would also be consistent with using CPO as a last resort and help also to limit the extent of horizontal inequities between landowners where values are uplifted by prospective development.
Aligning property taxes more dynamically to changing values would dilute such horizontal inequities more effectively, but that involves practicability and political feasibility issues, as discussed in Time for a Modern Land Tax?.
On the other hand, certainty of requirements can conflict with site heterogeneity: one size cannot fit all.
Much more clarity is required as to the respective future roles of public and private sectors and their capacity to effectively fulfil them and on associated changes needed to their respective business/provision models to that end, discussed in Affordable_Housing_Partnership_Planning.
At the end of the day, more effective land value capture would expand access to affordable housing through reducing market prices, helping to finance necessary supporting infrastructure conducive to local and sub-regional housing and economic development, this contributing to the future uplifts in economic growth that the nation’s economic and social future depends upon.
But that requires overarching central government policy clarity and certainty connected to a steadfast commitment to securing increased infrastructural investment in line with local affordable housing requirements and economic development needs as part of a wider economic mission to uptick the sustainable growth rate.
This was, and remains, a key public policy failure of omission that unless addressed and reversed will invariably render any land value capture mechanism ineffective, whatever its label.
Things won’t happen by themselves. The Oxford-Cambridge Arc is a case in point.
This extended post is one of a series concerning housing and planning policy development that will be published during spring and summer 2023. Comments on this one should be made to asocialdemocraticfuture@outlook.com
Reviewing Starmer’s Conference speech
Keir Starmer’s 2022 Labour Party conference speech sketched out his strategy to occupy the political ground vacated by Trussonomics.
Labour would put working people interests over those of the rich, be the party of opportunity, of aspiration, of fairness, as well as of sound public finances and of economic competence.
Kwasi Kwarteng’s September mini-budget comprising £45bn of tax cuts – the biggest since 1972- with its immediate economically and politically disastrous aftermath provided a helpful backdrop to resonate his message to define the ideological blue water between Labour and Conservative, largely hidden during the May and Johnson administrations.
Trussonomics is essentially Reaganomics (relying on tax cuts on the rich to spur growth) mixed with Modern Monetary Theory – it is basically OK for governments that issue and borrow in their own currency to resort to money-printed deficit funding until an unsustainable inflation inflection point is reached.
In short, it is the Conservative free market equivalent of Corbynism, save that: the rising tax unfunded deficit will be the result of taxes being cut rather than of spending increased; John McDonnell was more wedded to fiscal sustainability and would have unlikely to have introduced discretionary spending unfunded increases to take the deficit to 7.5% of GDP, and if he had, would have prepared the ground better with the financial markets in a more pragmatic fashion; the aim is to achieve a 2.5% headline growth rate just before a 2024 election – regardless of its sustainability and the ability to fund future health and other core social welfare activity – is more political cynical and single-minded in its pursuit of perceived party over national interest.
It is unlikely that will come to pass even on its own terms. Evidence is lacking that tax cuts concentrated on the top five per cent will lift growth – Reagan’s tax cuts in the 80’s led to a ballooning public deficit that had to be closed later. It suggests instead that increased inequality retards rather than helps sustainable growth.
Embarking on unfunded borrowing to pay for tax cuts at a time when the public deficit is near to a record high, the balance of payments current deficit is widening, inflation is at a 30 year high, and when sterling was already weak, was asking for trouble. It soon came as the following chart showed.
Fiscal and monetary policy are now actively working against together to such an extreme that the Bank of England had to resort within days to a £65bn purchase of long-dated government bonds (gilts) to stop a calamitous sell off by pension funds facing margin calls due to bond prices collapsing in response to the sudden rise in gilt yields.
Most commentators expect mortgages rates to approach 6% by 2023. Combined with sterling at near parity with the dollar (which increases import costs) living standards on the vast majority will be squeezed that much tighter and first-time buyers thwarted as mortgage costs become unaffordable. Outcomes that will heavily weigh down on growth making the tax cuts self-defeating in the process.
The political optics of reducing taxes on the already rich at a time when most working households are struggling to juggle their budgets with many without savings facing real hardship was also dire.
Kwarteng thus gave Starmer practically an open goal to shoot at. Shrouding his speech with his family backstory, parental struggle in a pebble-dashed semi, their hard work and aspiration accorded with the approach suggested in Starmer’s Story Must Be Labour’s Story.
The headline flagship of his speech was 100% clean energy by 2030. Public-private partnerships spearheaded by a new Great British Energy state undertaking established within the first year of a new Labour government would unlock investment in domestic renewable energy sources to create a “million new jobs training for plumbers, engineers, software designers, technicians, builders” as well as insulate 19 million homes.
Complementing the £8bn National Wealth Fund that the shadow chancellor, Rachel Reeves, had announced the previous day, all this was rather suggestive of a green updating of Harold Wilson’s White Heat of Technological Revolution pre-1964 election banner, creating British jobs on the back of British innovation and investment.
Growth would also be bolstered by targeted capital allowances and borrowing to invest for long-term economic benefit within a wider fiscal framework where the current budget would be balanced: a resurrection of Gordon Brown’s golden rule. Fiscal rules would require debt as a proportion of GDP to reduce, with all policy commitments fully costed and funded, guided by (a previously announced) Office for Value for Money.
To support the customary Labour commitment to safeguard the NHS, more nurses, midwives, and doctors would be trained, funded from the proceeds of a reimposed 45% higher rate; in effect, a sleight of hand, insofar that reversing a cut simply restores to previous position: by the same logic reinstating the national insurance increases and Health and Social Care Levy would create the opportunity for £16bn of spending on new commitments.
70% home ownership would be sought by a policy framework favouring first time buyers (FTB) rather than Buy-to-Let investors and second home purchasers. Foreign purchasers would be charged a higher rate of transaction stamp duty, while a Mortgage Guarantee Scheme would aim to reduce FTB deposit requirements.
Such a commitment without some systemic reform of the current housing system based on private business models dependent on rising house prices, appears to risk becoming a false target akin to the Conservative 300,000 homes one, diverting attention from the substance of strategic policy change although mention was made to “reform planning so speculators can’t stop communities getting shovels in the ground”, which, however, is a slogan rather than a policy.
There were some other specific taxation pledges, namely retaining the reduced 19% basic rate and not reversing the national insurance increase – and relatively unremarked on – abolishing business rates, replaced with an alternative system (undefined) that would provide for early payment of revaluation discounts.
In that light, no indication was given how Boris Johnson’s existing September 2021 social care package – let alone an improved fairer one – would be financed nor was note made of the impact of Kwarteng’s tax cuts on its current progress.
Taxes on workers and employers have deadweight effects on employment, wages, productivity and growth, but given the public finances will be in mess if and when Labour forms a new government, such commitments beg questions as how spending on rising health care and social care needs in an aging society, on further education conducive to growth, on investment in affordable housing and bringing private sector housing up to Decent Homes Standard, is to made compatible with Labour’s proposed fiscal framework.
To square that circle is a long odds gamble on growth and lower interest rates coming to the rescue of the real crisis of the fiscal state: the mismatch between the public expenditure requirements of the UK and the political and electoral willingness for them to be met through forms of taxation that are efficient, sufficient, and transparent.
Honest and deep debate on public funding requirements matched to sources is accordingly avoided, invariably subverted instead to short-term political presentational purposes. The impoverishment of public services and an almost default governmental resort to hidden stealth or inefficient forms of taxation is the inevitable end-result.
In that light, it was disappointing that Starmer’s speech appeared to accept the Conservative take on the that taxes need to reduce, resorting to a New Labour-type tactical triangulation response, such as the linkage of increased spending on doctors and nurses with a reimposed 45% tax rate.
He could have focused instead on the trade-off between investing for growth and tax cuts, highlighting the impact of frozen tax allowances as a prime example of taxation by stealth on the hard-working majority, linking it to the need for system reform across the health and social care, housing and education sectors.
Strategy and tactics need to be rebalanced over the coming year.
Time for a Modern Land Tax?
1 The Vision of Henry George Revisited.
“Let the individual producer keep all the direct benefits of exertion. Let the worker have the full reward of labour. Give the capitalist the full return on capital. The more labor (labour) and capital produce, the larger the commonwealth in which we all share.
This general gain is expressed in a definite and concrete form through the value of land, or its rent. The state may take from this fund, while leaving labour and capital their full reward. And with increased production, the fund would increase commensurately.
Shifting the burden of taxation, from production and exchange to land value (rent) would not merely give new stimulus to the production of wealth – it would open new opportunities. Under this system, no one would hold land without using it. So land held from use would be thrown open to improvement.
The selling price of land would fall, and land speculation would receive its death blow. Land monopolization would no longer pay. Millions of acres, where others are now shut out by high prices, would be abandoned or sold at trivial prices.
This is true not only on the frontier, but in cities, as well”.
Henry George, Progress and Poverty, 1879.
Progress and Poverty sold more copies in America in the 1890s than any other book except the Bible, making Henry George a popular author across the English-speaking world and beyond.
It continues to well repay reading both as work of economics and philosophy. George –self-taught of humble origins, who worked as a seaman, typesetter, and printer before becoming a journalist – set out in accessible English a coherent world view centred on a tax reform that modern economists of differing political persuasions have re-awakened to as an efficient and equitable means to bolster growth.
His overarching tenet was that while people possess the right to the fruits of their labour, natural elements or ‘Nature’s (God’s) bounty’ not produced by human effort – air, water, sunshine, and land – should be vested with the community.
Private ownership of land would mean continuing suppression and exploitation of working people by the landowning class – a process that would intensify as land values rose with the population and with economic and urban development, so allowing landowners to subtract more and more wealth from the community.
George offered a solution – even a panacea. Not political revolution in favour of the proletariat where the state took control of capital and labour, as well of as of land. Not progressive systems of taxation levied on income.
Rather, a single tax on the economic rents derived from land ownership as the: “The simple device of placing all taxes on the value of land would, in effect, put land up for auction to whoever would pay the highest rent to the state. The demand for land determines its value. If taxes took almost all that value, anyone holding hold without using it would have to pay nearly what it would be worth to anyone else who wanted to use it.”
The eighteenth and nineteenth founders of modern economics, including Adam Smith, David Ricardo, and John Stuart Mill, following the pre-revolutionary French Physiocrats, had earlier identified that land as a fixed factor of production in inelastic supply – the value of which depended on its use and location rather than its intrinsic characteristics – provided scope for its owners to capture massive unearned gains for reasons connected with the wider development of society (initially increased demand for food from a rising population, then for urban space in accessible locations), not the owner’s own actions.
As to what is meant by economic rent, or, more precisely in in this case, land rent, definitions include: the difference between what land (or other factors of production: labour and capital) currently earns and what it would do in its next best use, regardless of the acts of the owner; and payments to a factor of production (including land) greater than the minimum needed for it to be supplied.
George’s single tax on land – meaning that it would replace and render unnecessary other taxes – involved taxing land rent at a 100% marginal rate, minus an allowance to prevent plot abandonment to obviate any need for the state to take ownership and to lease it out with accompanying risks of inefficiency and corruption.
Conceptually, if a land plot fixed in supply and is taxed according to its best possible use regardless of its current use, its owner to prevent financial loss will either put the land to that best use or sell it to someone who can or will.
A tax on land, in theory, is the most economically efficient tax, predicated on the assumption that the supply of land is perfectly inelastic or zero – its supply does not change at all in response to any change in its price.
In accord with that assumption, owners of land plot(s) cannot respond to the imposition of the tax by restricting its supply. Alternatively, if did respond by increasing its price, demand will fall returning the price again to its previous level.
The tax will be completely borne by its existing owner, therefore: its imposition will not alter or distort economic decisions concerning the current or subsequent use the plot is put, save that where the tax is levied on its best use, the plot owner will be incentivised, as noted above, to put it to that use.
If its value rises as result of a future change in its use, any consequent higher land tax liability will follow and not cause that change in use, avoiding – unlike other forms of taxation – economically harmful deadweight effects.
The 2011 Mirelees Review of Taxation defined deadweight loss, albeit less eloquently and less fired by belief than did George, as follows:
“By increasing prices and reducing quantities bought and sold, taxes impose losses on consumers and producers alike. The sum of these costs almost always exceeds the revenue that the taxes raise — and the extent to which they do so is the deadweight loss or social cost of the tax”.
Wider costs of tax collection and avoidance can also add to the deadweight cost of tax.
On the other hand, desired ‘merit’ (lower consumption of drink, alcohol, gambling, sugar, or other products deemed harmful) or externality (taking account of pollution, congestion or other effects resulting in costs not borne by the producer) impacts that can produce positive social benefits or ameliorate externality disbenefits that may subtract from deadweight cost.
Mirelees went on to emphasise, however, that reform should be driven by the core objective of minimising, as far as possible, the deadweight loss of the overall system.
George himself likened a single tax on land rent to “removing an immense weight from a powerful spring”, because it lifted the need for other taxes on labour, production, and on exchange: taxes that would otherwise reduce effort, output, trade, consequently constricting the community’s wealth.
Workers instead would keep the full fruits of their labour, capitalists their full return on capital, generating more income, investment, and wealth.
Such a tax would therefore “drive (rather than) act as a fine on improvement” in a dynamic and self-sustaining cumulative process. Landowners whether building or improving an orchard, homestead, or factory on a plot would pay no more in tax than they would if they kept it in its former unimproved state.
That would be true regardless of the cost of any improvements made, which would no longer have to absorb the input cost of other taxes on materials and labour.
George also identified that the incidence of a tax (whom its actual economic burden will fall) will not necessarily correspond or vest with the economic agent – whether company or individual – that formally pays it in cash.
In a telling, and ever timelier, answer to his own rhetorical question as to why – if a tax on land values is so beneficial – does the government resort to so many other taxes, he replied that it was the only tax that cannot be passed on to others: borne by landowners, it provides that group with a powerful interest to lobby and resist its imposition.
In contrast, businesses feel less need to oppose taxes, such as levies on inputs that they can then ultimately shift to consumers, especially when they “come in such small amounts, and in such invidious ways, that we (the consumer) do not notice them”.
Indeed, one could imagine how scathing George would be on the default propensity of modern UK governments to indulge in stealth taxation, such as tax bracket creep: the insurance premium tax fits his diagnosis to a tee.
National insurance employer contributions that increase the cost of labour – depending on the relative market power of firms, workers, and consumers – reduce wages to a point lower they could have reached otherwise and increase consumer prices: deadweight effects.
Land value taxation thus offers to bridge the socialist or communitarian nostrum that unearned wealth based on ownership of nature’s bounty (land and natural resources) should be harnessed for the benefit of the community with that of the premise that wealth-creation requires the lifting of economically burdensome and incentive-sapping taxation (deadweight) effects on business and individuals.
George’s prognosis that governments would be reluctant to impose a single tax on land however has proved almost entirely correct, however, for reasons that later Sections will explore.
2 The Modern Gradualist Georgist Approach
Contemporary advocates of a Georgist approach to taxation straddle the UK political spectrum, encompassing the Labour Land Campaign, the Alter Group of the Liberal Democrats, and the Scottish Land Revenue Group.
Free market-oriented think tanks, including the Institute of Economic Affairs and the Adam Smith Institute, have also expressed past support for the principle along with many, if not the majority, of mainstream economists, including in the UK, the independent and influential Institute of Fiscal Studies (IFS), most notably in its flagship 2011 Mirelees Review.
The American Nobel Prize winner in a 2015 paper, Joseph Stiglitz, linked the enormous widening of wealth inequality in America since 1980 to two main causative factors: first, changing tax, education, health, anti-trust, regulatory, and monetary public policies; second, to an explosion in economic rents, especially land rents and values (expressed in rising real estate values).
He ascribed rising land and real estate values as the main driver of the increased wealth-output (and income) ratio recorded across most advanced economies since 1980, noting that productive capital (contributing to future growth of output, profit, and wages) is only a subset of total wealth, 42% of which was owned by the top 1%, with the top 0.1% owning 22%.
He concluded that such an unequal distribution and ownership retards and hinders economic and social opportunity, providing an underpinning reason why contemporary America, far from being the ‘Land of Opportunity’, offers to most of its people one of the lowest levels of equality of opportunity amongst the high-income countries.
Moreover, as land is a store of value dependent on its future expected value, land prices are prone to untethered self-fulfilling rises, resulting in speculative bubbles that, in turn, can and often do give rise to wider economic instability with its attendant costs.
Stiglitz, endorsing George’s arguments that Section One summarised, concluded that: “a tax on the return to land, and even more so, on the capital gains from land, would reduce inequality, and by encouraging more investment into real capital (plants, machines, research and development), actually enhance growth”.
Recent relevant data tends to vindicate George and Stiglitz. A dataset produced by the Organisation of Economic Co-operation and Development (OECD) found that across its membership the share of total non-financial assets taken by land was within the 40-60% range.
The UK Office of National Statistics (ONS) May 2022 national balance sheet estimates, covering the 1995-2021 period, puts the value of UK land (exclusive of the value if dwellings and other building structures that may be built upon it), in 2021, at £7.0 trillion (seven million million), around 60% of the UK’s assessed total net worth.
Table 2 of the same estimates reports that the total value of produced non-financial assets (best proxy for productive capital) was £1,684,803million in 1995 when the total value of land (non-produced financial assets) was £1,066,725million, but by 2021 that position was transposed, with land accounting for £7,011,740 compared to £5,100,144 million of non-produced financial assets (capital).
A July 30th 2022 Economist opinion piece noted that in 2020 the world’s largest asset class, real estate, accounted for around 68% of the world’s non-financial assets – a category that includes plant and machinery as well as intangibles, such as intellectual property.
It went on to argue that, whether in the ‘West or China’, such rising values are tending to divert capital from productive uses, constricting both national business investment and productivity, before concluding that taxing and reducing land values could counteract that adverse trend with beneficial macro-economic effect.
A pure land value tax (LVT) is now usually defined as a periodic and recurring charge on the assessed (usually rental) value of a demarcated parcel of land (plot), exclusive of the value of what may be built upon it.
Modern such treatments invariably shun the original Georgist conception of a near 100% tax on land rent, in favour of a more gradualist approach, where it is phased-in over several years to reach rates usually closer to five per cent than 100%.
The primary reason is practical. The sudden fall in land and housing asset values that could be expected to follow the announcement of a near-100% tax on land value, along with the associated wider economic uncertainty, would almost certainly produce irresistible political pressures for the quick repeal of such a tax; pressures, in practice, that would prevent its introduction in the first place.
Tony Vickers, in a paper for the Liberal Democratic aligned Action for Land Taxation and Economic Reform (Alter) pressure group, while recognising that a pure LVT introduced at a low starting rate would yield total proceeds insufficient to replace all other taxes, noted that its rates could be increased over time and that such phasing was preferable to successive failed post-war attempts to use betterment taxes or other more complex instruments to tax planning betterment gain.
Applying assumptions that all land plots would be revalued annually and taxed at a LVT set at one per cent of their assessed capital value in their “optimum permitted use” (except agricultural land, valued at its existing use), Dave Wetzel (formerly the Greater London Council’s transport chair in Ken Livingstone’s early eighties administration, who led on the Fare’s Fair Programme that although was ultimately vetoed by the Law Lords set an important marker), in a paper for the Labour Land Campaign (LCC), posited that such a LVT would yield £50bn – a figure then based on a 2017 Office of National Statistics (ONS) £5 trillion valuation of all UK land.
If that rate was then progressively increased to four per cent over a “two-term ten-year Parliament” the LVT yield would commensurately rise to over £200bn, enough, Wetzel argued, to “abolish” national insurance contributions (NICs), council tax and business rates, and to allow income tax “to be significantly reduced or eliminated altogether for low and some middle-income earners”.
Updating to a 2021 seven trillion-pound land value subject to a one per cent pure LVT, would potentially generate £63bn (63 thousand million) per annum. A four per cent rate would raise c£250bn per annum.
Such projected LVT receipt levels compare with 2021-22 VAT tax receipts of c£143m, total National Insurance Contributions (NICs) of c£160bn and Pay as You Go (PAYE) income tax receipts of c£193bn.
Such figures should be considered as a consciousness-raising indicative examples of the potential of a LVT, insofar that they simply assume that a stated percentage tax on total land value, as reported in the National Accounts, will be realised – which itself assumes that plot valuations in practice (assuming necessary valuation arrangements are put in place) will total up to the NA estimate; will be accurate and non-contestable to a point that the tax can be collected; and that the LVT and the expectation of progressively rising LVT rates will have no impact on future land values, as will the impact of changes in the macro-economic environment on such values.
The projections will also depend on the likely time lag between LVT levies and countervailing tax reductions, and the overall political feasibility and sustainability of such a programme.
In more technical contribution that addressed some of these issues (mainly at an econometric modelling level), the former Bank of England senior advisor and LSE professor Charles A Goodhart (the originator of Goodhart’s Law: when a measure becomes a target, it ceases to be an good measure) with other distinguished American economists, in a 2021 Centre for Economic Policy Research (CEPR) discussion paper, recommended that a Land Value Asset Tax (LAVT) should be levied on the capitalised value of future after-tax land rent values inclusive of price appreciation, in accordance with “a tax on a stock, the capitalised value of future after-tax land rent values inclusive of price appreciation.”
Using American institutional data, they modelled that over a 20-year period, such a LAVT reaching a rate of around 5.5% in 0.5% increments – assuming balanced budget tax cuts on labour and asset incomes – would spur output gains of close to 15% and 3.4% in welfare gains.
Such a gradual speed of implementation, according to the authors, would smooth the windfall and cash flow impacts of the proposed LAVT and accordingly alleviate political opposition to it.
Increasing the LAVT rate further up to a 20% – a rate they perceived as a cap consistent with political feasibility – would generate higher gains and raise up to 55% of total tax revenue.
The largest proportional gains, however, would still be realised at low LAVT rates, and remain large until a 10% LVT rate was reached.
The flame of George’s vision has begun to burn brighter again, with mainstream economists increasingly joining dedicated and longstanding disciples of disparate political backgrounds.
Very rare does one encounter both groups waving the same torch, inducing the almost exasperated gasp as to “why can’t the politicians simply bite this golden bullet”.
Two of the more immediate apparent issues are now addressed, the valuation of land for LVT purposes, and the institutional environment (in the UK context) that is a major determinant of actual change in land values.
Valuation issues
Henry George’s proposed 100% tax on land rent was a theoretical construct that largely ignored practical issues of implementation, including the assessment of the value of diverse plots in their best use that tend to change over time.
The paucity of observable land price data generated at scale by a functioning competitive market means that even today direct measurement of land prices by government agencies is the exception rather than the rule.
Without such measurement, estimation of plot land value to a degree of accuracy that can command confidence and legitimacy for LVT purposes becomes even more difficult.
EuroStat provides useful background from a national accounts (NA) perspective on some of the underlying valuation methodological issues.
South Korea provides one of the few exceptions. Since 2006 it has been mandatory for real estate agents brokering transaction, involving residential buildings or land, to report actual transaction prices (ATPs) to the relevant local government body within 60 days.
The ATP data – as elsewhere, only a small proportion of plots are traded each year – is then compared with publicly appraised and noticed prices (PNPs) that are secured from an annual sampling survey inspection process.
Both sources are then used to value delineated plot(s) at market prices or market price equivalents for land taxation and compensation purposes.
Across many Organisation of Economic Co-operation and Development (OECD) countries, available information is instead largely restricted to real estate values – combined land and structure/dwelling (CV) plot value – and involve the use of indirect land value estimation methods that require the estimated separation of land and CA values.
Estimating the land-to-structure (LSR) ratio and the residual value of land are the two main approaches taken.
The ONS advised in a March 2022 methodological paper that the UK uses the residual approach for NA purposes. This is because estimates of residential investment are only produced at the national level in the UK, while the value of land varies considerably both within and across its regions.
This residual approach takes CV as the starting point of the calculations using the available Valuation Office Agency (VOA) and HM Land Registry data.
Because English dwellings were last valued for council tax purposes in April 1991, historic valuations are converted into current prices using regional price indexes based on the Land Registry data.
Estimates of the net capital stock (gross new and improvement investment, depreciated or consumed according to set assumptions) value of the dwelling/structure is then subtracted from the plot CV, to produce a residual land value estimate.
It is an imperfect process, largely replicated for non-domestic business property, that suffers from a range of methodological and data source problems.
Given that urban use values can rapidly change, a pure LVT would require regular, if not annual, land value valuations for tax liability to be computed accurately and transparently.
Both VOA and Land Registry data sources fail to identify accurately all dwelling and property attributes including area and neighbourhood, condition, and other characteristics, with resulting inaccuracies.
The ONS is seeking to make to improve CV estimates before reviewing the relationship between CV and underlying land values.
It plans to publish updated indicative estimates of land underlying dwellings and land underlying other buildings and structures by the end of 2022.
Goodhart and colleagues recommended that the building residual valuation method should be adopted instead. This is where the value of its land in its highest and best use is subtracted from the market value of a development plot (combined value of land and building/structures placed on it) to obtain the residual value of the building rather than the land element of the CV.
The land residual method, they observe, can undervalue land value. The valuation of the buildings (based on their depreciated construction cost) tends to take insufficient account of their on-going locational (in contrast to their physical) obsolescence, citing, as evidence, the widespread conversion of centrally located commercial property to residential use in the United States.
American conditions may not apply across other national planning environments. Also, the building residual model presupposes an accurate mechanism to measure the land value directly or, at least to separate the respective values of the land and structure within the combined plot value.
Many LVT advocates argue for plot valuations to be based on their capitalised rental value, pointing out that the Valuation Office Agency (VOA) already compiles and updates – at roughly five-year intervals – a rating list for each local authority in England and Wales.
That process involves the computation of an estimate of the annual rental of all its non-domestic properties, based on their individual locations and attributes (see Section Six: LVT and Business Rates).
Such an annual list with input from the Land Registry could then be extended to include the boundaries of each property and its area measurements, which could assist any future move to the separate valuation of plot land and building elements.
The government in October 2021 indicated an intention to shorten that valuation cycle to tri-annual, as a possible (tentative) first step to annual valuations.
Where there is a will, there is the way, as the saying goes: the overriding problem is that such will has largely been absent.
Garnering and harnessing the political will of sufficient strength and resilience to put in place a pure LVT linked to the wider political acceptability and feasibility of pure and partial LVT variants is the real challenge that later Sections will consider.
Valuation methodological issues are a related subsidiary albeit significant issue, insofar that a pure LVT to be acceptable and sustainable would require accurate land valuations, notwithstanding these are likely to be contestable, regardless of their methodological robustness.
Take prime estate in the West End of London: the valuation for LVT purposes of an eighteenth-century square used for mixed residential and business purposes is still likely to prove far from straightforward and simple, where different forms of beneficial ownership that can often be obscured by opaque legal arrangements would need to be unravelled and tracked.
That said, legislation was recently brought forward and expedited to crack down on the flood of ‘dirty money’ into Britain in the wake of Russia’s full-scale invasion of Ukraine.
A new register will now require anonymous foreign buyers to now disclose the beneficial owners, with verified information, to Companies House — before any application to the UK’s land registries can be made.
Its relatively rapid and seemingly worked-through implementation suggests what can be done – given the will to do so amid and engendered by the existence of wider amenable political circumstances.
Politicians will probably need to mould such circumstances to support LVT introduction, when their commitment and willingness to do that is not present or apparent currently.
The institutional environment
Although the supply of land in total might be finite and fixed, and thus perfectly inelastic in supply (excepting reclamation, or loss due to natural calamity or natural process by flood or erosion), uses to which a plot can be put and hence its value or price are subject (and can vary) not only with its own physical characteristics, (topography, soil fertility, and other factors impinging on the cost of bringing into, or changing a particular use), but, crucially, also with the related institutional and other processes that govern how it is regulated, traded, and then used.
In the UK, the planning system largely governs the institutional framework in which land is traded and used.
It attempts to reconcile competing – and often conflicting – economic and social objectives, including the enhancing of urban amenities, the preservation of green belts around towns and cities, as well as the wider environment, including National Parks, designated areas of natural beauty and other green spaces, the provision of adequate transport, education, and health social infrastructure, as well as the meeting of additional housing requirements.
The planning system determines changes in designated development use, including the intensification of an existing building use, the redevelopment of an existing use, as well as the switching of use from, say, agriculture to residential use. Planning permission for change of use usually crystallises changes in the plot’s development value.
The supply of land for business or residential use, therefore, is not completely fixed in the contemporary UK environment. The supply responsiveness of land for specific development purposes can vary significantly according to local and national planning policy processes and their application.
These processes can add time and other costs to the development process. The current value of hectare of agricultural land is c£22,000; when attached with a planning permission for residential development across many areas its average value will tend to exceed £2m: a hundredfold increase; on the face of it indicating a massive windfall for any lucky farmer waking up one morning and finding that their land has been zoned for residential housing.
It is, of course, not quite that simple. The farmer will invariably need to share that gain with a development partner prepared to invest in the cost of obtaining planning permission.
Section 106 planning and affordable housing obligations and infrastructural levies, as well as infrastructural servicing costs, and then construction cost, will sometimes eat into some of that apparent return, which can, however, remain substantial.
The degree to which a LVT will be partly or even predominately borne by plot owners will still largely depend how price inelastic that supply is: the lower the price elasticity of land supply (when the demand for residential or other use is more price elastic or sensitive), the higher will be both the potential development value and taxation potential of that plot(s).
The empirical delineation of such relative elasticities is incomplete and uncertain, however, varying with area and with the reservation (lowest) price each individual landowner will willingly sell an individual plot(s).
The measurement of land rent that could potentially be available for taxation continues to constitute a central problem in LVT design and implementation, especially in interaction with the prevailing institutional environment, in this case the planning system.
In that light, valuations would need to take account of all current planning conditions and rules relevant to each site.
The government’s 2020 Planning White Paper proposals to move towards to a zonal rules-based system have largely been kicked in the long grass. The planning system in England and Wales is likely to remain to a significant extent discretionary based, contributing to valuation uncertainty.
It follows that a treatment where each plot is valued according to its “highest and best use” or its “optimum permitted use” consistent with applicable planning and zoning rules, it would be set (such as land in current agricultural use but zoned for housing use) with reference to a postulated value that subsequently may not be necessarily realised.
Assuming that planning permission would be granted in line with an assumed zonal valuation could also consequently risk rejudging that decision, giving rise to possible to compensation claims from landowners not securing the planning permission they could argue was consistent with its zoning, although the application of that assumption would tend to act as a nudge, rather than a non-resistible shove, for them to progress change to “optimum permitted use”.
Even though option or other agreements between developers and owners could provide an indication of market valuation of ‘hope’ values based on the expectation that a change in planning use sometime in the future will secure permission would be hypothetical and even more uncertain in realisation.
Another consideration is that a pure LVT levied at a gradually rising rate within the one to five per cent range is not really designed to capture high levels of windfall gains or land rent as defined by Ricardo, as understood by George, meaning that it is likely that planning gain windfalls would still need to subject to other development levies, such as Section 106 affordable housing requirements.
In short, real-world conditions are far more complex than was the case when George proposed his single land tax solution.
Section Three shows that governments across America and European industrial countries – at least in practical policy terms – to all intents and purposes were largely unreceptive to his solution – and have remained so since.
A twist in that tale is that Georgist prescriptions have been successfully applied in high density East Asian urban environments – in a customised society-specific fashion – during the last third of the twentieth century.
3 George’s international legacy
Expectations of the transformative potential of LVT have greatly outreached outcomes.
The use of land value taxes started from a low base around the turn of the twentieth century (Japan had already established one) and have since tended to recede.
LVT practice in local municipalities in the United States (US) – Pennsylvania in particular; Denmark, and then New Zealand – are often touted as positive examples of LVT application, when, in practice, they provide testimony rather to its limited application.
Post war outlier exceptions are concentrated in post war East Asia, including the four east Asian ‘economic tigers’ – Singapore, Hong Kong, South Korea, and Taiwan – which enjoyed sustained annual economic growth rates of seven per cent across recent decades.
Singapore’s application of Georgist principles from its beginning as an independent city state combined with their centrality to its chosen development model and institutional arrangements, provides an exemplar example of effective integration of land assembly, planning, taxation, and housing policy development.
Its exceptional geographical and political institutional characteristics suggest, however, limited direct replicability.
United States (US)
LVTs have tended to metamorphose into wider combined taxes on property that include the value of the structures built upon a plot, and – depending on their design and the frequency of revaluations – of any subsequent improvements made to such structures.
The United States (America) is a prime example. Its cities and states over time have levied property tax variants rather than a pure land tax, before progressively ceding to pressures to reduce their limited coverage and incidence.
That receding trend is not difficult to understand. In 1978, Proposition 13 – a ballot referendum measure in California – capped property taxes to one per cent of a property’s assessed value and that to its original purchase price (rather than its current market value), save for an annual allowance of two per cent. Owners in areas of rapid house price appreciation, such as San Francisco, were thus given a disincentive to move.
Proposition 13 encouraged similar measures across states and localities. It also discouraged state and municipal politicians – fearing similar local taxpayer revolts – from going down the LVT road.
Local governments have tended to become a prisoner of the local homeowner vote: modern American democracy as it has turned out is hardly as George envisioned.
The exception (or possibly the exception that proves the rule) is Pennsylvania. Municipalities there, however, have primarily applied a split-rate tax (a partial LVT where land is separately taxed at a higher rate than is the buildings sat on it), rather than a pure LVT.
One demonstration example in that state often cited is Harrisburg, whose city authorities in 1982 more than doubled the tax rate on land while reducing it on buildings.
The city, according to economist Jerry Jones, in another Labour Land Campaign paper, subsequently enjoyed a rejuvenation in economic activity, in housing supply, and in public revenues.
Another is the former steel city of Pittsburgh. After it lowered taxes on buildings relative to land in the late 1970s, the city experienced a reported ‘building boom’ that ameliorated the impact of deindustrialisation, at least in comparison to other deindustrialising cities, such as Detroit.
The City of Altoona in central Pennsylvania is notable insofar that between 2011 and 2016, according to the Federal Highways Administration (FHA), it was the first and only city in the US to rely on a pure land value tax, alongside 16 cities and two school districts that levied a land tax together with other taxes on buildings (partial LVT), including, presumably, Harrisburg.
In Altoona, a split-level tax was levied on 20% of assessed land plot values in 2002; the plot rate on buildings was concurrently reduced to 80%. The land plot rate was then increased annually by 10% as that on buildings was reduced by 10%, until, in 2011, it became a 100% tax on the land value of the plot and zero on buildings: a pure LVT.
The FHA reported that the assessed value of all land in Altoona accounted for one-seventh that the combined total value of its land and of buildings (real estate value).
The corollary of that low proportion was that the pure LVT tax rate needed to increase sevenfold to match the revenue that the predecessor combined property tax generated.
More generally, where land plot values represent a relatively low proportion of total combined land and building value, a pure LVT must be charged at a much higher rate across a much lower base (on land only, rather than combined land and structure value) to secure the same amount of revenue or yield that a previous combined land and building property tax did or would need to.
In Altoona, notwithstanding its higher LVT rate, 72% of its municipal payers faced a lower tax bill than they previously did under a combined tax regime.
Property owners with land valued less than one-seventh of the total assessed combined land and building value of their plot paid less in total. Conversely, owners with land valued at more than one-seventh of the combined land and building value of their home paid more, as did owners of vacant or underdeveloped plots.
Taxes on agricultural land were not changed under this new land value tax regime.
But no clear link between the LVT and positive subsequent urban outcomes across the city were established – at least by the official FHA evaluation.
In short, the Altoona LVT did not prove a magic bullet and was shelved in 2016. The demise of Altoona LVT , according to its mayor, resulted from two main reasons.
First, the continued existence of other county and the school district-imposed property taxes narrowed the scope for LVT to generate its own incentives, accounting as it did for just a small fraction of the overall property-related tax take.
The second and related reason was that residents and businesses struggled to understand the potential benefits of moving to or investing in the city that the LVT potentially offered.
Its novel exceptionalism meant that businesses might have been deterred from investing by the apparent relatively high rate of tax on land plots, not understanding that as the plot tax rate on buildings was zero, the effective plot rate was usually lower than was the case previously and elsewhere.
City officials noted that the LVT attracted interest from national media and “places as far away as England and elsewhere in Europe intrigued by land value taxes”, underscoring the need such informational perception failures to be overcome in the future.
The FHA noted that the it possibly did improve distributional outcomes, helping to push up property values in a low value area, and encouraging, at the margin, some intensification of use with associated greater economic activity, concluding that a LVT is: “is well suited to established cities and smaller growing cities where there is a need to build new mixed-use infill projects… regular reassessments are essential with the land value tax if municipalities need additional tax proceeds”.
Denmark
Across the Atlantic, in Denmark a land tax accounted for around 50% of local and national government revenues, calibrated to an agricultural yield benchmark historically based on what could be grown on the best quality land. That was in 1903 before it was abolished.
Subsequently, the secular tendency has been for income and other direct taxes to increase as proportion of public revenues.
Direct personal taxes now account for over 50% of its public revenues, the highest of any OECD country (see OECD link reference below).
A separate tax on land value remains alongside a wider property tax calibrated to property values, where a higher marginal rate is levied on higher value properties.
According to the most recent relevant Organization for Economic Cooperation and Development OECD publication data published in 2021, property taxes represent a relatively insignificant feature in the country’s taxation landscape, not discordant with a wider international long-term trend where “Between 1965 and 2019, the share of taxes on property fell from 7.9% to 5.5% of total tax revenues on average across the OECD (Figure 6). Canada, Israel, Korea, the United Kingdom and the United States had property tax revenues that amounted to more than 10% of total tax revenues”.
In this high-income Scandinavian country blessed with an enviable taxpayer-funded post-war welfare state, where high levels of direct taxes that might otherwise be expected to be distortionary and inefficient finance high levels of social expenditures that tend to reduce labour costs, supported by high levels of social solidarity, LVT appears more as historical anomaly than a transformative tax instrument, as envisaged by George.
That said, its property and land tax design may well offer pointers for future incremental property tax reform across the UK and elsewhere.
A more detailed and updated case study would be helpful in that regard.
New Zealand
A study of the New Zealand (NZ) land tax noted that from 1894 that it was levied on land value only. The following year it provided around three quarters of total land and income tax revenue.
But fast forward to 1965, its revenue had dwindled to a mere 0.5 per cent of total land and income revenue.
By 1982 only five per cent of its total land value was taxed, reflecting a secular trend for the national LVT to wither on the vine. Agricultural and land residential land had been effectively exempted from its base, before it was finally abolished in 1992.
Instead, local property rates provided the principal source of NZ local authority revenue, while income and other taxes provided the primary base of national taxation revenues.
Some NZ local authorities do, however, continue to impose their own limited land tax. Although these are informed by comprehensive property valuations carried out triennially by the central government, the total yield of all NZ property taxes, including land taxes, by 2018 only totalled around 2% of its GDP – close to the OECD 1.9% average, but less than half the c4.1% recorded for the UK.
Local land-value taxes are common in Australia, but residential property is mostly exempted, thereby restricting their base and yield.
Singapore
The legacy of Henry George in many ways has shone far more brightly in Singapore than it has in his native New York.
A British colony until 1959 when it became self-governing, Singapore then became fully independent from Malaysia in 1965 as a sovereign city state.
Its subsequent story is one of remarkable rapid economic transformation and success, moving from low-income poverty to high income self-sustaining success.
According to the Charter Cities Institute per capita income increased, staggeringly, from c$428 in 1960 to $65,000 in 2018 and is an exemplar of “excellent governance’’ among planned cities.
Singapore like Hong Kong, hemmed in by the sea, was forced to grow by necessity upwards rather than radially, generating exceptionally high urban population densities of over 6,000 persons per square kilometre, notwithstanding that since 1960 land reclamation enabled the extension of its spatial area by a quarter.
It is one of only a few jurisdictions in the world to have successfully implemented a comprehensive system of land value capture mainly through the direct state ownership and leasing of land. Hong Kong’s development also involved the government leasing and collecting land rent from state-owned land.
The resulting revenues helped to induce a virtuous cycle where development unlocks the funds necessary to bring forward the infrastructure needed to unlock further productive development.
From the outset, in accordance with the Georgist principle that no private landowner should benefit from development financed or supported by the community, government land ownership in Singapore largely prevented individuals from capturing rising land values and rents.
Its Land Acquisition Act 1966 provided broad powers to state and other entities to compulsorily acquire land for any public purpose where, “in the opinion of the Minister, it is in the public interest to do so”, at a price that disregarded the contemplated future value of the subsequent development.
A massive and systemic transfer of land from a small number of wealthy landowners to the state followed. Subsequent rises in land values generated by rising and concentrated levels of economic activity were then captured by the Government and used for infrastructural investment. The state continues to own c80% of the city state land mass.
Singapore’s example (as is Hong Kong’s) is one of effective land reform and state ownership and value capture by proactive state direct action – in its case helped by a stable wider macro-economic and political environment.
As such, it can be broadly characterised as a state capitalist model that is wedded to free trade principles, welcoming to foreign inward investment.
Although Singaporean taxes are low by advanced economy standards, it still levies VAT (GST), income taxes, stamp duty, and other taxes, including a property tax that is progressive (rates increases in line with value thresholds and differ between owner-occupied and non-owner-occupied residential properties) based on annual rental value.
The long-term stewardship of land assets by the Singaporean state underpins its widespread provision of 99-year leasehold homeownership to its citizens; an investment in social capital that, in turn, supported its wider economic model, which aimed to keep wages and other business costs low to make Singapore an attractive investment opportunity for foreign firms.
An Asian Development Bank study of Singaporean housing policy provides more detail on the relationship of Singaporean housing policy to its wider economic success.
Between 1961 to 2013, the Housing and Development Board (HDB) – the public housing authority – built more than one million high-rise housing units. It functioned also as a housing finance intermediary, harnessing domestic savings through housing-linked accounts.
Singapore’s public housing was primarily sold to middle-income buyers. Purchasers not only possessed the right to live in their flat, but also sell it on at a market-rate price, or to lease it to a tenant until their 99-year lease expired.
Despite the high levels of state land ownership, rising house price and affordability still proved a problem – land is sold or auctioned at market value for housing – forcing the government to introduce a package of ‘anti-speculation’ measures in 1996.
These included capital gains taxes on the sale of any property within three years of purchase, stamp duty on every sale and sub-sale of property, the limitation of housing loans to 80% of property value, and limiting foreigners to non-Singapore-dollar-denominated housing loans
And, since the noughties, a series of purchase grants tied to household income were introduced that allowed the HDB to price its flats more responsively to a household’s ability-to-pay.
HDB also provides public housing for rental, comprising smaller units, such as one- and two-room flats. They are mainly provided for lower-income households and to those waiting for their purchased flats, and, as such, are attached with lower income requirements compared to units offered for sale.
Reportedly, almost all employed citizens own their home, subject to age and other social eligibility restrictions.
These can be restrictive, however. Young people needed to marry or wait until they attained the age of 35 to qualify, for instance. Economic migrants making up c15% of the total population are not eligible for HDB housing.
4 A Panacea Stillborn in the Twentieth Century
“The landlord who happened to own a plot of land on the outskirts or at the centre of our great cities ……sits still and does nothing. Roads are made, streets are made, railway services are improved, electric lights turn night into day, electric trains glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements I effected by the labour and at the cost of other people. Many of the most important are effected at the cost of municipality and of the ratepayers. To not one of those improvements does the land monopolists as a land monopolist contribute. He renders no service to the community, he contributes nothing to the general welfare…the land monopolist only has to sit still and watch complacently his property multiplying in value”. Winston Churchill, The People’s Rights, 1909.
“Henry George failed…because he had been studying the world as it had been for generations and centuries, and arrived at certain conclusions on that basis, and the conclusion he arrived at was that land was practically the sole source of all wealth. But almost before the ink was dry on the book he had written it was apparent that there were hundreds of different ways of creating and possessing and gaining wealth which had either no relation to the ownership of land or an utterly disproportionate or indirect relation”.
Winston Churchill, Speech to Parliament, 5th June 1928, quoted in Churchill Project.
Henry George had published Progress and Poverty in 1879 into a rapidly urbanising and industrialising democratic society marked by high levels of immigration and internal migration, yet, unlike Britain, in terms of population, was still predominately agricultural and rural based.
The last Section showed that George’s prescription of a single tax on land removing the need for all other taxes, ushering in an era of plenty and equality according to desert, proved more a chimera than a panacea in his own country and its closest economic peers.
At some levels conditions appeared potentially ripe for the introduction of a Georgist land tax given rising democratic pressures to protect the majority from poverty amidst riches, while government expenditures remained below 10% of GDP until the turn of the century with commensurate taxation requirements.
This Section considers why his single tax idea was stillborn. Although mainly using Britain as a case study, parallels with his native land are clearly discernible, including that of other issues dominating political discourse and attention, the associated lack of sustained political focus, the lack of a powerful electoral coalition in favour rather than opposed, and the institutional lack of capacity as well as willingness to implement it.
The growing importance of government within the economy necessitated by the First World War and resulting increase in expenditure and taxation requirements then largely resigned the Georgist agenda to the status of historical curiosity.
Historical context
Britain, as the nineteenth century wore on, was increasingly imbued with the democratic influences that post-Revolutionary America already possessed.
The Conservative Disraelian 1867 Reform Act had given the vote to all householders and to those paying more than £10 in rent in towns – enfranchising some of the urban working class for the first time. Gladstonian Liberal legislation in 1884 did likewise for rural workers.
In Britain, the numbers of urban workers increased absolutely and relatively as a proportion of the total franchised population. By 1874 trade unions had already sponsored two working class Liberal MPs.
Trade union membership spread both in size and reach during the next two decades to encompass the unskilled majority.
Urban riots involving workers and the unemployed attracted heightened political concern. Joseph Chamberlain, ex-Mayor of Birmingham, when Liberal President of the Local Government Board during the mid-1880s, for instance, made speeches that yanked together the inequities of inherited wealth inequality to the need for “property to pay a ransom for its security”, presaging Winston Churchill twenty years later.
Yet Chamberlain and other like-minded Social Liberals diverted the focus of their attention to Irish Home Rule (the cross-cutting Brexit issue of that era), displacing the development of a socialistic liberal agenda based on Georgist principles, responding to embryonic demands for the state to intervene to provide at least some minimal level of social protection and security at least to the ‘deserving poor’.
By the turn of the century Chamberlain had reinvented himself instead as the leader of the Liberal Unionists propagating a tariff reform and imperial preference political programme.
By then socialist-oriented political organisations, such as the Marxist Social Democratic Foundation, and then in 1893 the Independent Labour Party (ILP) had formed to further the specific class interest of workers politically. Intellectuals wishing to translate nascent collectivist responses to Victorian laissez faire into more concrete and universal policy programmes also established the Fabian Society.
Along with the trade unions these and similar organisations together provided the nucleus of the Labour Representation Committee soon to become the Labour Party, which would replace the Liberal Party as the main electoral alternative to the Conservative Party.
The government’s need to finance both growing social and military expenditures, including on a rudimentary national insurance system for working men, and on a basic non-contributory old age pension of five old shillings payable at age seventy, as well as on battleships or ‘Dreadnoughts’ to keep pace with the growth of the German fleet, provided the fiscal backdrop to the 1909 People’s Budget.
Its prime movers were the humbly born Welsh chancellor, Lloyd George, and, following his switch to the Liberals from the Tories, the President of the Board of Trade: the more aristocratic Winston Churchill.
Both in their speeches excoriated, as did George, the inequity of poverty spreading amid abundance, highlighting, very much on Georgist lines, the ability of landowners to expropriate the benefits of rising land values generated by community actions and investment, such on water supply and streetlighting.
The 1909 budget, on top of an increased and more progressive income tax, including reliefs for those at the bottom and an additional supertax for those at the top, also proposed a land tax.
At a time when one per cent of the population, some 33,000 people, owned two-thirds of its wealth, a Georgist LVT that could be levied on a wealthy minority for the benefit of the franchised majority (excluding women until 1918) appeared an attractive proposition for a radical government to grasp.
Although it provoked sharp opposition from the opposition and the Conservative dominated House of Lords, the Liberal Prime Minister, Sir Henry Campbell-Bannerman’s pledge “to make the land less of a pleasure ground for the rich, and more of a treasure-house for the nation” resonated with the growing democratic tenor of the age, seemingly aligned on Georgist lines.
But Lloyd George struggled to persuade parliament to introduce a workable LVT that could be implemented quickly. He seemed himself confused as to how it would work.
His package included a 20% tax on the unearned land capital gains revealed on sale, a capital levy on unused land, and a reversionary tax when leases expired, making the proposals more akin to a development tax than a pure LVT.
It presaged post war – and similarly unsuccessful – efforts to tax betterment gains rather than representing a distillation of Georgist principles into a practical policy programme. It was soon abandoned in 1920 on the stated ground of valuation difficulties.
Instructively, in the light of the waxing and waning of Chamberlain’s Georgist star twenty years previously, many historians consider that the radical Liberal duo had had touted a land tax more to provoke the House of Lords so to reject the People’s Budget – and thus set up a ‘People versus the Lords’ election that their then party expected to win – than it was a committed effort to shift the tax base onto landed wealth.
Boris Johnson’s 2019 efforts to provoke the Commons to dissolve Parliament and so precipitate a ‘Get Brexit Done’ election that he banked on then to return him with an unassailable majority, perhaps, provides a modern political example of that same, and far from uncommon, political phenomenon.
And, in any case, free trade versus tariff reform continued to compete for hegemonic political attention, fragmenting political alliances that could otherwise focused on Georgist land reform.
The Georgist moment – even if it had really existed – had passed. Most of the additional tax ultimately raised after the two People’s Budget elections were sourced through income tax.
The fiscal institutional environment
For much of the nineteenth century, custom and excise duties, along with the ludicrous window tax (which had the deadweight effect of householders blocking in their windows – an effect sometimes still visible in Georgian houses and terraces) accounted for most of the government’s revenue in Britain.
In 1874 – five years before George published Progress and Poverty – customs and excise contributed £47m to the government’s total revenue of £77m, which itself accounted for approximately six to seven per cent of Gross National Product (GNP).
A national income tax had been first introduced during the Napoleonic Wars, was made permanent in 1842, increased temporarily to meet the exigencies of the Crimean War, and then reduced and applied at a low rate for the remainder of the century. It was not paid by the bulk of working population.
Its imposition, requiring personal information to be provided to the state was perceived as a potential threat to personal freedom, contrary to the prevailing liberalism of the age.
Across continental Europe, industrialisation was accelerating across the nascent national state democracies. Growing nationalism, militarisation, power rivalry, and political upheaval followed in its slipstream.
Bismarck increased military spending to further his Prussian territorial ambitions embracing a greater Germany. The first national insurance scheme (funded on a tripartite basis by workers, employers, and the state) for workers, as well as old age pensions, was introduced during the 1880s to stave off discontent and to build up solidarity within a fledgling fragile democratic national Germany polity.
The First World War then dramatically further spiked-up public expenditure requirements in the UK as did earlier the Boer War in a more muted way.
Income tax rates reached an unprecedented 52%, even though much of the needed revenue was borrowed.
Across the Atlantic, federal income tax in America was introduced in 1913. Although its standard rate in response to wartime financing demands was temporarily increased to six per cent alongside a surtax rate that reached 77%.
As a federal state, local and state taxes remained relatively more significant within a fiscal environment where multiple local government bodies collected over half of all federal, state, and local government revenues. In Britain they accounted for over a third.
Wallis characterises the American fiscal environment the period between 1840 and the early 1930’s as one dominated by local government deploying property taxes as its main revenue base.
It was not until the Great Depression the trend began for the federal government to become more active and increase its share of total government expenditures and revenues as it shouldered increased infrastructural, defence, and social security, expenditure requirements
In the aftermath of the First World War in Britain, or its deluge, as one historian put it, the world had changed. A freshly universally franchised working-class population that had borne stoically the sacrifices required by the first ‘total’ war, no longer was prepared to tolerate precarious poverty and squalor as a way of life.
Wartime levels of taxation, which in incidence largely fell on high income households, could not be returned to pre-war levels. Surtax remained in place, as it did until 1973.
Peacock and Wiseman, authors of a 1961 seminal study of UK public expenditure 1890 to 1955, described that as a “disturbance effect” – where expenditures previously considered desirable, but politically difficult, to introduce become possible, using the graphic metaphor that “It is harder to get on the saddle on the horse than to keep it there”.
Clark and Dilnot termed it, perhaps, more precisely as a “ratchet” effect: in short, war-related imperatives ballooned public expenditure up; the subsequent post war level, although reduced, remained substantially above its pre-war trend level.
War-related social upheavals also imposed new and continuing obligations on governments, forcing governments and their populations to focus on latent problems, such as poverty and poor housing impacting on population health that undermined national economic and military capacity. This Peacock and Wiseman described an ‘inspection effect’.
Appendix Table A-6 reports their computed consistent historical total government expenditure as a percentage of gross national product series, recording that percentage as around 12.5% during the Edwardian era compared to c9% in 1890 (with a disturbance or ratchet jump to 14.4% in 1900 related to Boer War spending requirements).
Although it then dropped back from the over 50% wartime levels to c26% in 1920, it remained ratcheted-up during the inter-war years at more than twice Edwardian levels, notwithstanding government efforts to trim back some social expenditures as part of ill-advised attempts to balance the budget – efforts that in 1936 would be exposed to the critique of James Maynard Keynes.
The experience of the 1917 Russian Revolution had concentrated post war government minds on the need to placate an increasingly non-deferential and potentially rebellious electorate. Increased public spending on social services was perceived as an ‘antidote’ to a revolutionary virus that threatened to replicate domestically.
In that light, the 1919 Addison Act provided for ‘Homes for Heroes’. It introduced generous government subsidies for new public housing with generous space and quality standards, supported by an imposed duty for local authorities to provide such housing, where local housing conditions required it.
Although these subsidies were trimmed back as part of an economy drive, later Housing Acts provided a workable subsidy framework that allowed four million new homes to be built during the interwar years.
Winston Churchill by then had pivoted back to the Tories. As Chancellor of the Exchequer in 1927, he was using his formidable powers of exposition in Parliament to make the argument (quoted at the beginning of this Section) that its consideration of a LVT would simply divert attention from the current and pressing imperative to develop new needed forms of taxation on Britain’s industrial economy.
But given the wider context of the UK in the 1920’s and the part that Churchill played in its economy and politics – including his suppression of the 1926 General Strike and his reimposition of the deflationary gold standard – it could be that he was simply re-exerting the interest of the prevailing ruling class, of which he was such an eloquent and colourful member.
Income and other taxes, not LVT, across both sides of the Atlantic emerged as primary tax sources to finance the upward step-change in public expenditure and hence revenue public requirements, although income tax only began to be paid by most peacetime working households, however, after the Second World War.
Phillip Snowden, chancellor in the National Government did seek to introduce a LVT in his 1931 budget, briefly enacted in that year’s Finance Act, but at the limited rate of one penny for each pound of the land value for every unit of land in Great Britain.
The Hansard record of the time provides some pointers as to why legislators were reluctant to give it traction: limited revenues relative to the costs of collection; valuation challenges amid doubts over of relevance of a Henry George single tax LVT given the massive rise in public expenditures and revenues that had occurred during the intervening fifty years; as well as the spread of individual home ownership on plots with relatively low land values.
One MP observed that Henry George, in effect, had extrapolated from the particular –dramatically rising land values of virgin land that due to their (Californian) location were ripe for development – to a general principle that did not hold in inter war Britain.
Following the 1931 election, conducted in a period of political tumult as the Great Depression took grip, Snowden’s half-hearted land tax, lacking any real political wind or momentum behind it, was soon repealed.
Labour MP and LVT campaigner Andrew MacLaren did introduce a private member’s bill in 1937 but that, too, was defeated.
Soon afterwards in 1939, across the Thames, Herbert Morrison, leader of the London County Council, began to progress a Land Value Tax Bill before that was scuppered by the outbreak of the Second World War.
That conflagration resulted in another unprecedented but unavoidable spike in government spending, borrowing, and taxation, with government expenditure this time reaching 72% of national output.
When Churchill was elected Prime Minister in 1951, government spending was stabilising around 40% of national output – a historic peacetime high.
The introduction of a LVT did not seem even to cross his mind as a practical policy or taxation tool to raise the revenues that a modern emerging welfare state required.
Why was a Georgist LVT was stillborn?
An academic economist turned permanent secretary in an influential post-war and multi-edition book declared that the: “writings of Henry George, although still enjoying a wide circulation, have ceased to command much attention or to be an important force in the world today. They are no longer considered even so dangerous by the academic economists as to be worthy of vituperation or rebuttal. And, in the working class movement they have long since been superseded by other theories”.
Eric Rolls, History of Economic Thought (p.386, 1992 Penquin fifth edition; first edition published in 1938)
Rolls, put the “meteoric rise and almost equal rapid exhaustion of (George’s) power” down to “his mixture of oracular presumption, insistence of a single idea, and muddle-headedness on economic problems”.
That may have reflected the academic consensus of the time but such a dismissal of George’s ‘single idea’ (although echoing the 1927 Winston Churchill quote, reproduced at the heading of this Section) now comes across as short-sighted.
A much more rounded understanding of why a Georgist tax on land rent did not take off and continues – at best – to be left on the political backburner, is required.
In a 2019 paper Whitehead and Crook assert that the: The simplest models of land taxation (starting from Henry George, 1879) assume that land is homogeneous, its total amount is fixed and that all land will be taxed at the same rate. If that is the case the price of land is demand determined by the highest valued use and any tax will simply have to be absorbed by the landowner. The same applies to taxing increases in land values. However, this model bears no relation to the real world. As only a small part of total land is actually developed, more land can be made available as prices increase and land can be taken out of development if taxation makes it unprofitable. More importantly land has very different attributes and therefore the highest value productive use differs between plots – so planning and taxation will modify both the total amount of land made available and the allocation of land to different uses.
George could not be expected to have foresight of future foreign institutional systems, nor was he offering an analytical abstract economic model with consistent micro-foundations. His work was rather a call for action based on analysis and argument.
Polemical over-simplification is not an uncommon characteristic of such works. It is a fair charge that can be laid at George’s door.
That said, his central theoretical construct of capturing land rent through the imposition of a near 100% tax to avoid what are now commonly called the deadweight effects of other taxes is coherent on its own terms based as they were on Ricardo and others, made more cogent as the wider tax burden as a share of national output and average household budgets has grown.
As Section Three noted Georgist ideas in essence have been successfully implemented in Singapore – a point that Rolls ignored or escaped his notice.
What George neglected to consider carefully was that taxable land rent will differ between plots. He did not specify how liability would be determined and collected with reference to the institutional environments of his own time and place.
He did correctly predict that vested interests were quite likely to capture government and smother his proposed LVT at birth.
Federal and state governments chose or had earlier chosen to give land grants to railroad and other moguls at sub-market prices, rather than auction at market prices or introduce a LVT.
They likewise offered large tracts of virgin or Indian dispossessed land in the Great Plains and West through Homestead Acts to settlers (but often purchased by land speculators) at rock-bottom prices.
There was an economic rationale for this. Government lacked the wherewithal or taxable capacity to plan and fund such economic infrastructure and relied instead on private corporations and individuals to drive development. A less legitimate reason wa that many if not most legislators enjoyed getting the associated bribes, kickbacks, or donations that often followed.
Indeed, during a period when national politics in America was notoriously corrupt, clientist, and ‘spoils-based’, it is not apparent that a 100% tax LVT would be electorally popular or understood by a still largely rural and agricultural population. Farmers of varying holdings were electorally significant, while Homestead settlers, as landowners could not be expected to welcome it.
Prussian aristocratic landlords, large American landowners, or the English aristocracy basking in an Edwardian Indian summer of privilege were other powerful interests standing in the way of a Georgist tax within their own societies.
Politicians then, as now, pursue multiple objectives for mixed motives that often conflict. Their short-term focus, subject as it is to contingent events impacting on their own ambitions and interest, makes it difficult for a single overarching idea or principle to retain traction and momentum.
In 1883, Henry George, himself, highlighted continuing immigration into a now often ‘overcrowded’ country whose lands had filled up, as a primary issue, asking in a shrill, and to our ears seemingly racist, voice: “What, in a few years more, are we to do for a dumping ground. Will it make our difficulty any the less, that our human garbage can vote?”. Hugh Brogan, p393, the Penquin History of the United States, (new edition.)
Policy programmes or initiatives, most particularly an overarching one like a Georgist LVT, if they are to be implemented, must first command and then maintain hegemony and attention for a prolonged period.
The fleeting flirtation of Chamberlain and Churchill with an incompletely and vaguely conceived idea of a land tax lacking institutional machinery to implement, demonstrated that in Britain.
In George’s America, cyclical depressions with deflationary wages and agricultural prices often necessarily became of paramount political concern. During such times, with railroads, corporations and farmers going bust, a 100% LVT would be as welcome as a bullet in the head.
Tariff reform, as for example in the 1892 presidential election, became a pressing national political issue there, as did the relative arguments for, and the respective interests advanced by, keeping to the Gold Standard, moving to a bimetallic standard, or simply relying on a paper ’Greenback’ fiat currency.
Obstacles or crisis events, more generally, (such as Ireland Home Rule in the nineteenth century; the Great Depression in the early twentieth; the Global Financial Crisis (GFC) of 2008-009; and, most recently, the Covid pandemic) can rear their head out of the blue, as do other internal and external shocks, such as the agricultural depression of the late nineteenth century and the current cost of living crisis.
The subsequent cumulative rise in public expenditure and taxation requirements that marked the last and hitherto this century mean that shifting the tax burden onto a single land tax has now become akin to turning a tanker around in a tumultuous sea of economic and political uncertainty, rather than bringing a horse to water in a nineteenth century agricultural community when even that proved not possible.
5 The Feasibility of a Modern Gradualist LVT
It follows that a sudden transformation to a single Georgist LVT simply won’t happen. Modern democratic economies and societies are just too complex and encumbered with accumulated institutional baggage and entitlements.
Indeed, putting one eggs into a LVT with stated single tax ambitions, given the uncertainty of future events impacting on the economy and their short term to medium term interaction with such a future LVT, would render it an unwise hostage to fortune that would be almost certain to be shot down politically before it left the runway.
The experience of the 2017 general election is not promising in that regard. The manifestos of the Labour Party, the Liberal Democrats, and the Green Party included (very outline) proposals for a LVT, with p.86 of the Labour manifesto announcing that: “We will initiate a review into reforming council tax and business rates and consider new options such as a land value tax, to ensure local government has sustainable funding for the long term”.
Carol Wilcox of the LCC later noted that such a “mere mention of ‘considering’ LVT in their 2017 manifesto did for the Labour Party. Along with the dominant Tory press, headlines blazing from every high street and supermarket – Your Council Tax will treble and House Prices will plunge – leaflets were pushed through millions of doors. It may have lost Labour the election”.
Most LVT advocates in recognition of such practical political difficulties, propose an incremental phased-in approach that can command sufficiently strong support to get off the starting blocks.
Goodhart and colleagues, for instance, in their study recommended over a 20-year period a gradual rise in the LVT rate from 0.5% to 5.55% that would result in both substantial output and welfare gains and allow reductions in other taxes.
According to their modelling, to raise 55% of American public revenue (on a balanced-budget assumption), enough to allow income taxes to be abolished, the LVT rate would need to be increased to 20% – a level they considered represented the limits of political feasibility.
This Section identifies the main issues and possible problems connected with even such an incremental approach within a UK where land underlying dwellings has progressively accounted for a rising and increasing predominant share of national wealth.
Wealth and the British Housing Story
The inter-war years saw the establishment of a secular trend of displacement of private renting by owner occupation, across England especially. It was fuelled by a growth in salaried employment, in building society mortgage finance and in the availability of cheap land suitable for speculative and, in some cases, public housing development.
In the forefront of that trend were railway companies wishing to offer affordable new suburban semis in areas that their new lines had now made accessible: a prime example was the Metroland created around the Metropolitan line that now crossed Middlesex before reaching Buckinghamshire.
A landowner was now less likely to be a distant aristocrat or plutocrat, but – especially across southern and other areas left relatively unscathed by the Great Depression – could hail (at least as mortgagees) from a growing group of humbly born salaried workers, possessed with rising aspirations to escape into more virgin territory from the crowded dirty cities, forging a fresh future for their usually young families.
The post-war economic expansion amid accompanying full employment amid growing mass affluence that brought most wage earners into the income tax base also allowed increasing numbers to step onto the housing ladder. By the early seventies owner occupation was the majority tenure.
During the Thatcher era of the 1980s, the financialisaton of the economy (encompassing the globalisation and international integration of national capital markets, the liberalisation of domestic financial and credit markets, and the mounting and related importance of financial services within the economy), the right-to-buy programme coupled with the cessation of council building programmes, all turbo-charged the tenure.
Under New Labour, helped by a reducing but stable interest rate trend, it touched a peak of c70%, before receding.
Growing numbers of young people were priced out by real house prices – responding to the rise in monetary demand for housing enabled by a liberalised mortgage market offering loans at rising income and house price multiples – rising much faster than their incomes, while supply failed to keep pace and become progressively more inelastic in supply.
Nevertheless, extolled by both Labour and the Conservatives as the natural and default tenure of the aspirational majority, homeowners have become and remain an increasingly pivotal electoral swing constituency.
Rising real house prices rises – most marked in areas of buoyant economic activity and rising house prices, largely concentrated in London, the home counties, the south-east, and other places within commuting distance of secure well-paid sources of employment, where new supply was constrained by the planning system and by market failures in an increasingly concentrated housebuilding industry.
Housing wealth owned by households (composite value of dwellings and of underlying land) across those areas has progressively taken larger shares of national net worth (wealth).
Meanwhile the real construction cost of building new homes changed relatively little, meaning that the value of the land underlying dwellings accounted for most of that rise, with increased housebuilder profits also taking a share.
According to a ONS March 2022 methodological paper, land in 2020 was the most valuable asset in the economy, estimated at £6.3 trillion in value – nearly 60% of the UK’s net worth, with land underlying dwellings accounting for £5.4trillion of that value.
Table 11 of the latest May 2022 ONS national balance sheet estimates indicates that the value of land underlying dwellings owned by households as a proportion of total land and structure value (including dwellings) rose from 25% in 1996 to 68% in 2021.
Although such estimates should be considered with caution due to valuation and other uncertainties, it is undoubtedly true that residential land has assumed an increasing share of national wealth at the expense of produced non-financial assets (proxy for productive capital).
Significant implications follow. First, it provides evidence in support of commentators, such as Stiglitz, who argue that increased land values can dampen investment and productivity, as well as incomes, increasing wealth of the paper rather than the productive kind.
Second, it strongly suggests that across high value areas in the UK, the pure land value (land underlying dwellings) will often exceed 70% of the combined land and building residential plot value, presenting a sharp comparison to the one seventh that Section 3 reported as prevailing in Altoona, Pennsylvania, when a pure LVT was applied there. The ONS does not break the UK data down regionally, unfortunately.
Third, such high land values strengthen the potential scope and capability of a pure LVT levied at relatively low headline rates to raise enough revenue to be replace council and potentially other taxes; but, by the same token, the incidence of such rates will still be high in cash terms with associated saliency and political acceptability implications.
Political acceptability and feasibility
Given the uneven distribution of house prices, the replacement of, say, council tax, with a pure LVT levied on the value of land underlying dwellings is likely to involve the creation of myriad gainers and losers, sometimes involving significant magnitudes, across the ‘Middle England’ households and older aged groups.
Taking an average priced c.£500,000 house in London and some other high value areas, assuming a 70 per cent land value (underlying the dwelling, excluding its value), a one per cent annual pure LVT would come to £3,500 (the rate roughly required UK-wide to secure proceeds approximate to the current council tax), rising to £14,000 if a four per cent rate was levied.
Even the revenue-neutral rate could prove a problem for homeowners with limited disposable income, net of housing, childcare, and other essential expenditures, as it would be for asset-rich but income-poor pensioners. It certainly would at higher rates.
Where it was believed that the tax will be levied and phased-in as announced and not repealed in short order by a future government – its impact would also be capitalised into capital losses, proportionate to its incidence.
Changes that impose large, unexpected losses relative to previous expectations can be considered ‘unfair’ insofar they infringe the ‘legitimate expectations’ of owners at the time when they purchased their asset.
A LVT introduced at a low but gradually increasing rate should dampen house prices and not precipitate a crash, however.
Nevertheless, combined with a recession impacting on income and employment or with other shocks, that outcome remains possible and is one that is likely to be highlighted by opponents.
Impacts on individual household and business budgets mitigated by transitional arrangements, variable rates, allowances, exemptions, reliefs, and deferments until death or sale of property or by other payment holidays, would tend to cloud and blunt the potential beneficial effects of a LVT, wedging new layers of complexity and confusion into the overall tax and benefit system, reducing net revenues in the process.
‘Gaming’ of the process by economic actors to minimise their tax liability under such transitional arrangements could also undermine or subvert the core intention of reform.
Essentially, a trade off exists between maximising revenue raising capacity of a LVT (and ability to replace other taxes) and minimising its possible lumpy salience, its volatility, and overall cash flow impacts that could surpass the immediate ability-to-pay capacity of individual taxpayers.
The introduction of a LVT gradually and in partial form, perhaps as part of a wider and long-term reform to council tax or business rates introduced on a revenue-neutral basis could postpone many of the putative benefits of a pure LVT, but could still come with feasibility issues.
In that light, the Scottish Local Government Finance Review published in 2007 that “although land value taxation meets a number of our criteria, we question whether the public would accept the upheaval involved in radical reform of this nature, unless they could clearly understand the nature of the change and the benefits involved….”.
Goodhart and colleagues, recognising that, argued that: the overarching issue is that the bridging the gap between economic efficiency and political acceptability requires extensive public consultation, education and communication…to include short, accessible and realistic examples of the effect of the reform on different types of taxpayers, which for the vast majority will show that the gains from lower taxes elsewhere will far outweigh the losses from higher land taxes.”
That tends to gloss over, however, the ‘rough-and tumble’ way that new proposals are examined by the media, especially during the heat and sound of an election campaign when voter perceptions are prone to be moulded by untrue or partly true selective slogans and soundbites.
Unfortunately, the current political environment is geared to garner electoral support based on attitudes and perceptions, not to expound sound policy development supported by painstaking preparation in a process more conducive to the education of the electorate of the long-term benefits of a LVT.
The failed attempt of Theresa May to explain her plan to reform adult social care financing during the 2017 General Election, forcing its ignominious withdrawal after a media onslaught provides a salutary lesson in that regard.
Politicians of the mature industrialised countries – with England an exemplar example –have also become increasingly beholden to the electoral clout of the greying homeowner vote.
They can be expected to be extremely wary that potentially affected voters will take with more than a pinch of salt any promise that income tax cuts (in any case less attractive for retired households with limited incomes) sometime in the future will more than offset the publicised here and now impact of a salient pure annual LVT; many are likely to perceive it simply as a bigger council tax bill.
Such voters, many of whom plan in the future to bequeath their home to their children, can also be expected to react negatively to media-magnified fears on the impact such a LVT will have on its future value.
Any prospect of a successor government reversing introduction of a LVT would add to uncertainty with attendant adverse consequences.
Threats to do so could undermine its prospects of success from the start, sowing doubt as to whether the gradual benefits – notwithstanding that they could, indeed, accumulate exponentially over time – justify the short-term political hassle and risks involved.
A new government is likely to be dogged by vocal campaigns from those that would lose from its introduction, by other contingent political squalls, and by other pressing priorities; all can be expected to intrude and quite likely to knock off course a smooth LVT transition or phasing-in.
A revenue raising LVT reform, on the other hand, can be expected to induce correspondingly stronger political opposition.
In the absence of both overriding commitment and an effective and sustainable political counter strategy, the likelihood remains that it risks remaining as stillborn as it was in the nineteenth century.
That said, the increased proportion of residential property value taken by the underlying land does also mean that alternative reforms of council tax that address directly its current regressive vertical and horizontal inequity and efficiency, could offer a proxy to a LVT.
A proportional tax on total property value, as proposed, for example, by the Fairer Share campaign at a 0.48% rate, which they estimate would be sufficient to allow the abolition of Land Stamp Duty tax, seems credible in that context.
6 LVT and Business rates: line of least resistance?
“The property tax is, economically speaking, a combination of one of the worst taxes — the part that is assessed on real estate improvements — and one of the best taxes — (the part based) on land”, William Vickrey, Nobel Prizewinning economist
“Taxing business property inefficiently discourages the development and use of business property. If possible, it would be better to tax the value of the land excluding the value of any buildings on it, which would have no such effect …. is such a powerful idea, and one that has been so comprehensively ignored by governments, that the case for a thorough official effort to design a workable system seems to us to be overwhelming…. and significant adjustment costs would be merited if the (current) inefficient and iniquitous system of business rates could be swept away entirely and replaced by an LVT”…and that “a much stronger case for having a separate land value tax in the case of land used for non-domestic purposes”.Institute of Fiscal Studies (IFS) Green Budget 2014
Business rate (BR) reform or abolition, at least at first glance, seems to provide a potential line of least resistance to the introduction of at least a partial LVT.
BR is a tax predominately on economic activity operating from fixed premises, assessed according to the assessed rental value (RV) of such premises rather than on turnover or profit.
Its deadweight impacts, acting as a fixed cost, thus potentially weigh down particularly heavily on the investment and employment decisions of small business owners, although the smallest do get relief (see below).
Although such rental (rateable) values in principle should revalued according to a five-year cycle, in recent years revaluations have been delayed due to the external shocks of the GFC and of Covid.
The relative infrequency of five-year valuations, even when they occur, mean that RVs tend to become outdated as the cycle progresses, while subsequent revaluation adjustments induce uncertainty and often volatile changes in BR liability with associated cash flow problems for many business owners, leading to further adverse deadweight impacts.
The last revaluation came into effect in April 2017, when April 2008 assessed values were replaced with April 2015 assessed values – a seven-year gap that straddled the 2008-10 GFC.
Significant change in relative valuations between locations occurred in the meantime, requiring transitional and dampening arrangements to mitigate consequent impacts on business budgets.
BR is also an unpopular tax for these reasons. As such, it attracts quite general attention – at least at the conceptual, if not at the detailed implementation level – providing some political head of steam favourable to reform.
The 2019 Labour Party manifesto retained the option of a land value tax on commercial landlords to replace the existing system of business rates.
In September 2021, Rachel Reeves, the shadow chancellor, announced that Labour “will cut and eventually scrap business rates” as part of wider plans to set up an Office for Value for Money with a remit “to tax fairly, spend wisely and get the economy firing on all cylinders”.
But she did not spell out, however, how the BR system would be reformed and what arrangements would replace it and whether they would include a LVT, or the timescales involved.
Liberal Democrat policy is for business rates to be replaced by site value taxation, as “a first step towards a wider system for taxing land value”.
The 2019 Conservative manifesto specifically committed to a ‘fundamental review’ of the business rates system.
The relevant findings of the HM Treasury Review published in October 2021 are considered later in this section.
The current system
Business property comprises the building structure (which can be altered, used more intensively, or extended) and the land (which is fixed) that it sits on: business rates constitute a tax on both composite elements.
They are charged on all non-domestic properties, subject to reliefs or exemptions for the smallest businesses (those with a RV less than £12,000 are exempt and those with a RV above that but below £15,000 receive tapered relief), and are collected by local authorities. Agricultural land and outbuildings are exempt.
BR raised during 2019-20 approximately £30bn across the UK (£25bn in England), about 3.6% of total current public receipts (TBC).
The liability of each business premise is its rateable value (RV) – based on its notional annual rental indexed for inflation – multiplied by a government prescribed multiplier, which in 2021-22 was 0.51 (in England) for most business properties.
The National Valuation Office (NVO), using a set of economic and locational assumptions, assesses the RV of each business premise for each successive valuation cycle.
It does not currently assess the proportion of the assessed combined value of each business premise (land and premises) that is taken by the land underlying the business premises (excluding the depreciated value of the premises).
That land or site value can vary sharply, as it does for residential land, with its location and connectivity.
RVs are generally much higher in London and across other economically buoyant urban areas, although regional variations in business land values tend to be more muted than they are for residential land.
What might take its place
A potential window of opportunity might exist therefore to design a LVT that could redistribute the burden/incidence to richer landowners and away from productive businesses, so generating associated static and cumulative macro-economic gains and/or increased public revenues.
The IFS in its 2014 Green Budget review of business rate taxation concluded that because the demand for business premises is much more responsive to price than is its supply that over the long run, the incidence of such a LVT in practice will be mostly passed on to the owners of properties via lower rental income.
An annual LVT could also extend the tax base by taxing empty sites, encouraging their development.
The review did, however, also caution that over the short run, downward rigidities in property rents linked to contracts and leases could result in its incidence falling on the occupiers and users of business premises.
This is because BRs are currently generally paid by the business occupier in accordance with their lease or other contractual arrangement with their landlord that often include five year no downward movement rent review clauses.
Such a LVT could be levied on the freehold landowner of business premises rather than its occupiers, although this would presumably require some statutory redrawing of the that contractual framework.
This incidence impact issue is likewise relevant to residential tenants; the ability of landlords to pass on the tax should be limited – at least in the longer-term – if, as theory predicts, house prices fell because of the tax; but, on the other hand, especially in the short term, a shortage of suitable alternative rented accommodation and the costs of moving, as well as tenancy contractual arrangements, could well allow the landlord to pass on at least some of the cost of the tax onto current or new tenants.
The IFS went on to note that a periodic four per cent LVT on land value could replace business rates on a revenue-neutral basis, phased-in over several years.
Other commentators have proposed variations, such as a two per cent LVT tax while retaining half of business rates, allowing a shorter phasing-in period.
A June 2022 ONS methodological paper concerning the valuation of land underlying other buildings and structures advised that such land was estimated to be worth £869bn in 2021, accounting for 12% of the total c£7trillion value of UK land. Just over half (51%) of that £869bn value was estimated to come from property subject to business rates.
Using those estimates, a pure LVT levied on the value of land underlying business premises would need to be set at seven per cent to raise c£30bn of revenue – approximating to the recent BR total yield across the UK (869*0.51*0.07=c30).
Any phasing-in period would likely need to be accompanied by mitigations shielding businesses – likely to be concentrated in London and other high value urban centres –from suddenly facing higher bills.
Such arrangements, however, could risk undermining the effectiveness and efficiency of any reform.
As in the case for residential land, the same trade-off between softening potential and actual opposition and reducing the need for transition arrangements while maximising net public revenue and economic efficiency gains, remains.
A revenue-neutral scheme while still helping to reduce deadweight loss and to increase efficiency in relation to the use of business premises, is still likely to throw up gainers and losers.
Gainers may well outnumber the losers in numbers, but the latter often tend to be most vocal and possessed of greater lobbying and media influence powers.
Any significant reform involving a business premise LVT is also likely to require a Parliament or more at least to implement.
Even that timescale assumes that reform is implemented early in the life of a government elected with a secure majority that was prepared to treat the reform a core legislative priority, had already a scheme up its sleeve to give to civil servants to work up into well drafted legislation, and it was implemented in parallel with the necessary supporting valuation arrangements.
The HM Treasury Review of Business Rates, published in October 2021, however, recommended that the current system is retained, explicitly rejecting the adoption of an alternative LVT, as advanced by the IFS above and others, concluding that the arguments made in its support: “are outweighed by a lack of evidence (concerning its) benefits, the significant practical challenges of introducing (it), and the probable adverse impacts in relatively high-value areas such as city centres”.
It did, however, announce the government’s intention to move towards more frequent three yearly valuations of business premises, starting in 2023, as well as to “carefully consider the case for an annual revaluations cycle, in the longer-term” based on capital values.
Incremental tinkering of the existing arrangements rather than radical BR reform accordingly appears on the cards as currently laid.
That could change with the arrival of a new Prime Minister in September 2022, given that commitments during the leadership contest to reduce taxes, at least in the absence of cuts to public service funding, appear to be built on very shaky public finance foundations.
In that light, a BR reform that could be presented as furthering the Levelling-up agenda in a way that is economically efficient and friendlier to smaller businesses as well as provide a potential to secure more net public revenue, could become an increasingly attractive political proposition.
In any case, any move to a regular one-year revaluation cycle should help to underpin an emerging overlapping technical consensus more favourable to the future rolling out a wider partial or pure business rate LVT underpinned by regular and accurate valuations.
These would need involve the ONS and NVO working in closer partnership to allow these to include separate valuation of business premises and the land underlying them.
The Labour Party and Rachel Reeves may likewise find it politically expedient to frame up their stated ambition to abolish BR to include a partial BR LVT.
Even a limited transitional business rate reform involving at least a partial LVT (which seems the most promising line of political least, but still possibly significant, resistance) aiming to redistribute from landowners to business owners and ultimately to consumers – a process that over time should raise more net revenue – needs to be clearly explained and justified, however, and be driven by clear and understood objectives.
6 Concluding comments
The Real Crisis of the Fiscal State is the mismatch between the public expenditure requirements of the UK and the political and electoral willingness for them to be met through forms of taxation that are efficient, sufficient, and transparent.
Honest and deep debate on public funding requirements matched to sources is accordingly avoided, invariably subverted instead to short-term political presentational purposes. The recent Conservative Party leadership contest recently showed that in spades.
The impoverishment of public services and an almost default governmental resort to hidden stealth or inefficient forms of taxation is the inevitable end-result.
The public deficit overhang left by the government’s response to the Covid pandemic combined with continually rising real demands for social expenditures generated by an aging society, and quite likely in the future by post-Ukrainian invasion defence expenditure increases (Liz Truss committed to raise it to 3percent of GDP), underscores the impending fiscal imperative to develop forms of taxation that are efficient and equitable, as well as sufficient and sustainable.
An accelerating secular trend for land values to account for ever-rising shares of national wealth across many high-income countries and the UK in particular and its relationship to tardy investment, productivity and growth outcomes has helped to interest re-awaken in a modern Georgist LVT (phased-in gradually) across informed economic circles.
The analysis of Henry George in terms of its translation into practical policy may have suffered from its over-simplification and lack of engagement with the institutional environment.
Nevertheless, based on the pioneering work of the founders of economics as an academic discipline, it has been supported and even vindicated by such recent trends, as well as by modern modelling that a switch from direct and indirect taxes on labour, goods and services, and firms in favour of a LVT would generate substantial direct economic gains in a cumulative self-sustaining manner, as well as dampen speculative activity and wider cyclical instability.
The experience of Singapore has shown that long-standing economic and social returns can be achieved by suppressing private land speculation and the capture of rising land values for public benefit.
Yet obstacles to the effective implementation of even a gradual modern LVT, notwithstanding its huge potential latent benefit, remain formidable within current political environments.
The main ones can be headline summarised as follows:
- Its benefits are potential and uncertain and will be sensitive to the contingent wider macro-economic and political environments that it is rolled-out into, subject to unforeseen shocks and events that could well blow a gradual LVT off course, given that future certainty concerning its retention and future progression is necessary for its benefits to be realised;
- Its introduction as a planned flagship programme in the first place would carry substantial short-term electoral political and electoral risks linked to its perceived immediate incidence impact on homeowners; these are likely to deter its political adoption;
- Measures– including revenue-neutrality – designed to mitigate above are likely to blunt some of the beneficial impacts of a LVT, introduce new complexities and uncertainties, and underscore concern as to whether its potential long-term benefits would justify the political risks and upheaval costs incurred in the short-term.
- Comprehensive and accurate valuation arrangements that need to be put in prior place presuppose at least a nascent political commitment to introduce a gradual LVT that is currently lacking.
Perhaps, most seriously, for a LVT to raise enough revenue to significantly reduce the need for economically more harmful taxes in a UK context, it would need to be levied on residential land and at rates that would increase bills for many households above what they currently pay in council tax – a very problematic political proposition.
Yes, such a tax would allow other net taxes to be reduced to the point that the net tax burden of most such households would be reduced. But that, indeed, would be in the future (unless the any short-term transitional shortfalls in public revenue were met by borrowing) not at the time of initial implementation: in short, possible jam tomorrow, but pain today.
Given that, politicians, even of a reforming bent, might well conclude that an incremental non-revenue raising reform of the current council tax system, focused on relieving some of its most pressing regressive inequities, such as its regional incidence (the occupier of a lower-value dwelling in the North or Midlands, for instance, can pay as much as a much higher value dwelling in London), presents a more appealing and realistic option, with its potential to chime, for instance, with a wider ‘Levelling-Up’ agenda.
A combination of such a reform – as was noted in Section Five, the increased proportion of residential dwelling value taken by the underlying land means that a proportional property tax has become a closer proxy to a LVT – with the business rate reforms discussed in Section Six, is probably the best that can be hoped for and would be greatly beneficial in their own rights, and consistent with possible LVT progression over the medium term.
Any move to more frequent and accurate valuations, facilitating the separate valuation of land from buildings and structures, would offer a supporting step in the that direction.
Wider progress will ultimately depend however on both government and opposition politicians recognising and addressing honestly the Real Crisis of the Fiscal State.
That at present must be considered a hope rather than an expectation.
Response to DLUHC Consultation on Compulsory Purchase Compensation July 2022
ASocialDemocraticFuture has submitted its Response to the Department of Levelling Up, Housing and Communities (DLUHC) Consultation on proposed changes to compulsory purchase compensation.