The views in the blog are those of the author.
Edward Shepherd is Senior Lecturer in Planning and Development at Cardiff University and is currently working on an Economic and Social Research Council-funded project: ‘Ideology, housing and land value capture: uncovering the politics of development land value’ (grant reference ES/W001675/1). Further information on this project will be published in June on our Planning Research Matters hub.
The government is currently consulting on the proposed technical aspects of the forthcoming Infrastructure Levy. The Infrastructure Levy (IL) is the latest in a series of attempts to contain disquiet at concentrations of wealth in land while also providing a source of public revenue without extinguishing development activity by undermining landowners’ profit motive. As with the two existing incarnations of land value capture policy in England, the Community Infrastructure Levy and Section 106 agreements, it is intended that IL receipts will contribute towards on-site and strategic infrastructure, as well as affordable housing.
The RTPI recently published an interview with Professor Tony Crook that summarises the main elements. In brief, a key difference between the current and the proposed system is that developer contributions made via the IL will be calculated as a percentage of the gross development value of the completed scheme. This contrasts with the current system, whereby developer contributions are calculated in advance of development. As such, in theory, IL payments will more efficiently follow market movements, enabling local authorities to collect more value in rising markets and developers to pay less in declining markets. The hope is that development viability and delivery will be protected, as well as the capacity for local authorities to benefit from asset value inflation.
Image credit: Edward Shepherd using Midjourney
The IL, we are told, will therefore “create a simpler, non-negotiable, and streamlined system that can capture more value and provide better outcomes for communities”. This is an admirable objective. However, what is striking about the government’s consultation is its length (over 30,000 words) and complexity. Not for nothing does the Planning Advisory Service feel it needs to provide a series of training materials for local authority officers purely on the technical consultation. In its drive for simplification and streamlining, the IL throws up a whole range of complex issues that are entangled with questions of justice, incentives, delivery and the technical demands of property valuation.
At the heart of these problems is the nature of land itself. Despite its commodification and exchange in land markets, land is not really a commodity in the sense that it has not been manufactured for sale. Land pre-dates land markets. It is fixed in location and is socially and environmentally embedded in local communities and economies in a way that makes its private ownership and transaction more problematic than, say, cars or chocolate bars. Indeed, it is these characteristics that form the basis for some of the justifications for land value capture e.g. to mitigate local impacts of development and to exert a moral claim over some of the resultant land value for the ‘community’. Furthermore, the amount of available development land is partly dependent on the preferences of landowners who can exert their monopoly power to influence its supply and price.
All these features mean that land is fundamentally resistant to the kind of efficiency that is preferred in economists’ mathematical models, as well as the logic of simplicity and certainty that seems to be guiding the IL. Land and its development is too varied, socially impactful and subject to the whim of landowners to submit to this logic. It is telling that the IL policy has evolved from a single, nationally-set levy intended to entirely replace the current system, to the currently proposed system of locally-set levies that will work alongside Section 106 in some circumstances. This appears to be in recognition of the fact that land and its development is affected by numerous site-specific issues and so flexibility and, therefore, uncertainty are necessary.
It will be interesting to follow the fate of the IL to see whether the final regulations (should they ever see the light of day) truly reflect a more streamlined system that will better serve the community. The consultation document says that the proposed levy will provide “at least as much affordable housing as developer contributions do now”, which seems a rather modest ambition. In any case, the government is proposing a tentative decade-long ‘test and learn’ rollout of the policy, an admission of the complexity of this area and the potential for unintended consequences. In the meantime, local authority planners can work under the current system with which they are already familiar, and continue to do the best they can to claim a proportion of development value in the public interest.
