Community Land Week: community land ownership becoming the norm

As Community groups across Scotland are opening up their doors showcasing what Land Commission board portraitshappens on community owned land in the first Community Land Week, Scottish Land Commissioner, Megan MacInnes looks at the importance of community land ownership and its success story in Scotland’s land reform journey to date:

Land across much of the world is traditionally owned and managed by communities but the community right to buy land that we have in Scotland is unique. According to the 2015 SPICe Briefing ‘International Perspectives on Land Reform’ the “shift in policy towards community ownership in Scotland since the Land Reform (Scotland) Act 2003 is in contrast to the apparent European trend towards increasing land consolidation” and the Scottish Community Right to Buy exists no-where else.

From pioneering beginnings in places like Assynt, Knoydart and Eigg, community ownership has become an established model; relevant to rural and urban communities alike. As it has grown, so has the level of ambition and recognition of its potential. Efforts to find ways to ensure communities legally own the land they live on in Scotland are being reflected by efforts globally, in particular increasing the tenure security of the land belonging to indigenous peoples and local communities.

Land ownership brings within community control an ability to realise opportunities and create social and economic benefits, an ability to develop income streams and confidence to shape local assets, services and places.  Community land ownership is an effective means to deliver community-led development and regeneration, underpinning resilient local economies, delivering outcomes that go well beyond a change in ownership. But more than this, communities owning lands transforms the relationship between local people and the land on which they live and how decisions about the land are made.

In addition to the benefits for the community itself, other types of land owners could learn from the ways in which community land ownership models integrate transparency, community engagement and local accountability into the heart of decision-making around land, its use and management.

Of course, community land ownership is not ‘the answer’ for all communities, or indeed to all calls for land reform. It is not the only way to realise opportunities for development, nor should its challenges be underestimated. But we do think that it should be a much more common part of the mix of land ownership in all parts of Scotland both urban and rural.

The public interest outcomes of community land ownership across rural and urban communities are the same but the increasing interest in community ownership in urban centres demands a fresh look.

In urban centres it may be ownership of a single building that will make the difference, but the same may be true for a rural community. While for some communities ownership of a large ‘estate’ land holding may be appropriate, for many more it is ownership of sufficient land to meet local housing needs, community facilities, recreation space or assets to generate long-term revenue that will make the difference.

Community ownership needs to be recognised and integrated into established and emerging approaches to economic development and regeneration.  Community ownership connects place-making, social and economic resilience and regeneration.

To continue with the success of community ownership it is important that the number and range of communities benefitting from having land and assets under community control is monitored and what this enables them to achieve is appraised.  The success of community land ownership is being evidenced by the active and resilient communities in which ownership of land and buildings is seen as an integral part of shaping their long-term provision of facilities, services, revenue and opportunities.

With the introduction of the urban community right to buy, there is a move for community land ownership to become ‘normal’ and seen as an option for communities across the country.  To continue the success story of community land ownership it is important to support that shift and for it to be normal process for communities to consider what land or buildings around them should be owned by the community and taking a proactive, planned approach to acquiring them.  Negotiations between a willing seller/willing buyer need to be encouraged with existing and forthcoming rights to buy effective in enabling communities to purchase land.

The Scottish Land Commission is currently carrying out a detailed study on opportunities to improve existing rights to buy, and what wider steps are needed to make community ownership a more viable across Scotland. We will be publishing our findings and recommendations to Scottish Government in the next couple of months.

Community Land Week is an excellent opportunity to learn from those communities who have gone through the process, the lessons they have learned and how they have made it a success.  Have a look at Community Land Scotland’s website to find out more:  www.communitylandscotland.org.uk

 

 

 

 

 

 

 

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Back to the Land?

Guest blogger, Mark Stephens from The Urban Institute at Heriot-Watt University, looks HWU MS at historic experience of land value capture and identifies what lessons current policy makers could take from this experience.

All advanced economies face challenges of paying for social infrastructure including affordable housing and schools, as well as the challenge of paying for major transport infrastructure. In a world where corporate tax bases and high net worth individuals are mobile, policy makers are logically turning to the land – or more specifically “land value capture”.

The possibility of the state taxing (or in some other way capturing) the uplift in the value of land arising from the conferment of planning permission is possible because land use rights were nationalised in 1947. This meant that the state was no longer obliged to compensate landowners who were refused planning permission. It also meant that the entire uplift in the value of the land arising from planning permission could belong to the state.

That is what the 1945-51 Labour Government thought when it introduced a 100% development charge. The tax itself was not a great success, bedevilled as it was by its complexity and over-comprehensiveness but the lack of capacity and technical ability to make reliable valuations, and a “sellers’ strike”. It was abolished by the in-coming Conservative Government.

This episode set the pattern for the coming decades. Labour would introduce some form of development land tax and the Conservatives would repeal it when they returned to power. An important lesson from this policy turmoil is the need to establish a political consensus to underpin the credibility of any land value capture scheme. It, and later schemes, also suggested that the system will be overwhelmed if the threshold for liability is set too low, and that sufficient administrative and technical capacity is required.

The current system of developer contributions/obligations grew up from the 1980s and is now given a statutory basis as s75 agreements in Scotland and s106 agreements in England. These agreements are negotiated on a site by site basis between the developer and the local authority. The uplift in the value of land arising from planning permission provides the scope for negotiating developer contributions to pay for off-site infrastructure costs arising from the site. Since 1991 in England and 1997 in Scotland they have also been used to fund social or other forms of affordable housing. Whilst it is difficult to argue that affordable housing is a need that arises from a development, it has become an accepted de facto tax on development.

Recently the effectiveness of the schemes has been questioned. There is unequal power between developers and planning authorities in terms of the expertise of negotiating obligations, and cracks in the underlying theory were exposed by the collapse in house prices following the credit crunch.  The system has been subsequently undermined in England by “viability” tests that effectively pass development risks on to the state, and may lead to developers over-bidding for land.

Attempts at land value capture have been extended to other developments in England through the Community Infrastructure Levy (CIL), under which local authorities make standard charges for different types of development. The purpose of CIL, provision for which is included in the current Scottish Planning Bill, is to pay for general infrastructure needs in an area. Whilst CIL is bedding down in England, it has some obvious drawbacks. These include the use of standard rates: if these are not to deter development on lower value sites must be set in a way that undertaxes high values ones.

These mechanisms leave much of the uplift in land value arising from planning permission uncaptured leading some commentators to argue that the law that ensures that land purchased compulsorily by the state must be at full market (rather than existing use) value should be changed. Others suggest that to do so would contravene the European Convention on Human Rights. Yet our study identified a model for land value capture employed in the Netherlands, which relies on local authorities purchasing land somewhat above existing use value but below full market value. We also identified market-like mechanisms for capturing land value as being effective in the Netherlands and China – in the latter case where land use rights are auctioned and this provides the main source of revenue for local government. Clearly the ECHR issue requires urgent clarification.

Even if the UK were able to develop a more effective use of land value capture at the point of sale or the granting of planning permission, it would have two clear limitations.

One is that the current focus on capturing land value at the point that planning permission is granted means that subsequent increases in land value that arise from the actions of other public and private actors remains uncaptured. An obvious example would be the introduction of a transport infrastructure project, such as a light rail system, which leads to residential and business land values increasing along the route. This points to an imperative to consider other forms of land value capture in parallel with developer contributions, such as perhaps land value taxation.

A second is that land values vary greatly geographically meaning that there may be little or no land value to capture in some areas. This implies a need to ensure redistribution takes place between different areas.

An assessment of historic attempts to capture land value uplift in the UK by Colin Jones, James Morgan and Mark Stephens is published by the Scottish Land Commission.

Barriers to entering agriculture

Scottish Land Commission Policy Officer, James Mackessack-Leitch looks at ‘Barriers to entering agriculture’:

As with any industry, sustaining a cohort of new entrants is crucial to the ongoing vitality, resilience and competitiveness of the agricultural sector and rural regions.1

One of the perhaps lesser known workstreams the Scottish Land Commission is James FINALadvancing is around reviewing the barriers to entry to agriculture, and how to overcome them. Although there’s a lot of uncertainty in the sector at the moment, there is one thing we do need to address regardless of what the future holds: getting more new talent into agriculture by ensuring that existing farmers have the tools and confidence to involve newcomers in their business, and ensuring that the energy, enthusiasm, and innovation new entrants bring to the industry isn’t lost.

At the Farm Advisory Service’s New Entrants Gathering in Perth earlier this year, I saw first-hand a room full of enthusiastic young people who – via a perhaps unscientific straw poll – indicated that the biggest barrier to their entering agriculture was a lack of access to land. Given the previous research in the area over at least the past decade has shown similar results that shouldn’t be a surprise – but it is a growing concern.2

While there’s a lot of good work going on in agricultural education, and the creation of starter farms on public land – where the FONE group have done a power of work – there is more we can and should be doing. Which is why earlier this year the Land Commission engaged the James Hutton Institute to dig into this issue, and crucially, suggest some practical solutions to increase the availability of farmland for new entrants.

The report by McKee et al. which has just been published explores:

  • Current experience and understanding of joint venture options such as contract farming, partnerships, share farming, agricultural tenancies, and leasing/licensing
  • The potential for tax interventions, with a particular focus on income tax relief in relation to tenancy creation/length
  • English, Welsh, and Irish experience of land matching services
  • The development internationally of farm incubators for new businesses

So far the joint ventures and tax interventions have attracted the most attention, and will likely be the focus for the short term, but I think there’s definitely something in the development of a Scottish land matching service, and incubators too.

Following the setup of land matching services in the Republic of Ireland, Wales, England, and Northern Ireland over the past few years, Scotland is now alone in not having a similar service available to landowners, farmers, and potential new entrants.

In essence a land matching service is like any other matchmaking (or dating!) service. A farmer or landowner registers their details, along with an indication of what they are offering in which sector (land, joint venture opportunity, etc.). Likewise, the potential new entrant registers their details including qualifications and experience, whether they bring any assets, and what their aspirations are.

The matching service then matches suitable candidates, and offers to facilitate the initial meetings. If things go well, both parties are then free to enter into a business relationship. Additionally the service may be able to support both parties in drafting agreements, and provide advice.

Incubators have a different focus, and generally provide training and mentorship as well as the opportunity to take risks. They may also provide some funding, and access to a network of supporters and previous users for advice – and even subsequent progression.

Crucially, incubators provide an environment for new entrants to experiment where the focus is on innovation, research, and development – not absolute profitability.

Given the high risk associated with incubators, international experience shows these are almost exclusively limited to public and third sector landowners. However, for some larger private landowners developing a small incubator unit could well lead to significant rewards with the right people and support in place.

In the current climate of uncertainty it may seem strange to be encouraging more people into agriculture, but the reality is that in many cases working with a new entrant can bring extra benefits and security. For starters, a new entrant with energy and enthusiasm can reinvigorate a farm business – taking on a share of the physical labour as well as the technical and computer based side of things.

In many joint venture situations a new entrant taking on some of the business risk can help stabilise a farm, and having two (or more) determined people supporting and encouraging each other can provide a stronger platform to weather future challenges – and exploit new opportunities.

The next step for the Land Commission is to take this message out to farmers, landowners and potential new entrants – and with our partners in the NFUS and Farm Advisory Service that’s exactly what we’ll be doing in a series of workshops later this year – keep an eye out for details coming soon!

1 https://landcommission.gov.scot/publications-consultations-research/research/

2 http://www.gov.scot/Resource/0051/00510416.pdf

Under the hammer- Compulsory Sale Orders explored

Kathie finalScottish Land Commission Policy Officer, Kathie Pollard, looks at Compulsory Sale Orders:

According to statistics published by the Scottish Government, Scotland has 12,435 hectares of vacant or derelict land (VDL) which has been issue that has been around for decades. These unloved sites are often seen as an eyesore, can be victim to vandalism, misuse, or are simply a longstanding area of neglect. This urban vacancy and dereliction is a problem. Neighbouring communities have been losing out on potential local development opportunities. By visualising these spaces as schools, workplaces, housing or community green spaces, such regeneration can significantly add social, economic and cultural value. With the right tools, Scotland can start to bring small blighted sites back into active use.

The Scottish Government’s Land Rights and Responsibilities statement (2017) says that landowners have public and private responsibilities. When an owner retains land and property indefinitely, without use or sale, it may fail to serve the public interest. A local authority that decides a vacant site could be put into an active use because it is in the best interest of the wider community, should be empowered to do so. A new owner could bring a small site into action, and if complying with a given timeframe it could see a rapid initial transformation.

If we want Scotland’s land to become more productive, efficient and equitable we must consider mechanisms such as Compulsory Sale Orders (CSOs). It is not a silver bullet but it could be a reserve power, like a Compulsory Purchase Order (CPO). CSOs could be a significant additional tool available to address vacant and derelict land. How so?

The introduction of powers for CSOs was one of the 62 recommendations of the Land Reform Review Group in 2014. It was one of nine recommendations directly relating to urban land assembly, housing and regeneration. The SNP committed to bringing forward legislation for compulsory sales orders during the course of the next parliament in its 2016 manifesto. It would be a new statutory power available to local authorities which could be used on a case-by-case basis. Once a site is identified as an appropriate CSO candidate and the CSO is triggered, the site would then be sold by public auction to the highest bidder. The auction process is key here. It allows the land to be sold at a price that the market is willing to pay.

Auctioning abandoned or unused land is not a novel idea. One can easily look at public auctions of brownfield land, both online or in person, to imagine how such mechanisms would work. A recent example of a brownfield site under the hammer include the 0.7 acre site, former road depot in Auchterarder which is near a residential expansion scheme and sold for £300,000. Internationally, compulsory sale auctions take place in Hong Kong under the Land (Compulsory Sale for Redevelopment) Ordinance. The context is different but the ambition to regenerate and bring vacant, derelict and empty land back into productive use, remains the same.

There are plenty of questions around how a CSO would work in practice and other complexities which are currently being teased out in robust discussion and research. It will be important to focus on the fair procedures of the auction and valuation. The Land Commission is in the process of gathering expertise and developing a proposal which will form the basis for a formal consultation on CSOs by the Scottish Government (find out more).

If we don’t have these conversations now, we are in danger of neglecting the potential of these small sites for many more years to come. Reinvigorating land through the compulsory sale of vacant and derelict sites could make a meaningful impact across Scotland.

Addressing Scale and Concentration of Land Ownership in Scotland

Land Commission board portraitsScottish Land Commissioner, Dr Sally Reynolds, looks at scale and concentration of land ownership in Scotland:

 

The issue of scale and concentration in land ownership has been an underlying theme and driver of the land reform debate in Scotland for decades. Scotland has an unusually concentrated pattern of land ownership with relatively little public regulation by international comparison.

That these issues remain a public concern is reflected in the current Programme for Government which sets out the expectation for the Scottish Land Commission to ‘review the unusually concentrated pattern of land ownership in Scotland, including the potential risk of localised monopolies in some situations, and its potential impact on the public interest’.

To begin this work we are publishing a discussion paper and research report. The Land Lines discussion paper, independently written by Peter Peacock, asks some challenging questions about fairness, economic opportunity and the risk of localised monopoly situations. It recognises the complex relationship between scale, accountability and productivity and suggests a number of potential interventions.

The research report by the University of the Highlands and Islands and University of Aberdeen, commissioned by the Land Commission, provides a rigorous review of international examples of the way in which countries regulate the scale and concentration of ownership. It considers a range of measures that are commonly used and explores the drivers behind these approaches and what we can learn from them.

For the Land Commission, it is important we get behind the headlines and land ownership statistics to understand the implications and issues that people associate with scale and concentration of ownership. It is not a simple relationship and there is unlikely to be a single answer. But it is directly relevant to our objectives to increase the productivity, diversity and accountability of the way land is owned and managed in Scotland.

Addressing these questions is core to modernising our system of land ownership in a way that people feel comfortable reflects Scotland’s current needs and ambitions. We know this is a topic that provokes strong views and feelings from different perspectives. That is why we want to address it straight-forwardly and openly.

The Land Commission is opening a call for people to submit evidence and experience on the issues associated with concentration of ownership. This is an open opportunity and we want people from all perspectives to submit experience and evidence including individuals, community groups, land owners and managers. We want to understand both the good and bad experiences and examples of issues associated with concentrated land ownership.

The Commission will then use this information to inform its consideration of the issues and also how they can best be addressed. We intend to publish an interim report of our findings towards the end of 2018.

Land Value Capture – what’s the big idea?

Policy Officer, Kathie Pollard looks at land value capture and how communities can benefit.Kathie final

Land value capture is no unfamiliar concept. It has been in the limelight recently due to the current UK Parliament inquiry into methods for capturing the uplift in land value, and internationally the Lincoln Institute of Land Policy just launched a global campaign to promote it.

In Scotland, we are discussing land value capture in conversations around how land can more widely benefit society. Working out a way to extract the increase in value of land after development is a challenge that local authorities, landowners, developers and policy-makers grapple with, and one that affects the public too. If uplifts in value of land are captured effectively using the right mechanisms, this would have the potential to widely benefit communities, by providing a way of funding the supporting infrastructure, such as roads and schools, required to bring sites forward for development.

Defining Land Value Capture

When land is sold its value is largely determined by how it is used based on its planning permission. For instance, if a plot of land previously allocated for agricultural uses was granted planning permission for residential development this is likely to significantly increase the value of the land and enable the landowner to sell this land at a higher price. To some extent this increase, or uplift, in value is created by a public authority granting planning permission, rather than any actions of the landowner.

 

For this reason, many feel that it’s important to intervene and somehow hold onto this rise in value so that it can benefit the public. Land value capture is an overarching term that refers to exactly this idea: ways to hold onto this increase (or uplift) of land- may it be through some kind of tax, agreement, or other mechanism.

One of the Scottish Land Commission’s strategic priorities focuses on land for housing and development. This involves looking at ways in which we can  we can improve land supply for housing and encourage a more active approach to developing land in the interest of the public. If addressed effectively, land value capture could help tackle a variety of issues ranging from increasing affordable housing and infrastructure.

Ways to capture land value

 

Working out the best methods, or arguably the most viable, for harnessing any uplift in the value of land inevitably stimulates debates: who should benefit from this uplift in land value? How and who is best to negotiate the collection of any cash receipts? Even though the reallocation of value may present some trade-offs, there is a real opportunity to identify mechanisms that allow Scotland to benefit from such an increase in land value. As Tony Crook, John Henneberry & Christine Whitehead (2016) state:  “[Even so,] the evidence suggests that land is different and the generation of large-scale increase in land values when change of use occurs presents the opportunity for taxation or other approaches to enable gains to be captured for the common good.”[i]

Various fiscal and regulatory instruments have been thrown into the mix of options to capture some of that uplift in land value. Successive governments have attempted to use these with varying degrees of success. These range from taxations such as Development Gains Tax and Development Land Tax of the 1970s to levies like the Betterment Levy or Community Infrastructure Levy. Additionally, others have suggested that adjusting the compensation rules for compulsory purchase could make it cheaper for authorities to acquire land. Of course, planning also has a significant role to play and planning obligations can capture some of gains from developed land as income to benefit the local community.

In conversations about the extent to which developers contribute towards infrastructure or affordable housing, through different ways such as planning obligations or taxes, it’s worth bearing in mind the extent to which the ‘public’ and ‘private’ interact in this setting. How much intervention is needed? How is land value capture best regulated? Agreeing which mechanisms are ‘best’ (or most efficient) for capturing the uplift in land value is difficult but not impossible if consensus is achieved. If we are to avoid repeating past mistakes it is vital that we learn from history about the relative successes and shortcomings of previous UK government policies or initiatives that have been attempted.

What are SLC doing about it?

 

Our task in assessing the options to improve land supply for housing and development will be rooted in robust evidence. This is core to our objectives and forms the basis of our work on land value capture. That is why our starting point for investigating options for land value capture is to look at historic attempts to capture land value uplift in the UK in order to learn from experience and recognise the lessons learnt that can help inform policy makers today. SLC is currently working with a team from Heriot-Watt University to do this and will be reporting on the initial findings from this work in the late spring.

In Scotland, if we want the ownership, management and use of land and buildings to work in benefit of the common good, options about how to best harness the gains made from the development of land must be explored and capture the attention of those making the decisions about our land, for the long term.

Keep up to date on our website and via our newsletter to find out about current or recent research opportunities via Public Contracts Scotland.

[i] Crook, A., Henneberry, JM & Whitehead C (Eds.) (2016) Planning Gain: Providing Infrastructure and Affordable Housing, Wiley-Blackwell, Chichester., p.35

Public interest led development

Land Commission board portraitsScottish Land Commissioner, Prof David Adams looks at public interest led development in Scotland:

If we want to provide more affordable housing, generate new employment, create better quality places for people in Scotland, we need to be braver, bolder and be prepared to accept more risk and uncertainty than now.

The state needs to act as the ‘prime mover’, to make development happen, where it would otherwise not do so, or ensure higher quality development, where mediocre development might otherwise occur.

Almost always, public interest-led development (PILD) as it is called – development designed to deliver specific public-policy objectives – involves partnership between the public sector and private sector.

It has a number of advantages over relying primarily on the market, as we mostly do now.

In most cases, it involves land acquisition and assembly by public authorities, often followed by putting in infrastructure – roads, utilities, and so on – so that the land can then be split up into different parcels to be sold on if appropriate.

The creative, visionary regeneration of the Dundee waterfront led by Dundee City Council is probably the best example of this approach in Scotland.

Direct control of land ownership puts the public sector in a much stronger position to ensure development is properly coordinated, well-integrated and well-designed – especially so for major projects and regeneration of large areas of vacant/derelict land – than where this is controlled simply through the planning system.

It also provides a mechanism for the public sector to capture any value uplift from urban development through buying land at a fair price that takes account of all the public investment needed for major new projects, and in due course, recouping at least that investment through land sales.

But it requires particular skills and expertise, such as development experience and market awareness, which are no longer always available within the public sector. By definition, it involves some form of risk sharing with the private sector, and robust risk management.

In the decades immediately after the Second World War, public interest-led development was the model used to build new towns and redevelop many obsolete or bomb-damaged town and city centres.

But it fell out of fashion and we now rely – almost entirely – on the market to deliver.

It has led to a situation where we are not revitalising or enlarging the physical fabric of Scotland’s towns and cities, well enough or fast enough.

As Scottish Government’s Council of Economic Advisers said 10 years ago, much of what has been built in Scotland over the last three or four decades, “is a missed opportunity and of mediocre or indifferent quality.”

By contrast, Sweden, Netherlands and Germany all provide recent, inspiring exemplars of what we could achieve in Scotland with a fresh approach.

PILD requires up-front public investment, which could be financed from the sale of bonds or from other potential investment sources. Scottish local authorities are – in principle – well placed to raise funds at competitive rates of interest.

Moreover, over time, profits from land sales could be used to finance new projects, making the process self-sustaining.

Rather than expecting the private sector to take on all the risk of major urban development, a shared approach in which the public sector plays an important leadership role – especially on major urban regeneration or development projects – is more likely to produce greater benefits for all.

As the two authors of the Land Lines discussion paper The Delivery of Public Interest Led Development in Scotland that’s published today by the Scottish Land Commission conclude, “…Successful public interest led development needs a commitment to doing things differently, a need to be radical and take some risks in order to achieve the goal of achieving places that people deserve.”

We are publishing this paper to open up debate and discussion to see how effective public interest led development can be achieved in Scotland and contribute to making more of Scotland’s land. We are continuing the discussion at our Public Interest Led Development conference to be held on 25 April 2018 in Glasgow.  Planners, developers and investors from both the private and public sector are encouraged to attend to explore how Scotland can effectively deliver PILD.

 

 

David Adams is a Land Commissioner with the Scottish Land Commission. David holds the Ian Mactaggart Chair of Property and Urban Studies at the University of Glasgow. He has researched and published widely on urban land problems and is particularly interested in resolving ownership constraints to urban development and tackling land vacancy and dereliction. He was previously an adviser to the Land Reform Review Group, working especially on the analysis of housing and urban land markets. He is professionally qualified as Fellow of both the Royal Town Planning Institute and the Royal Institution of Chartered Surveyors.

MLDT’s

Bob - portrait NEWA Guide to the Essential Features of MLDT written by Bob McIntosh

At the end of November 2017, the Scottish Government enacted the legislation which introduces the Modern Limited Duration Tenancy (MLDT). Since it is unlikely that any new 1991 Act tenancies will be created in future, the MLDT will now be the main vehicle for letting agricultural land for a period of 10 years or more. It replaces the Limited Duration Tenancy (LDT) but the Short Limited Duration Tenancy (SLDT) is still available for lets of up to 5 years in duration. There is currently no vehicle for letting land for a period of between 6 and 9 years.

The MLDT retains many of the features found in 91 Act Tenancies and the LDT but there are some important differences. Greater freedom of contract means that landlords and tenants can agree at the start of the lease how they will deal with such issues as rent variation, maintenance and renewal of the fixed equipment provided by the landlord and the grounds on which the lease can be irritated. Special provisions apply to new entrants (Scottish Government has produced a regulation which defines who may be classed as a new entrant) allowing the lease to be terminated by either party after 5 years.

Termination of the lease by the landlord has to be by a two-stage process which will effectively give the tenant at least 2 years notice of the landlord’s intention not to renew the lease. If the lease is not validly terminated at the end of the contractual period it will automatically continue for a further 7 years.

In common with other forms of lease, the categories of people who can acquire a MLDT by assignation or succession is greatly expanded to include a much wider range of relatives and descendants. Potential assignees or legatees are divided into two classes (‘’near relatives’’ and ‘’others’’) with the landlord’s ability to object different for each class.

The MLDT is an attempt to find a better balance between the desires of a tenant for security of tenure and the desires of a landlord more greater flexibility and it is hoped that it will act as an encouragement to landowners to let land.

Land Value Taxation

Vacant land small

Head of Policy & Research at the Scottish Land Commission, Shona Glenn, Shona - portrait 001 - compressed.jpglooks at Land Value Taxation:

Land value tax has been hitting the headlines recently and everyone from Boris Johnson to Tony Blair seems to have an opinion, but what is it? Why are people getting excited about it and, most importantly, what could it mean for Scotland?  These are just some of the questions that the Scottish Land Commission hopes to help answer.

The Scottish Government has asked the Commission to consider the potential for land value-based taxes in Scotland.

So what is land value taxation?

Fundamentally it is a tool for raising public revenue through an annual charge based on the rental value of land. What distinguishes it from other types of property tax, like Council Tax or non-Domestic Rates, is that it is based on the unimproved value of land, ignoring any property or infrastructure that might be on it.  This means that land value taxes can be based on the value of land in its “optimum use” (as assessed by a public authority) as opposed to its actual use.

The rationale for this approach is rooted firmly in economic theory. When economists think about tax the key question is about how it effects behaviour and what incentives or disincentives a particular tax creates to engage in productive or socially beneficial activity.  Economists generally like the idea of taxing land because its supply is (relatively) fixed so, in theory, taxing it should not affect supply.

Some argue that whereas income taxes reduce incentives to work or corporation taxes reduce incentives to invest, taxing the value of land will not reduce the total amount of land that is available.

By putting a cost on holding land it is argued that land value taxes reduce incentives for land speculation and encourage land-owners to seek out more productive opportunities for under-utilised sites. In short, it is argued that land value taxes encourage land-owners to make better use of their assets.

Taxing land is also attractive for administrative reasons because – as land can’t be moved – land value taxes are very difficult to avoid or evade.

It is also seen as a way to reflect the fact that land values are significantly influenced by locational value created by wider society. Sites with good transport links, located close to schools, shops and other amenities tend to be more valuable than sites without such advantages.  As these locational advantages are created by society, supporters argue that it is only right that society should benefit from the uplift in land value they create.

We are collectively at an early stage in discussing if and how land value based taxes might be appropriate in Scotland. A first step is to understand the potential range of approaches and to test the evidence for the claims made about the pros and cons.

Some see land value taxation as a potential replacement for Council Tax and non-Domestic Rates to help fund local services. This was one of three options considered by a cross-party Commission on Local Tax Reform established by the Scottish Government in 2015.  Another option that has been proposed is a tax on vacant land that supporters argue could help to stimulate the regeneration of under-utilised urban spaces.    Some commentators, making the link between land and natural resources more generally, suggest that land value taxation could even be used to encourage more efficient use of natural capital.

One important challenge associated with land value taxation is the issue of valuation. The principle of land value taxation requires valuers to assess the value of land separately from the value of any buildings or other assets that might be on it.  This presents technical challenges, particularly in urban areas where vacant sites rarely change hands.

As with any type of public intervention in the market, land value taxation also raises important questions about unintended consequences. What could the knock-on effects of a land value tax be and how can we anticipate them?

These are some of the issues the Scottish Land Commission wants to explore in considering the potential for land value based taxes in Scotland.

It is reckoned that around 30 countries around the world have some experience of land value taxes of one form or another.  We are starting work to understand how countries have used land value taxation to achieve relevant policy objectives and how they have overcome some of the challenges involved.  We want to learn from their experience in assessing whether these approaches could help achieve a more productive, diverse and accountable pattern of land ownership and use of land in Scotland.

We expect to report to Scottish Ministers on the findings of this initial work in summer of 2018. In the meantime, we want to promote a wider discussion about the potential role of land value taxation in Scotland and we would welcome your views. You can get in touch by either contacting the Commission directly or through the blog.

Land Lines: The housing land market in Scotland

Building small

The Scottish Land Commission has commissioned a series of independent discussion papers on key land reform issues.  The papers are intended to stimulate public debate and to inform the Commission’s longer term research priorities.  The opinions expressed are those of the author and do not necessarily reflect those of the Commission.

The first paper in the series, ‘The housing land market in Scotland: A discussion paper’ is looking at how the public sector could intervene to improve the operation of the land market and increase the supply of land for new housing.   A number of important questions have been posed to encourage the debate to continue.  We would welcome your views on the paper and you can get in touch by either contacting the Commission directly, through our blog or at one of our events.

Here is a guest blog from the author of the paper, Laurie Macfarlane:

Laurie

Between 1995 and 2015 the share of income spent on housing costs in Scotland increased by 50%, from 12% to 18%, the second sharpest increase of any UK region outside London. Levels of homeownership have been falling for a decade – particularly among young people. There are nearly 150,000 people on the waiting lists for social housing, while the government spends nearly £2 billion a year helping those who cannot afford to pay their rent.

It’s clear that Scotland is in the grip of a housing crisis. But how did we get here, and what can policymakers do to fix it?

Scotland’s housing crisis is complex, but at the heart of it lies a dysfunctional land market. House prices have increased dramatically across Scotland in recent decades, but it is not the bricks and mortar that have become more valuable – it is the land underneath.

Rapidly rising land prices are not an inherent feature of advanced economies. Instead, the way the land market operates depends largely on the laws, institutions and political history of particular nations. In Scotland, the housing land market is characterised by a number of distinct features, including:

  • a reliance on the private sector operating on a speculative model to deliver new house building, which makes it inherently difficult to deliver a step change in the number of homes being built;
  • a legal framework that allocates the uplift in the value of land resulting from planning permission to landowners, rather than public authorities;
  • a liberalised mortgage credit market which has seen a relatively elastic supply of credit interact with a fixed supply of land, pushing up house prices;
  • a taxation system that is highly favourable to land and property, which has helped to fuel demand for housing and land as a desirable financial asset; and
  • a paucity of publicly available information on land values and ownership, which has made it difficult for policymakers and market participants to make informed decisions.

As house prices have continued to increase, the gap between house prices and earnings has grown larger. For those who own property, this has generated an untaxed windfall which has increased net wealth. But for those who don’t own property, the cost of homeownership has become increasingly prohibitive. Many households have found themselves with little choice but to rent privately. For these households, escalating rents have constrained living standards, reducing the amount of money that people have to spend on other goods and services. The result is a growing gap between those who own property, and those who do not.

The availability of high returns from investing in existing land and property assets has diverted investment from more productive areas, harming productivity growth and output. At the same time, there are over 2,000 hectares of vacant urban land, and over 10,000 hectares of derelict land across Scotland – much of which has remained in the same state for decades.

Without bold action, the pressures of population growth and demographic changes will only add to Scotland’s housing problems. Policy options to improve the operation of the land market include public land value capture, compulsory sale orders, a new housing land development agency, tax reform, and greater market transparency.

As well has helping to meet Scotland’s housing needs, intervening to improve the functioning of Scotland’s land market can help generate a number of long-term benefits for Scotland’s economy, including a more productive and dynamic economy; a fairer and more inclusive society; improved living standards and healthier public finances.