Will land values fall if future planning permission is ignored?

What if land values fell because the value attached to future potential planning permission was disregarded? This is what the Labour party is proposing, through reform of the compulsory purchase process. A Government committee is also asking questions on whether the Community Infrastructure Levy (CIL) is working and what other methods could be used to capture the value of land (here is the link to the inquiry).  We've seen some dramatic headlines recently but land value capture is not a new idea and has been around for decades. What are the implications for developers?

Landowners can currently sell their land at a price which takes into account "hope" value due to potential planning permission for development.  The Labour Party proposes amending compulsory purchase legislation (the Land Compensation Act 1961) to allow acquisition of land at lower prices, without taking into account potential future planning permissions. This would cut the price of developing land and make it cheaper to build affordable housing, for example.  It would also mean that developers would not benefit from the increases in value based on the allocation of their land in a local plan for future development.

An all-party parliamentary group was formed before Christmas to consider land value capture, something which has appeared in the main parties' manifestos in the past. It remains to be seen whether any change in law will follow these recent headlines, or whether, as before, the issue is used as a political tool. History demonstrates that most previous attempts to capture development value through the tax system have failed – will this time be any different?

If you would like to know more about land value capture, please contact us.

Authors: Matthew White, Partner and Head of Planning; Lucy Morton, Professional Support Lawyer, Planning, London