Land Value Capture Via CPO

Simon Ricketts examines the Government's proposed reforms in relation to compensation following compulsory purchase.

There has been much consternation in some circles about DLUHC’s 6 June 2022 consultation paper Compulsory purchase – compensation reforms: consultation which, amongst other things, proposes introducing an amendment to the Levelling-up and Regeneration Bill so as to “to allow acquiring authorities to request a direction from the Secretary of State that, for a specific scheme, payments in respect of hope value may be capped at existing use value or an amount above existing use value where it can be shown that the public interest in doing so would be justified.”

Key passages from the consultation paper:

“29. An option for the framework of seeking a direction might be as follows:

a. Before a public sector acquiring authority:

a. makes a CPO; or

b. applies for other types of Order seeking compulsory purchase powers,

it may apply for a direction from the Secretary of State in relation to a specific scheme.

b. The direction sought may, in relation to the proposed scheme, have the effect of:

a. taking no account of AAD [appropriate alternative development] in a valuation; or

b. limiting the payment of any effect of AAD to no more than a specific percentage over the existing use value.

c. In seeking a direction from the Secretary of State, the authority would need to:

a. identify the scheme;

b. provide details of the estimated land value that would be captured as a result of issuing a direction for the scheme; and

c. evidence how that land value would be applied to the scheme for the public benefit and/or how certainty over the level of compensation payments in respect of prospective planning permission will benefit the scheme.

d. In considering an application for a direction then Secretary of State may appoint a person with requisite expertise to make a recommendation as to whether to issue a direction.

e. Any disputed compensation that relates to AAD would be settled by the Upper Tribunal (Lands Chamber) on the basis of the terms of the direction.”

“…we would welcome views as to whether the proposals set out should go further and look to cap or remove hope value generally or in relation to specific types of schemes. “

“Should the government decide, following consideration of the consultation responses, to take forward this proposal, our intention is for the power to make such directions to be introduced as an amendment to the Levelling-up and Regeneration Bill.”

Land owners, wherever their land is in England and Wales, may find that it can be compulsorily acquired at less than market value. And, on the subject of market value, what effect will that risk have on the value attributed to land in the first place (above existing use value)?

There have been some trenchant criticisms, for instance, as set out in my partner Raj Gupta’s Compulsory Reading 8 June 2022 blog post and Jonathan Stott’s blog post A few thoughts on Government’s proposal to limit compulsory purchase compensation to less than market value. Yes, really!

I can certainly see that care is needed to ensure that:

• the use of the procedure by acquiring authorities is procedurally fair, transparent and justified in public policy terms by the benefits thereby unlocked that could not otherwise have been achieved
• the sheer risk that the procedure may be used, anywhere, will not spook lenders.

However, the wider policy aspiration to achieve greater land value capture, in the public interest, is not new or a particular surprise. See my 31 August 2018 blog post Market Value Minus Hope Value = ? and the Government’s subsequent Response to the Housing, Communities and Local Government Select Committee inquiry on land value capture (November 2018):

“The Government agrees that there is scope for central and local Government to claim a greater proportion of land value increases. The Government’s priority is delivery, in line with the Housing Minister’s commitments to provide more higher quality housing more quickly.

Changes to land value capture systems can have profound impacts on the land market in the short term, even where they are sensible for the longer term. Accordingly, the Government’s priority is to evolve the existing system of developer contributions to make them more transparent, efficient and accountable. It will of course continue to explore options for further reforms to better capture land value uplift, providing it can be assured that the short-run impact on land markets does not distract from delivering a better housing market.”

Or, even further back, my blog post Money For Nothing? CPO Compensation Reform, Land Value Capture which quotes, for instance from a Conservative Party press release issued a week before its May 2017 manifesto:

“To further incentivise councils to build, the Conservatives also intend to reform compulsory purchase rules to allow councils to buy brownfield land and pocket sites more cheaply. At the moment, councils must purchase land at “market value”, which includes the price with planning permission, irrespective of whether it has it or not. As a result, there has been a more than 100% increase in the price of land relative to GDP over the last 20 years and the price of land for housing has diverged considerably from agricultural land in the last fifty years. Between 1959 and 2017, agricultural land has doubled in value in real terms from £4,300 per acre to £8,900 per acre, while land for planning permission has increased by 1,200%, from £107,000 to just over £1,450,000. Local authorities therefore very rarely use their CPO powers for social housing, leaving derelict buildings in town centres, unused pocket sites and industrial sites remain undeveloped.”

The proposals have grown over time – this is no longer simply about brownfield land and “pocket sites”.

What do we think? Will this be a workable tool that might enable authorities to secure development with reduced land costs such that affordable housing and other essential social and physical infrastructure can be provided? Or a proposal that will give rise to more heat (litigation) than light and that interferes unacceptably with the rights of land owners as against the rights of society more generally?

There are so many angles to this: political, economic, commercial and legal. Which made this an ideal topic for our clubhouse session: 5pm on Wednesday 15 June 2022. We had an array of well-known commentators, including Rebecca Clutten QC, Caroline Daly, Raj Gupta, Colin Cottage, Henry Church and Richard Asher. Link here.

And if you missed our recent webinar “Will the Bill deliver more or less housing? Yes or no?” featuring Simon Gallagher (Department of Levelling Up, Housing and Communities), Zack Simons (Landmark Chambers), Kathryn Ventham (Barton Willmore now Stantec) Meeta Kaur and myself, there’s a youtube link here.

Simon Ricketts is a partner at Town Legal. This article first appeared on his Simonicity blog.