Land Value Capture – what’s the big idea?

Policy Officer Kathie Pollard looks at land value capture and how communities can benefit.

Land value capture is no unfamiliar concept. It has been in the limelight recently due to the current UK Parliament inquiry into methods for capturing the uplift in land value, and internationally the Lincoln Institute of Land Policy just launched a global campaign to promote it.

In Scotland, we are discussing land value capture in conversations around how land can more widely benefit society. Working out a way to extract the increase in value of land after development is a challenge that local authorities, landowners, developers and policy-makers grapple with, and one that affects the public too. If uplifts in value of land are captured effectively using the right mechanisms, this would have the potential to widely benefit communities, by providing a way of funding the supporting infrastructure, such as roads and schools, required to bring sites forward for development.

Defining Land Value Capture

When land is sold its value is largely determined by how it is used based on its planning permission. For instance, if a plot of land previously allocated for agricultural uses was granted planning permission for residential development this is likely to significantly increase the value of the land and enable the landowner to sell this land at a higher price. To some extent this increase, or uplift, in value is created by a public authority granting planning permission, rather than any actions of the landowner.

For this reason, many feel that it’s important to intervene and somehow hold onto this rise in value so that it can benefit the public. Land value capture is an overarching term that refers to exactly this idea: ways to hold onto this increase (or uplift) of land - may it be through some kind of tax, agreement, or other mechanism.

One of the Scottish Land Commission’s strategic priorities focuses on land for housing and development. This involves looking at ways in which we can  we can improve land supply for housing and encourage a more active approach to developing land in the interest of the public. If addressed effectively, land value capture could help tackle a variety of issues ranging from increasing affordable housing and infrastructure.

Ways to capture land value

Working out the best methods, or arguably the most viable, for harnessing any uplift in the value of land inevitably stimulates debates: who should benefit from this uplift in land value? How and who is best to negotiate the collection of any cash receipts? Even though the reallocation of value may present some trade-offs, there is a real opportunity to identify mechanisms that allow Scotland to benefit from such an increase in land value. As Tony Crook, John Henneberry & Christine Whitehead (2016) state:  “[Even so,] the evidence suggests that land is different and the generation of large-scale increase in land values when change of use occurs presents the opportunity for taxation or other approaches to enable gains to be captured for the common good.”[i]

Various fiscal and regulatory instruments have been thrown into the mix of options to capture some of that uplift in land value. Successive governments have attempted to use these with varying degrees of success. These range from taxations such as Development Gains Tax and Development Land Tax of the 1970s to levies like the Betterment Levy or Community Infrastructure Levy. Additionally, others have suggested that adjusting the compensation rules for compulsory purchase could make it cheaper for authorities to acquire land. Of course, planning also has a significant role to play and planning obligations can capture some of gains from developed land as income to benefit the local community.

In conversations about the extent to which developers contribute towards infrastructure or affordable housing, through different ways such as planning obligations or taxes, it’s worth bearing in mind the extent to which the ‘public’ and ‘private’ interact in this setting. How much intervention is needed? How is land value capture best regulated? Agreeing which mechanisms are ‘best’ (or most efficient) for capturing the uplift in land value is difficult but not impossible if consensus is achieved. If we are to avoid repeating past mistakes it is vital that we learn from history about the relative successes and shortcomings of previous UK government policies or initiatives that have been attempted.

What is the Scottish Land Commission doing about it?

Our task in assessing the options to improve land supply for housing and development will be rooted in robust evidence. This is core to our objectives and forms the basis of our work on land value capture. That is why our starting point for investigating options for land value capture is to look at historic attempts to capture land value uplift in the UK in order to learn from experience and recognise the lessons learnt that can help inform policy makers today. The Commission is currently working with a team from Heriot-Watt University to do this and will be reporting on the initial findings from this work in the late spring.

In Scotland, if we want the ownership, management and use of land and buildings to work in benefit of the common good, options about how to best harness the gains made from the development of land must be explored and capture the attention of those making the decisions about our land, for the long term.

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[i] Crook, A; Henneberry, JM; & Whitehead C (Eds.) (2016) "Planning Gain: Providing Infrastructure and Affordable Housing," Wiley-Blackwell, Chichester, p 35.