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.

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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.

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.

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.

Making more of Scotland’s land

Hamish Trench, Chief Executive, Scottish Land CommissionHamish - portrait 003

At our conference on 28 September we published our first Strategic Plan for the Scottish Land Commission: ‘Making More of Scotland’s Land’.

In this we set out a clear vision: a fair, inclusive and productive system of land ownership, management and use that delivers greater benefits for all the people of Scotland.

Our plan reflects the broad reach and relevance of land reform. We want to open up debate and change in the way we make the most of our land; and ask fundamental questions about the role land plays in delivering things that matter to people across Scotland.

We want to shape change on the ground that makes it easier to deliver housing, to create high quality places for people to live, for communities to shape the way the land and buildings around them are used and for people to be able to access the land needed to develop new enterprises, grow businesses and the economy.

Our work will be as much about Scotland’s urban centres as it is about rural communities and it will be about both land ownership and land use.

To start delivering against this in the coming three years, our work will be framed by three long term objectives: Productivity, Diversity and Accountability. We see improved productivity as being central to land reform. By this we mean we want land to be productive in economic, social and cultural ways. This is essentially about ensuring the way we structure land ownership and use helps grow our economy, our communities, our natural capital, our well-being.

Diversity of land ownership and the benefits of land use are also fundamental to our approach. We want to encourage a more diverse pattern of ownership, but also ensure the benefits from land are shared more widely and inclusively.

Accountability is critical to public confidence in any system where decisions of a few potentially impact the decisions of many, whether those decisions are made by private individuals, public agencies, community or charitable bodies.

We will be taking forward work in four priority areas:

  • Land for Housing and Development
  • Land Ownership
  • Land use Decision Making
  • Agricultural Tenure

In each of these we will be looking at potential changes to legislation and policy, but as important will be the cultural and practical changes we can help shape and prompt. Much progress can be made through changes in practice and approach.

While land reform has developed in Scotland in a rural context, it is as relevant to some of the major challenges we face in our towns and urban centres. For example, the way land markets function has a significant influence on the delivery of housing and infrastructure. Ownership and tenure constraints are key factors in looking at the re-use of vacant and derelict land and land supply for housing. We will be looking at what is needed to bring vacant and derelict land into more productive use, the impacts of land banking on housing land supply, land assembly for development and options for land value capture that would help unlock development.

We will also be addressing some of the fundamental questions about diversity and equity of land ownership. We want to understand the implications of scale and concentration of land ownership, to examine the role of charitable land ownership status and review the effectiveness of community right to buy mechanisms.

Land reform is of course not just about ownership, but the use of land and even more fundamentally, our connection to land. We will be exploring how the accountability of land use decision making can be improved, considering how and when communities and a broader range of interests can be engaged in decision making. The quality of decision making is also likely to be improved through policy alignment and clear articulations of the public interest in land use, all things Scotland’s Land Use Strategy seeks to help.

Agricultural tenure is our fourth priority, specifically in relation to the functions of the Tenant Farming Commissioner but it is also integral to our wider vision. The central theme here is seeking to improve relationships between agricultural landlords and tenants and looking at what is needed to stimulate the tenanted agricultural sector, improving investment and productivity. More widely we will be looking at what further action can be taken to improve access to land for new entrants, to help create a resilient and dynamic farming sector.

Taken together this is an ambitious programme of work for the coming three years and we will need to work with many organisations across sectors to make progress. We are determined that our work should deliver benefits on the ground in the short-term as well as leading to recommendations for changes to legislation and policy.

Engagement and communications is as important to us as research and evidence. We will be looking for opportunities to work with others in stimulating awareness of new approaches, promoting best practice and case studies, providing guidance where it is needed and influencing change on the ground.

We do not underestimate the diverse range of views and expectations across the scope of work we are setting out. But we have a straight-forward approach. We will work with all interests and listen to everyone, we will challenge and test assumptions, we will be thoroughly evidence-based and above all we will be open, transparent and outward looking, willing to learn from ideas and experience wherever we find it.

This is an exciting time for the Scottish Land Commission and we look forward to working with all interests to make more of Scotland’s land. Please don’t hesitate to get in touch with us to share ideas and experience.

This short animation summarises the work ahead for the Scottish Land Commission: ‘Making more of Scotland’s land’

Welcome to the Scottish Land Commission’s Blog!

We will be blogging about key issues affecting both urban and rural land in Scotland today and topical debates surrounding land reform.

There will be regular features by the Scottish Land Commissioners, the Tenant Farming Commissioner, staff and guest bloggers from partner organisations and those with an interest in land reform.