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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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.

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.

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’