Dr Thomas Aubrey, Senior Visiting Fellow, London School of Economics; John Kavanagh, Programme Director, Infrastructure, BusinessLDN; Maurice Lange, Analyst, Centre for Cities; Chris Whitehouse, Technical Director, WSP. II: Jeremy Aston, Member of Expert P&D Group, Royal Institution of Chartered Surveyors (RICS); Dr Hugh Ellis, Director of Policy, Town and Country Planning Association; Anna Hart, Corporate Finance Senior Manager, Transport for London; Tom Kennedy, Senior Policy and Research Manager, Northern Housing Consortium.   Witnesses: Dr Thomas Aubrey, John Kavanagh, Maurice Lange and Chris Whitehouse.

Good morning. Welcome to the Housing, Communities and Local Government Select Committee. I am Florence Eshalomi. May I ask my colleagues on the Committee to introduce themselves, please?

I am Maya Ellis, MP for Ribble Valley.

Good morning. I am Andrew Lewin, MP for Welwyn Hatfield.

I am Naushabah Khan, MP for Gillingham and Rainham.

I am Joe Powell, MP for Kensington and Bayswater.

I am Sarah Smith, MP for Hyndburn.

I am Will Forster, MP for Woking.

I am Lewis Cocking, MP for Broxbourne. I am also still a Hertfordshire county councillor.

I am Gagan Mohindra, MP for South West Hertfordshire.

And may I ask our guests to introduce themselves, please?

My name is Maurice Lange, and I am an analyst at the Centre for Cities think-tank.

I am Dr Thomas Aubrey, a visiting fellow at LSE.

I am John Kavanagh, programme director for Infrastructure at BusinessLDN.

I am Chris Whitehouse, a technical director at WSP.

Our Committee is now looking at the issue of land value capture and how we help the Government with their really ambitious target of building 1.5 million new homes. Boosting the affordable housing element of those homes is really important and is an ambition that is shared by many within the housing sector. One of those areas comes from the section 106 element. My opening question is about the current land value system, and I put it to all of you. Based on your research and some of the findings that you have all drawn from looking at the benefits and shortcomings, what are the main benefits of the current section 106 regime across England?

I am happy to go first. If you are speaking about the benefits in a broad sense, thinking about the site specificity of section 106, there is good evidence that it has achieved a good amount of land value capture, and that has increased over the last couple of decades. Our research has focused on quantifying what potential land value capture could be, so then you can estimate the difference between what the potential says and what is being achieved. We have focused on modelling land value capture on large greenfield sites, because that is where most development happens and most land value capture potential exists. Our headline finding is that the current regime is performing less well than it could compared with the potential that we identify in the model, but that is focused in high-value locations only. To explain that a bit more, the effectiveness of a land value capture regime is to do with, first, how much land value capture it achieves on any given development, and, secondly, whether that mechanism encourages or discourages development happening at all. The majority of the underperformance that we identify compared with the model is to do with the first element. In high-value locations, we are simply not getting as much land value capture as we could. In high-value locations such as the greater south-east, where most places would be considered a high-value location, to put it in affordable housing terms, you could achieve 40% to 50%, and on average, we are achieving about 19.6% at the moment. Elsewhere in the country, it is a much less clear picture that the current system could be improved: when we compare our models to reality, there is not much difference. It is mostly in those high-value locations where there is a difference. To address the second component, so how much development is happening, part of the underperformance is to do with building not happening at all. If you had the same land value capture system but more development happened, you would get more land value capture occurring, so there are some places in the greater south-east where you could both boost house building and improve the mechanism. That would be the total achievement of the potential.

I will go next. In some of the research I have done in the past, looking at section 106 and CIL, if you are generating profits from the development process and paying out taxes through capital gains tax or corporation tax, I estimate that about 42% of the uplift in land value has been captured by the state, whether that is by central Government or local government. That is quite similar to Professor Tony Crook’s top-down analysis. He reckoned about 49% was being captured. A reasonable estimate would probably be that just slightly less than half is being captured through our current mechanisms. As Maurice said, section 106 and CIL has certainly been a reasonably successful method of capturing land value for the speculative house building model, but it is worth pointing out that there are different models of development and building houses where you can use different mechanisms to capture the land value uplift as well.

Section 106, CIL and the other mechanisms have their role. A version of the community infrastructure levy was introduced in London, the mayoral community infrastructure levy, and alongside section 106, that was responsible for around £1.5 billion of funding that went into the Crossrail project, for the Elizabeth line. They can make a significant contribution, especially if they are applied in a certain way. The thing that we would say is that our current structures, mechanisms and current taxes are only ever going to make a contribution. They are never going to fund in whole the infrastructure that we need to unlock and the development at the scale that we need to meet the Government’s ambition for 1.5 million homes, hence—we will come on to the model that we are looking at—we think you could broaden the range of tools we have available to us to better capture value uplift.

I would add just two observations. Clearly, section 106 is an up-front cost to the developer. As has been touched on, that raises issues about viability and trade-offs in terms of what a development can deliver, so there is a consideration in terms of the timing of when land value capture is realised. The site-specific element to it can be a positive, but that can lead to very bespoke agreements and discussions, which can be a resource burden on the local authorities and the developers. It can be a bit confrontational, rather than being a collaborative approach.

On that point, Chris, do you think it is a bit restrictive? We have heard about examples where developers and authorities have not been able to agree on the section 106. You have sales agreed in advance and it is only set for specific developments. Again, there are some restrictions there.

It can be a bit restrictive. The intent is that you are mitigating the impact on the transport network from your development. There are going to be potentially different views on what the impact is, which can lead to what is almost an exercise of modelling for and against the development and then the definition of what the measures are. Potentially, they can end up being quite localised, while the local authority might like to put the contribution from the section 106 towards more strategic plans, but there is a more localised element to it. It has a role to play, but it is not the best solution in all circumstances.

Maurice, you touched on the issues with London and the south-east, where you could release some of the land. I represent an inner London constituency. You can look at the values there compared with other parts. How is value captured across England in comparison with, say, Scotland, Wales and Northern Ireland? Is this an area that needs a lot more thought and that we should drill down into?

I would make the observation that land value capture potential, the maximum that you could possibly achieve, varies in space. You also have the fact that outcomes vary in space. You should only expect land value capture to do as much as you should expect it to do, if that makes sense. That depends on house prices in a given place and the differences between house prices and costs. House prices vary significantly across the country, as we all know, but costs vary less than that, especially if you are looking at comparing a greenfield site outside London with a greenfield site outside Newcastle, for example. There is not much difference in the cost to build out. So you have this observable fact that land value capture does vary in space. My research has focused on England, so I cannot really speak to performance across the devolved nations, but the same observation would be true in most places. You should expect things to happen where house prices are higher, but across a lot of those nations house prices do not support a large amount of land value capture.

I want to move on to land assembly. Maurice, this question is for you first. What are the potential benefits of a more widespread land assembly by public bodies?

As I see it, there are two key benefits to public land assembly as opposed to land coming to market through only private entities. First, public authorities have the ability to buy land at a potentially lower price because they have compulsory purchase powers. In a pre-2023 world, that meant they could buy, in a lot of circumstances, at an affordable price, and the changes through the Levelling‑up and Regeneration Act in 2023 and the proposed changes through the Planning and Infrastructure Bill mean that they will be able to buy affordably in a wider range of circumstances. So there is that. If we compare what the inferred land price is, given our modelling of what is currently achieved to what could be achieved, there is a gap that you could close. The second advantage is that, because you know the public authority has the authority to buy the land, you could know that any given particular land was going to come forward for development. In theory, that could increase the amount of land coming forward for development and it means it can be where you want it to be. If we are moving towards a world where we have more spatial development strategies and more local plans, which are specifying, “We want development to happen in X, Y or Z place”, the public authorities having a greater capacity to assemble land means it is more likely that all of those eventualities come to reality. I see some other benefits. If authorities were to take on more of the early-stage development role—they might do bits of master planning or site preparation—they would make it less risky to be a house builder, which would mean you could have a wider range of potential developers and more medium-sized house builders in this space. We currently have a small number of very big house builders playing an outsized role in our development system. If you have more developers operating, you have more competition between them for any given piece of land, which could drive up quality and give you greater assurance that you are maximising land value capture.

That is very helpful. Just to pick up on that, you mentioned the Planning and Infrastructure Bill and the powers extending CPO. Does the current iteration of those powers go far enough? Is there any potential to have more improvements to support land assembly?

I am not a local authority and I have not worked for a development corporation, so there is a limit to what I can speak to in terms of the specifics. As far as I understand it, the Levelling-up and Regeneration Act establishes this principle that in the public interest you can set aside hope value. That is the really important thing. The Planning and Infrastructure Bill is making tweaks to that to make it more operable in the real world. The major challenge is not necessarily in further changes to the rules but improvements to capacity to use these powers. At the moment, local authorities have under-resourced planning teams and we do not have many development corporations. The expertise does not exist in the system to use them as effectively as they could to achieve the outcomes that they potentially could. It is a capacity thing as much as being about rules.

I see. In terms of the public interest point, I understand from what you have said that you think CPO should be allowable under the public interest banner. Could Government go further in terms of guidance on what constitutes public interest? Would that be more helpful?

Yes, guidance would help people understand exactly what the legislation means. As I understand it, the Levelling-up and Regeneration Act says that affordable housing, health and education are justifiable public interest grounds. You can understand that, but you could take the view that it could be broader than that. Let us say you want to fund, through land value capture, a tram system. That is not delivered on site; it is funded through the system of capturing land value uplift. You could have an entirely private development that funded that public good. As it is defined currently, you would not be able to do that in the public interest because it is not a specific housing, education or health thing on that specific bit of land. There is a question about whether guidance or further information could broaden the public interest reasons for setting aside hope value.

Does anyone else on the panel have any comments on any element of compulsory purchase or land assembly?

I will just make a couple of points. There is a massive benefit for doing public land assembly, particularly for integrating housing with transport. This is something that we have not done at all over the last 30 or 40 years. It is a real problem when you are thinking about densifying existing urban conurbations or extending existing urban conurbations, which is where the demand for housing is. The other point about doing things at scale is important when you are thinking about putting in new infrastructure. Many developments, particularly sub-scale ones, have very little benefit for existing residents. That is a problem when it comes to them opposing developments. If you are doing things at scale, you are providing new benefits for existing residents. When you are thinking about land assembly at scale, the other point to make is that the financial modelling becomes much more viable. The returns to infrastructure matter. When you are trying to do things at sub-scale, the economics just do not work. That is a really important part of land assembly. Section 190 in the Levelling-up and Regeneration Act has fundamentally transformed the way we think about the potential to deploy these kinds of models through development corporations, which in effect would allow us to go back to that sort of new towns model, which was reasonably successful at least in delivering large amounts of housing. That model has been replicated across large parts of Europe. In terms of guidance, when you are thinking about these large projects you really want to use the threat of the CPO to have a commercial transaction with landowners. It would be useful to have some guidance that makes it clear that certain kinds of large-scale integrated projects with housing and transportation would automatically get a direction from the Secretary of State. When you are thinking through these challenges, it would need to be such a large scale that it could not compete with a private developer because that has implications for the CPO rules as well.

Can I just have a quick follow-up on that point? In terms of changing behaviours and the reforms to CPO that the current Planning and Infrastructure Bill is proposing, you are saying that there is a potential to change behaviour, but it needs to be done at scale.

Yes. Section 190 is already there, but we are not seeing projects coming through. It might be that combined authorities feel less confident about doing it; it is hard to know. It has not yet been tested in law; that might be slightly more helpful. If you are the financial director of one of these development corporations, you will be thinking through whether a direction to the Secretary of State will be accepted or not. If you had more certainty that it would be accepted, the project would be far more likely to proceed. Those kinds of things are important. When you are thinking through how to legislate for that, you want to ensure that it is done at scale, which clearly means a much stronger public interest test. It is also not possible for private entities to do things at that kind of scale. That means you do not get that conflict, which is important for the CPO rules.

My question is directed at John and Chris and is to do with financing. Both your organisations created a report earlier this year about tax increment financing. Can you articulate what that means and what the benefits of it are?

Yes, I will set that out. The recommendations that we identified were threefold. It was looking to evolve tax increment financing to generate a future revenue stream that you could then use to pay back up-front borrowing. We dubbed the three recommendations that the study identified as “resi-TIF”, “commercial TIF” and “combined TIF”. This relates to the type of land use that could be unlocked by major transport infrastructure investment. The study was focused on London—we worked with London Councils, TfL and BusinessLDN—but our view is that the recommendations are relevant and applicable across the nation. The first recommendation was that the Mayor would have powers to introduce a resi-TIF, through which they would get to retain a proportion of stamp duty land tax from the properties that are developed following the unlocking of the site through the infrastructure investment. There would also potentially be the opportunity to take a slice of council tax from those new dwellings as well, recognising that council tax is under pressure. A third option would be, as some councils do, to introduce a precept, a surcharge on council tax, to provide a revenue stream tied to residences unlocked by the development. It is about additionality. The second recommendation is a very similar model that addresses where commercial development is unlocked. In that model, business rates or business rate supplements are the means for the revenue stream, which could pay back the up-front borrowing. The third recommendation is where you unlock a mixed-use development. If you are anticipating unlocking both residential properties and commercial properties, you would be able to draw on both those streams to repay the up-front borrowing. Those are the three elements of it. I will briefly explain the rationale behind that. As part of the study, we looked at the existing means for funding development and how we could add to those rather than replace them. We wanted to provide an additional tool in the toolbox, not to impose up-front costs on developers and cause any challenges in terms of trying to balance affordable housing and viability. We looked at the timing of it. This approach is also directly tied to the specific land value uplift that is achieved because it is based on sale prices. Those are the broad recommendations that we came up with.

We modelled this approach against three transport schemes in London: the DLR extension to Thamesmead, the Bakerloo line extension and the West London Orbital. We estimated that you could generate a potential funding pot of around £4.5 billion from this model, which you could tap into to part-fund those infrastructure projects. If you were to fund those infrastructure projects, they would have huge economic benefits: 100,000 homes between them, 10,000 square metres of commercial office space and benefits for supply chains, job creation and accessibility. The key thing is that the model would make a contribution. Again, it would part-fund;we are not suggesting that it would wholly fund these projects. As Chris said, it is important to remember that the revenue would be generated from additional development only. We would not be taking anything from existing development or existing residents; it would be only from the development that is unlocked directly as a result of the infrastructure being introduced. That is the additionality point in terms of those properties not currently existing. This approach taps into the potential for new development and new revenue streams.

I have a couple of follow-up questions, if I may. Is the intention that TIF funding will only be for infrastructure or could it support other social needs such as affordable housing?

That is a good question. The premise that we started with was that you would end up with a level of affordable housing because you would be able to unlock development with the TIF approach. Unless you get to a situation where you can invest in the infrastructure to unlock development, you do not get to a conversation about the proportion of affordable housing. It would not directly fund affordable housing, but you would unlock significant levels of development, and a proportion of that development would be affordable based on the negotiation at the local level on the site-specific attributes of that development. There is not enough development happening at the moment, and that is part of the reason that we do not have the levels of affordable housing we need. If we fund infrastructure in an innovative way, we will unlock greater levels of development, which therefore will lead to greater levels of affordable housing further down the line. It is also not just about the sites that you unlock in the first instance. You could use the TIF on a recurring basis to unlock additional infrastructure and build out new connectivity. Therefore, you could have a higher proportion of affordable housing in the next 10, 15 or 20 years as opposed to right now. There is potential for it to develop over the long term.

Are the Government supportive of this at the moment? It was released in January. It has been out for several months now.

We have engaged with MHCLG and DfT, but I am not aware of their current thoughts on it.

I look forward to my Labour colleagues supporting it.

I should have declared an interest because the Bakerloo line goes through my constituency and I am supportive of the Bakerloo line extension. To follow up on Gagan’s point, this would work well in London because we have high land values, but could this TIF model be replicated across England?

Yes. As we mentioned in some of the discussion earlier, we recognise that land values do vary across the nations and regions. Picking up John’s point, this is being seen as another contributor to funding rather than funding the whole scheme. You could see it being relevant to combined mayoral authorities and across the regions.

I will add one other point to that. When you are looking at these large-scale projects—I have done financial modelling on a couple of them—you really have to look at all potential sources of revenue. Business rate supplements have to be and are going to be an important contribution to this. On its own, that is not going to resolve these issues. You need to bring together different forms of revenue streams. That means business rates; selling off land plots with planning permission to developers, which is where you would get a lot amount of land value capture through a plan-led model; the receipts from new transportation, which was partly how Crossrail was funded; and affordable housing receipts. When you put all those cash flows together over a long period, it starts to make these large-scale projects viable. As we are thinking through this, we should not just be saying, “It is land value capture,” or, “Tier 4 this”. We need to be thinking about the costs and the revenues. All these can provide a lot of potential to make these projects viable. It is very rare that you come across a project and there is one silver bullet that allows you to fund these things. That is just not how these large-scale projects work, in general.

In a market as volatile as it is now, we see a number of applications being approved but not built out. There are issues around business rates. There are varying and long-running discussions around revaluation and looking at business rates and the future of business rates. Is there a risk that overestimating these future projected income streams could have an impact on the developments that we are trying to see happen? Could the liability for this future income sit with local council taxpayers? The example that always pops up on BBC London is the pub in Camden that was CPO-ed for HS2, but nothing has happened yet.

That is a very important question. When you get down to issuing a bond prospectus, you need a very clear legal basis for these future cash flows, et cetera. If you are going to set up a project, it needs to be clear that business rates are hypothecated back through to that special purpose vehicle. Clearly, every project is going to have certain risks. The biggest risk might be that the demand for housing in that area suddenly collapses and nobody wants to live there. If investors are looking to buy a 40-year bond, they will be looking at the robustness of the cash flows and the location. If you are doing something on the Oxford-Cambridge corridor, what is the likelihood that Oxford and Cambridge are going to be reasonably robust economies in 40 years’ time? Most investors will look at that and think that it is probably a reasonable bet. Clearly, as you get down into the detail of the financing of all of these projects, those things will definitely come up. You have to make sure it is clear to the investors that there is a lot of certainty in those future cash flows coming through. It is a very important point.

I have a very quick follow-up on the use of stamp duty. Has there ever been a similar forward use of future stamp duty?

Securitisation happens a lot in finance.

What about here?

I am not aware of it having been used for stamp duty.

What would the Treasury say? Would they be worried about setting a precedent?

The Treasury is always worried.

Our understanding is that there has tended to be a view not to go down the hypothecation route. From the research, you can see the clear link between transport infrastructure and the result of it. There is a consensus that we need to find new ways for funding these schemes to help economic growth and housing. It is a new way of doing things. I would say it is an evolved way of doing things. The discussions with Treasury are hopefully starting, but we will have to wait and see.

The point that we have tried to make to Treasury—we have had good conversations on this—is that it is not substitutional. We are not redirecting. We are not suggesting that we redirect existing stamp duty. We are suggesting that you grow the funding pot—you grow the size of the pie, almost, because you unlock additional development that would not happen anyway. It is not substitutional; it is always additional. The other key point for the Treasury is, if you can unlock significant scale of development through a residential TIF, you broaden the tax base anyway. You get future income for the Exchequer from that development, such as future stamp duty transactions that happen 10 years down the line. We based the modelling that we did on one transaction per property. In reality, over a 25-year period, if you have an enterprise zone for 25 years, which we have modelled in the report, you are likely to have multiple transactions with stamp duty within that period, which will accrue back to the Treasury. It is potentially a short-term issue with a long-term benefit.

Is this not just over-complicating the system? We are saying to the Treasury, “We can put the future tax income that you are going to get towards this debt”. Why do we not get the Treasury to fund the infrastructure anyway? They are getting the stamp duty. Are we not just creating another level of bureaucracy to go through? If we have the business case, we could go to Government and say, “This is how much that we need to do this”. They are going to get the stamp duty anyway, are they not?

It is a good challenge, Lewis. The challenge is that the funding just is not coming forward. We are all aware that the public finances are extremely stretched. The Chancellor has done what she can in terms of extending the fiscal rules, for example, to allow more borrowing, but the level of public spending and public investment is not coming forward at the scale that we need to unlock the development that we need in London and other cities. If we are just going to rely purely on the historical examples when the Treasury has centrally funded things, we are going to end up in the same sort of situation with low levels of house building. I do not know whether Tom or anyone else wants to add anything to that.

If you read the NAO’s reports around central Government funding of large-scale infrastructure projects, the results have not been great. There is a big governance issue when you are trying to drive this stuff from the centre. If you have specific projects with specific costs and hypothecated cash flows, you tend to get a much better lining up of incentives and therefore the governance is generally much better. If you look across Europe, these large-scale projects are generally not funded directly from a central Government pot. They are more generally funded directly from the capital markets or with other various forms of revenues and costs. That is just one challenge. If you want to do it from central Government, we do not really have the governance arrangements in place for that to be successful. HS2 is probably the best example of that.

Let’s not start with that. We will move on to new towns.

I would say a couple of things. First, in terms of where the demand for new housing is going to be, densifying and extending existing urban conurbations will certainly reduce some of the risk. Coming back to the delivery of those projects, any large-scale infrastructure project will have significant risks. The development corporation has a history, at least in the UK, of being able to do these kinds of things. This goes back to a point that Maurice made earlier. We need to be having 150 or 200 planners in these development corporations to deliver these kinds of things, above and beyond the financing and funding. The financing and funding is doable. It just comes back to delivery, which comes back to capacity.

Yes, it is a really important point. The European system of accounts is the most important public finance accounting system. If you have a public corporation, there is a requirement to assess whether the funding of the debt of that public corporation comes from market agents, taxation or debt. The rules state that it is off balance sheet if more than 50% comes from market agents. That is why a lot of these European projects have generally been off balance sheet and why the stock of infrastructure has been so much higher as a percentage of GDP than in the UK. From the UK’s perspective, if we want to follow the internationally recognised accounting standard, which pretty much most countries do, there is a way to do that as long as you have sufficient market sources of funding. Market sources of funding include selling off land with planning permission to house builders, affordable housing receipts and ticketing receipts from transport systems. Business rates is a tax, so that would always be on balance sheet. You would not expect business rates to pay for more than 10% or 15% of these projects anyway. The ONS is required to look at each of these forms of debt issuance and make a decision as well whether it is funded by market agents or not. There is already a mechanism, should we want to utilise it.

I do not really know the answer to that, but it is probably something to do with the 1974 court ruling in Myers v Milton Keynes Development Corporation, which made this model financially unviable. The levelling-up Act has changed that. It gives us the opportunity to do it. Because we have not been doing it, we have not really thought through the mechanics of exactly the questions you are asking.

I do not have anything particularly to add to what I and Tom have already said about the virtues of public land assembly. It is about having a vehicle that is able to use the powers that public authorities have to assemble land relatively cheaply. Development corporations are the expected vehicle for large-scale urban extensions. The Planning and Infrastructure Bill adds some flexibility to what they are able to do. They can manage multiple sites at the same time. New town development corporations are also able to manage large urban extensions. That is all useful stuff. It is mostly about doing it and building the capacity to do it as opposed to any of the rules around it.

Yes, notwithstanding the issue about where finance comes from, you can assume land value capture will pay for these developments. My modelling suggests that across the greater south-east and in some other locations new towns could be self-funding entities. That is good from a Treasury point of view in the long term, but you still have to manage this question, as Tom was saying, about the initial finance. If that is going to come from the Treasury, that still looks like uneven spending by central Government.

There would need to be a little cash investment to get a development corporation up and running. To build a large urban extension with a new mass transit system, we are probably talking about £15 billion to £20 billion. That would be over a 40-year period.

It would need to put in tens of millions to get the development corporation up and running, to get some people in and to get some plans together. Once the plans are there, you can go to the capital market and raise the money that you need to fund the ongoing management of it. It is not a lot. The question comes back to the point that you raised earlier, Chris. If you wanted to the capital market to build a mass transit project in Cambridge, for example, the Treasury would have to be comfortable that it is adhering to international accounting standards. If the ONS says that it is market sourced—

I think so, because then the issue goes away. It would not impact gilt yields. The Treasury is concerned about gilt yields, as it should be. If you are funding the expansion of Cambridge through separate bond issuance, it should not impact gilt yields at all, which is something that the Treasury is going to be interested in.

On the point about the potential locations for new towns, one of the other things to mention is the issue around the green belt. Some of the sites that have been identified would be on green-belt land. Will that be a problem in terms of bringing development forward?

Will it be a problem in practical terms or in hypothetical terms? In hypothetical terms, no, absolutely not. When it comes to locating new towns, the Centre for Cities has three basic principles. First, you should follow house prices to give it the greatest chance of being self-funding. You are also building lots of houses where there is demand, if you take prices to be an indicator of demand. Secondly, you should attach new towns to existing pools of labour. Rather than trying to create new economies, you can grow a labour pool and benefit from agglomeration economies. Thirdly, new towns should be public transport-oriented. I have created a map that shows that 88% of the places around London are good, but they are in the green belt. If you think those are good reasons to choose your locations, you have to think about releasing green-belt land. That does not mean that all the green belt gets built on, though. In my model, I have space for 1.4 million homes located around London, and 88% of them are in the green belt. That is only 7% of total London green-belt land. Most of your green belt remains undeveloped in that scenario. Yes, it requires a review of the green belt. Those are often the best locations.

Land value capture is not a new subject. As we wrap up our session, I am really keen to hear from each of you on a lesson that you would apply from history and how we might do things differently this time around.

Concerns are often raised about efforts in the past to have a general land value capture mechanism, such as an infrastructure levy or a land development tax. They become political footballs or they do not achieve as much as they should because they are very general. You can achieve a different amount of land value capture in different sites and in different geographies. The greatest potential for improvement is on place-based or site-specific mechanisms. At the moment, section 106 is the main mechanism by which we do that, but a more plan-led public land assembly model, as Tom and I have spoken about, would improve on that front. That would be one lesson. Secondly, if you are talking about the application of public land assembly models, we can look at the example of the new towns that were built in the post-war period. Those that were located around London and the south-east, where land values were higher and where the economic geography pointed them towards being more useful, grew more than the ones in the north. The north was declining economically at the time. That is a lesson in terms of what the likely house building contribution of that kind of mechanism might be. Following land values is probably a good place to start.

From our perspective, there is a section in the TfL submission that points out that seven different types of development taxation have been introduced since 1945. I will not list them. There are various ones in there on which you can read up. Part of the reason for this, according to TfL—we would agree with this point—is the absence of cross-party support. One initiative or piece of legislation has been introduced and then scrapped by another Government that have come in. It is the elephant in the room, but HS2 is another example of that in terms of rowing back on original commitments and providing long-term stability. Removing politics from the process is one of the lessons.

Is that stopping landowners coming forward? Essentially, there is no clarity. It could be that another Government will come in and that policy will change again.

Quite possibly, Chair. It is relevant for all kinds of investment and spending, whether you are talking about private investment or landowners committing to new funding models. If they think the goalposts will change at the end of each Parliament, that is going to affect their long-term outlook. If you can provide that long-term certainty and stability, that will help to deliver the investment that we need for the housing that we need.

On that point, are there any international precedents where there has been a positive change over the last couple of decades? Are there cases where there has been a big shift in land value capture, broad political consensus and tangible results? That is to anyone on the panel.

If you are concerned that changes to the system to try to improve land value capture might have adverse effects because it disrupts a model, that is a reality. There are some actors that bring land forward for development currently whose business model would be undermined if more public bodies were buying land more cheaply. That points to the fact that you would need commensurate change by those public authorities and their capacity to act in the way that we are expecting them to, such that that does not occur and you continue to have a flow of land for development. It is really about the capacity to do these things and to act as per the rules. If you look at the Netherlands, they went from a standing start to building literally hundreds of urban extensions over a 20-year period. That was building on a foundation of more established planning capacity, but it was possible. They backed it as a project. It became something that the new towns programme could be here, if it were backed commensurately.

Internationally, you may well be aware, the TIF is a very common funding finance model in the US. They use it for a lot of infrastructure there. I could not speak about the political consensus. They put it out to a public vote as to whether it will be added to the tax base. They get the consensus via that mechanism and then they can use the funding. Just going back to the question about lessons learned or observations, it is about certainty and familiarity. As part of the study, TfL provided information on the Northern line extension to Battersea. That was an example of a TIF model working. Some lessons were being learned from that. One of the observations raised was that that is very focused on business rates, and is therefore more at risk due to the climate for business and commercial property. One of the arguments for our proposals is to have some flexibility and evolution, which means you are not necessarily just tied to the commercial side of things. As has been said before, the lessons learned are that we need to add more opportunities to draw revenue or funding to come up with a composite pot. As I said, it is unlikely that one source will ever be sufficient in its own right.

Thank you very much. You have given us some good points to add to our deliberations.   Witnesses: Jeremy Aston, Dr Hugh Ellis, Anna Hart and Tom Kennedy.

Welcome back to the second part of our hearing on land value capture. Would our guests to introduce themselves, please?

I am Jeremy Aston, representing the RICS under our charter of public interest.

Good morning, everyone. I am Tom Kennedy. I am senior policy and research manager at the Northern Housing Consortium. We represent housing associations, local authorities, ALMOs and combined authorities across the north of England.

Good morning. I am Anna Hart, senior corporate finance manager at Transport for London.

I am Dr Hugh Ellis, head of policy at the Town and Country Planning Association.

How much scope is there for land value capture to assist in the Government’s policy aims without depressing the housing market? In particular, what particular approaches on land value capture should they consider?

It is fundamental. Land value capture is the heart of good placemaking but only when it is linked with other mechanisms, such as development corporations. It was the heart of the garden city model, which remains the most successful way of building places that this country has ever developed. There is a paradox. Our current and highly speculative housing development model is subject to CIL and section 106 simply by force of pragmatism. We have to live with that arrangement. If you cannot get that right, you cannot create place with the kind of ambition that we would want to deliver. The first issue is always about what you are trying to achieve with land value capture. Are you trying to pay for social housing? Are you trying to achieve really good placemaking objectives? For the TCPA, economics has always been at the heart of it. You can build extraordinarily high-quality places but only with an economic model that recycles values in a mutualised approach. That requires some pretty radical change from where we are.

I would agree with that. From the public transport investment perspective, we need good public transport to enable sustainable residential development. In the absence of grant funding to deliver all the public transport investment that is required, we need to look at alternative mechanisms. Land value capture is a critical component of that innovative funding approach. There is a big body of evidence showing that public transport leads to significant land value uplift, but the public sector’s toolbox of extracting that value uplift is quite limited. We have talked about section 106 and CIL. Those target just one of the beneficiaries of public transport investment, the development community. They do not target all the other beneficiaries. TfL has done a lot of work to look at who those beneficiaries are. We can point to businesses and existing residential land and property owners. The tools to capture value in those spaces are limited. There is a lot to say for trying to establish a holistic approach to land value capture that looks at all beneficiaries and tries to capture an equitable contribution from all of them, so we can grow the pot of funds that we have available to the public sector to deliver the infrastructure that would support the housing.

I agree with the points about it being crucial and that getting it right will be really important, especially making sure that section 106 works properly to make sure that we have healthy build-out rates and delivering affordable housing and infrastructure. I also support the use of development corporations and compulsory purchase powers, but in the north of England, there will always be a limit on how useful those can be because the land values are just that much lower. I will just have a look at the stats that I have in front of me. In 2018-19, the north of England collected 13% of all developer contributions with 28% of the population. London and the south-east collected 53% of the developer contributions with 32% of the population. As a result, we deliver less through land value capture uplift. Councils already try to maximise what they can. For affordable housing provision, approximately 30% of new supply in the north was from land value capture compared to over 50% outside the north. The north will be reliant on grant funding to deliver affordable housing for the foreseeable future. The changes that you can make to land value capture mechanisms will not change that fact, especially without being disruptive to land supply.

I agree with everything that has been said. Land value capture is absolutely essential. We will probably get to it in later questions, but this issue has been grappled with for a long time and the problem is finding solutions. It is very easy at a high level. I completely agree with the comments that were made earlier by Chris on urban developments, transport in London, transport in metropolitan areas and trying to capture value from the benefits that it brings to metropolitan communities. That is quite right, but a lot of the development also goes on in the regions, where the market is completely different, and it varies even within regions. From RICS’s point of view, we think the existing mechanism of CIL is good when it is introduced, but it has not been universally adopted. That does not make it particularly easy. We understand that it was not universally adopted because sites are so specific. That is why section 106 is there. You might be asking later about how could we improve it with templates and standardisation and make things swifter, quicker and more efficient. It is complex. When I was preparing to come today, the thing that really brought this home to me was plan stage viability. We have been trying to get on the front foot on this since the NPPF in 2018. The 2012 NPPF was the original one. The disaster there was getting rid of spatial planning at the regional or wider level. That is essential for transport and long-term infrastructure investment, but that went away. In 2018, what did come in, which was really good, was frontloading planning and viability at plan-making stage. You get a plan in place. The local community and authority decides what is going on in their patch and allocates the land efficiently and fairly based on the data. Then we come back at the detailed design stage and hopefully deliver that. When I was preparing to come here, the first question I asked was, “Has affordable housing been delivered? Have we got a problem?” I was looking at the numbers that MHCLG has. They publish data on affordable housing. I have seen a trend of numbers increasing. There was a dip during covid and there was a dip that you could peg specifically to the end of 2022, when there was a decision that the NPPF was going to be changed and we were going to tighten various bits of policy and change the levers. Since the 2023 NPPF, the numbers have fallen off a cliff. The exciting positive news is that I now see a big boost coming. You will get the consents, but it is all about how we are going to grapple with this issue and not put a brake on the boost.

Thank you all for your answers to open up this panel. I have two follow-up questions, if I may. The first one is to everyone. How do we—by “we” I mean Parliament and the public sector—balance the priorities when we capture money from land value? Is it investment in certain types of infrastructure? Is it affordable housing? Is it other things? There is a friction there. The best example of land value capture is around TfL and some of the train line extensions, where there is investment in a city’s transport infrastructure over a longer period. How can you get land value capture that prioritises affordable housing or other forms of investment that are slightly different? I also have a follow-up question to Anna. You are saying that we do not capture all of the increase in value from businesses and residents that have had property prices or trade go up. Are there examples of best practice for how to do that? If a homeowner is sitting on an increase in the value of their property, how are you able to capture that to pay off the Crossrail 2 extension or whatever? Are there good examples of best practice that we are missing out on but other countries have pursued?

Shall I start with that last question? That is a fair challenge. It is true that certain beneficiary groups are a lot more difficult to tap into. It is difficult to have taxes that target the uplift that some of those groups benefit from. I do not know of any successful international examples where existing residential property owners and landowners have successfully contributed some of the value uplift towards transport. That is not to say it is something that we should not be trying to do. All the evidence points to the fact that this is where the largest value uplift is sitting. Some of the work that TfL did back in 2017 found that, for eight prospective TfL projects, around 75% of all the value uplift flows into the existing residential property market. It is very much a missed opportunity if we just play with LVC within that 25% space, looking at developers and businesses, but completely ignore the largest chunk of the value uplift. There is a point around when the best time is to try to capture that value. It may be locked in a property and it could only be released at the point of sale or transaction, for example. There is a question whether a transaction-based land value capture mechanism would work better in that instance than something that is annual and charged to people who may not have the cash available to make a payment. Hopefully that deals with that point.

The existing system works quite well. What I have heard from the Government is—this is how I would layer it; tell me if I am wrong—“We want a boost of housing. Right behind that, affordable housing numbers need to go up. We need to house the unhoused. We also need infrastructure delivery because everyone expects to see those things that are necessary with an increased number of dwellings”. The existing plan-led system works well. As part of the planning process, which has been in place since 2018, it is viability testing up front. It is affordable housing. The local area, the metropolitan mayor or someone is deciding what level that should be: “What was it in the last plan? What do we need?” They are looking at all the evidence and setting that datapoint. Through CIL, for those authorities there is the list of education. You are contributing towards the primary schools and secondary schools. Everyone knows how it works and it prioritises and brings the money in. The view that is not captured well, potentially, is the urban metropolitan areas and this bit that my colleagues down here know a lot more about than I do. I am very interested in it. I know someone living in London. He had a rental property near Ealing Broadway. The new line is coming through. All the agents are telling him his house is going to go up in value by 20%, 30% or 40%. That is a specific area to look at. My observation is just that it will be quite complicated. I cannot think of any examples. It is very laudable to try to capture it. That is an important project, but perhaps separate from the rest of England, the shires and the smaller areas, where a lot of development will take place, including in the north. We need to remember that.

I would agree with all of that, and especially about the strength of the plan-led system, in that it allows you to set out what you need and then fund it to the extent that is possible. I would just add that, in areas of low land value, where you have a very finite amount of land value uplift that you can capture, it is really important that CIL is optional. That allows local authorities the flexibility to find that balance themselves. If CIL was charged in an area where you are not going to get enough value to fund everything, then you are taking a portion of that out and you can only do what you decide are the priorities with what is left.

I will just quickly say that there is a matter of principle and then of pragmatism about how you use this. This is a public asset—an untapped public asset. That is what betterment is: betterment arising from the grant of consent and also from public investment. The conversation needs to be reframed. Why are we allowing public assets not to be effectively used in the public interest? That is the starting point for the conversation. Then you can get into the pragmatism of how you actually use infrastructure spend. That is more difficult. The difficulty with the current system, particularly section 106, which is practically all we can do, is that it does not work. It does not allow you to do an infrastructure first, infrastructure-led investment programme, because the money is being recouped after the fact. In Bicester, for example, in Oxfordshire, 8,000 units have been held up because we cannot use section 106 money to pay for a trunk road junction. The system does not work. It is simply the only practical route we currently have. To be really clear, the planning system is not the problem in the housing crisis. That is simply a beautiful piece of mythology. We create the consents. The issue is how you deliver them. You cannot deliver them without land value capture mechanisms, and you cannot make land value capture mechanisms work without a principled discussion about that untapped public asset and, most importantly, about the delivery mechanism that goes with it. Rather than simply an abstract taxation method, it needs a development corporation or an active public authority behaving as a master developer.

Getting into some of that more pragmatic application of how we do this, the Government have said they are committed to strengthening the existing system of developer contributions. From your points of view in your organisations, what are the reforms to section 106 that the Government should be considering?

I would say that the system works, but it is frustrating. It lacks transparency and it lacks clarity. Without interrupting the objective, which is to boost housing, what we could do is improve the system in a number of ways. Fortunately, I do not have to read too many section 106 notices. Once you have read one, the standard format is fairly similar, but there are nuances specific to the development’s individual negotiations. I would say that the main issue is the lack of a national template for a 106 with the main headings in, which you can tweak and vary, because we know that sites vary. Local authorities, where they are used, might want to make some adaptations. Like you have the sales contract for a house or whatever, a six-month rental, why can we not standardise and make the system simpler? Why can we not capture and make the data more transparent? I look at land and property and do technical and planning due diligence, looking for a target-sized piece of land and looking at all the aspects, including viability. One of the things I am going to want to do is look at the local planning history, the status of the local plan and when the new one is coming. All of that data, with digitisation, is becoming fantastically available. I will not name them, but there are lots of products out there. Last year, you could go online and find out who owned the land, what the local plans were, et cetera. Now, I can use a machine learning search for 106s in a specific area, such as North Somerset, let us say, because I am looking at a site. But they are not necessarily all published, online and available. Some of it is becoming less murky because, instead of me having to phone around, saying, “Who knows of one?” or trying to find one where it gets published online with the planning history, I can, through the machine, find a few more. For me, the question is why is there not a public register? Why is it not more transparent? Why can I not go to a register in an authority that I am working on and see what has historically been agreed? The relevance of that would depend on how new it is. We know that there might be differences if the sites are different. The two things are standardisation and access and transparency in terms of information.

What reasons would people give for why that has not happened? Is it just a lack of leadership in saying, “We need to standardise this”?

Yes, I would say so. I do not know what happens within local authorities, but I know sometimes I can find them, redacted or not. Sometimes the data is there and it is all accessible. Sometimes it is not. It is just administrative within the authority. It depends on resources. It is not a national practice, if you like. I look at lots of local authorities: some of their websites and the access to information are fantastic and some of them are awful. That is going to be down to the time, resource and money that they have to do that. That is as a professional, looking day to day. It can either take you hours or it can be really quick to find the information. If we can improve those things and support, as the Government are, through hiring some more planning officers and putting some money in, we can move towards a better world.

I definitely agree about more planning officers. On reforms to the system, giving local authorities as much ability to determine what tenure they look for from section 106 acquisitions would be beneficial. We very strongly support the removal of first homes and affordable home ownership requirements. Beyond reforms to the system, we have to look at why it is not working perfectly at the moment. The Committee will probably have seen that there are around 17,000 homes allocated to section 106 that currently are without buyers. There are two things with that. One is that RP—registered provider—finances are incredibly stretched. They are having to spend an awful lot on their existing stock, which leaves less to acquire section 106 homes, so you have a smaller pool of demand. Then, in some cases, section 106 properties just do not meet the expectations and the requirements of registered providers. There are some issues with quality sometimes. The solution to those things is putting the housing sector’s finances on a more sustainable footing, including through a new long-term rent policy that has to be viewed alongside legal reforms to section 106. Then there should be better relationships and partnerships created between developers and housing associations, bringing them in much earlier so they can genuinely inform the development process and make sure that they are the quality, the tenure, the type and the size of homes that there is demand for, that meet the needs of their tenants and that are easy to maintain in the future. I would point to a recent report by L&Q and the G15, which has a bit more detail about how that might work. Also, in the north, as devolution develops, we are seeing housing providers coalesce into dedicated housing partnerships along the same geographies as the strategic authorities. They are acting as the direct voice into the mayor and the strategic authority. What is happening in a few of those in the north is that they are coming together in developing a section 106 spec. They are saying, “We have all signed up to this. This is what we expect from section 106 homes that we acquire in this area. This is how we can help”. Anything Government could do to develop those across the country and roll them out would be really useful.

Could I add a very short point? In terms of the Homes England register, the funding is on point in terms of trying to help with some of those.

We are talking about refinements to the system, rather than replacement or removal. I am not in the planning profession, so I am not able to speak to the specifics of the reform required, although I know my planning colleagues at the Greater London Authority would be very keen to discuss these points with you. They have made a few points in their submission. From the financial point of view, at TfL we have found section 106 arrangements to be quite useful in terms of raising funding for some of our projects. Indeed, section 106 arrangements and agreements are raising millions of pounds for TfL projects every year at the moment. We can point to two specific successes, the first of which is the Crossrail section 106, which was introduced back in 2010. It has since then come to an end in 2019 and amalgamated with the mayoral community infrastructure levy. During that time of its existence, it raised over £150 million for the Crossrail project, which was very helpful. We also have the section 106 arrangements with Battersea Power Station for the Northern line extension project, which raised £210 million before inflation and then, when you add the tender price index to that, the number is closer to £300 million. That was a crucial component of the funding package for the Northern line extension. What makes section 106 and CIL quite helpful is that they deliver funding up front or during the construction phase of the project, rather than after, which then reduces the amount of borrowing that we need to do during construction to pay for the project. From that point of view, we have found section 106 to be quite successful.

I would agree with all of that. Standardisation is important, as is bearing down on a system that is almost designed for the private sector to be able to game. That is why 106 is so popular with the private sector. It is a gameable system, both through the process of viability testing and post-hoc, which is interesting. People try to renegotiate section 106s granted 10 years ago on the basis of viability constraints and almost always that is about reducing affordable housing contributions. All of the work in public policy over the last four decades has concluded that 106 is really sub-optimal and really should be changed and they have never done it, partly because of those really profound forces that you have had evidence on about why they are popular. There are just a couple of things to add to the really good recommendations about what we can do practically. One is that planning officers lack confidence. They have been beaten around so comprehensively by senior Ministers telling us that planning is a blocker, when it is no such thing, that the challenge is to have a profession who will stand up for themselves and public authorities in the public interest. I meet a lot of young planners who find that difficult when they are on their own in a 106 agreement and there are seven members of a development team coming in to see them. We need that confidence. Elected members need to support them more. That is all about the local plan and clarity. Since we do not have a plan-led system in this country—because, to have that, you would have to have plans—that is an aspiration, not a reality. I agree with the aspiration entirely. Finally, whether or not you do this through Treasury spending, this reinforces spatial inequality on a grand scale. Section 106 and CIL, as we have been debating, are reinforcing a development model that will break this nation. You cannot focus development solely in the greater south‑east of this country indefinitely in the middle of a climate crisis. Although we have not heard any evidence about that, do bear in mind that we will be spending almost all of this on flood defences in 10 years. The climate crisis is real and it will revalue land dramatically. The Committee needs to think about land value capture in an era when development values are falling because of that challenge as well.

That is really powerful. Finally, I believe, Jeremy, RICS put some evidence in around dispute resolution schemes. Do you want to talk to that briefly?

I noticed I missed that, yes. The suggestion is that 106s are the final part to release the application, to actually then get on and build. They are notorious, as you say, for all the reasons that we have been articulating down here, for taking a long time to get to an agreement. Therefore, one of the suggestions, as a modification, was that the application goes in, the clock starts ticking and, within the period from the application being registered to the decision date, the draft should already be in for the 106 and agreement should be reached at the end, i.e. without delay. If not, it should follow a route of alternative dispute resolution, for example. That was the suggestion. There would be points of dispute, just like with the Planning Inspectorate and the Planning Act 2008. You know everything that is agreed, but you have the two points that are not agreed, which will usually be money or the percentage of affordable housing. It goes in to an expert and a decision is made. That is it and the decision is binding. That would unlock that housing.

How realistic do you think achieving that would be?

I can imagine there would be quite a bit of pushback but, speaking personally, a number of members suggested that because, on balance, we represent everyone and a decision needs to be made. It is not perfect, but a fair and equitable decision is necessary.

I just wanted to ask a question in terms of some of the reflections we have had on section 106. Perhaps slightly further down the process, once the agreements have been made, we are aware that there are billions, at the minute, nationally of unspent section 106 contributions sitting there. I just wondered if the panel had any reflections on that. Is there something in terms of the allocations that is creating that blockage or is there something else that we need to be unlocking? Ultimately, if you have made the agreement, that is great, but if it is then not actually unlocking the investment that is needed, it is a failing system.

I do not know the intricacies of why it is locked there. I know it is locked there. I know it is a big sum of money and I know everyone is very frustrated about it. I would imagine that there are a multitude of reasons behind it, some which relate to the way these things are negotiated in a bit of piecemeal way. Things have changed. The application is old. The authority is looking at the forward outlook, thinking, “I will collect 10% of the money from here and 20% from there.” It has just not come out to plan. You are trying to get the money to unlock a specific thing—to build the new school or whatever—and the total pool of funding is not there and maybe they cannot borrow. I imagine it is practical things like that. To the point of transparency, what does the 106 say? What are the contributions? Make members of the public fully aware of the land value capture that happens at the moment, in terms of what they are getting from the development. Disclose it. Publish it. I am not for a name-and-shame, but there could be a performance table of who has the money and where it is. It would help focus the electorate on what is actually going on in their patch.

I would just add that the contribution of construction inflation is one of the biggest ones. Schemes were ready to go and then 20% or 25% construction inflation means that they do not go. That is very much the Bicester case study. It means that local authorities are looking around for more money to deliver on those issues. That is why section 106 does not work for really good placemaking, because infrastructure first, infrastructure-led is the European model and how we build the new towns. You have to get that right if people are not going to be car‑dependent. If you go to Bicester, there is no dentist. It is difficult to get into a GP surgery. Education facilities flow in after. All of those things then play into a political debate about why development is bad, if you do not take an infrastructure first, infrastructure-led approach. However we do this, we have to be able to borrow against 106. You heard evidence in the previous panel about how that might happen.

Very swiftly, it has no connection to me but, in terms of infrastructure first, Urban&Civic is a big developer. It is the best development I have ever seen in terms of money invested up front, Homes England and project finance from the City somehow. I cannot quote you on the affordable housing, but there were trees, plants, a café and a school in before the houses. It is amazing. I will look up the affordable housing. Maybe I will drop a note in on whether they have delivered.

I will move on to viability. Let us just set some context here. There is lots of unspent 106 money, because there is never enough 106 money given. Once the council gets the 106 money, it is a political choice around whether they invest in housing, infrastructure, et cetera. Every time I have been involved in negotiations or been on a planning committee or anything to do with that, viability always comes back: “We cannot afford what you are asking for.” It never comes back to, “Do you know what? There is loads of money in this development, Lewis, and you are going to get everything you want for the council. We are going to meet all of the council’s policies.” It just never happens. Viability is a load of nonsense, because I know they are going to come back and say, “We cannot do anything that you are asking for and now we are going to start a negotiation.” I suspect, when developers go to external bodies about it, they want to give as little as possible, because the less money they give in 106, the more money they make. What are your comments on viability? Personally, I think it is a load of nonsense, because I know they are going to come back and say, “I cannot give you anything.” What do you think we need to change with viability?

The system has been getting better since 2018. It is more and more data-driven and better data-driven. I went to an inquiry on a joint spatial plan eight years ago or whatever it was and it was quite good, with planning out all the modelling, et cetera. What are all the costs? What are the values? That was being debated and that was a planning stage. That was going to set the affordable housing and everything else. At planning stage, the models that are used, in terms of working it all out, are completely different than at the detailed design stage, because it is site-specific, but there is shedloads of data coming in. Now, verifiable, authentic evidence is used. There are a relatively small number of RICS and other professionals involved, advising local authorities, but that data is coming from the Building Cost Information Service in terms of the construction costs, inflation and everything else. It will not be long before it will be live data. Sales information and actual sales data is coming from the Land Registry. We might come on to improvements, so I will come back to that, because there is some stuff. We could get the information quicker from the Land Registry. New-build stuff is coming out 12 or 18 months late. That is a delay in the system, but we could move towards it being better and being live. In preparation for this I spoke to someone a couple of days ago who is involved in that sector. I was trying to convince them that we could make this more transparent with the public. Everyone needs to see the benefits and what is happening. Where is the pie chart on your app that tells you the cost, the value and this is what we are building? Then he told me that, to set the parameters on the modelling that you see, within a local authority area there are so many variables that he is running 30,000 iterations at the planning stage to look at what areas could afford how much housing. I could give you an example. In the North Somerset local plan, they set out with a target of 30% affordable housing. We want to get to 40%. That was going to be the blanket thing. That was their draft stage plan. Then they had the viability modelling done by the experts they had employed and they ended up saying, “The nuances of price values in our area is such that we will get affordable housing delivered on brownfield, lower-value sites at 20%.” They are intending to set the cap at 38.5%, not 40%, to make sure they get the delivery of affordable housing and all the other CIL contributions and things that are necessary. I would suggest that, when you drill into the detail, it actually works very well. It is not that nobody is aware of how complicated it can become. My pie chart is probably too simple, but where is it going? Who is getting that value? What is it going on? There are problems in the system. It is getting captured and maybe it is getting sat on or it should be going on a regionally spatial, sensible transport project or whatever. That is another argument. Then you are bringing in the metropolitan areas. How do you capture that money? I am ignoring that bit at the moment, because I am a rural guy—all the world bar urban areas.

I disagree. I do not think it does work.

The challenge is that viability testing is a construct, is it not? It depends whether you agree with the values that are being attached to each element of it. It has done immense damage to outcomes. There is no doubt about that, because it has rebalanced the process even further away from public interest outcomes and into the outcomes for the development industry. Those two things, by the way, are not aligned very often. Just thinking about land, why the question is so important is that it relates back to the betterment question. The proportion of the pie chart that we spend on land has increased for housing development immensely compared to the 1950s, for example. In most cases, what we are saying to developers is, “You paid too much for the land and that was your problem. Now, you are telling us that you cannot deliver the public good that we have asked for, because you paid too much for the land”. The guidance says that the price paid for land is not a reason for non‑compliance with the local planning policy, which should be tattooed on every planning officer’s arm. That said, it is still a highly gameable system. Let us think about that land value from the first principle. The increase in land value at the grant of permission is a public asset. It belongs to us. That public asset has essentially been sold off. The land owner is benefitting from that public asset. Because that price is proportionately too high, developers are preserving their 20% profit margin per unit and therefore saying, “We cannot do any of your policy compliance stuff.” Essentially, on most developments—and this might be heresy—by the time you have paid for really good infrastructure and all the requirements of that, land prices would almost be zero-rated. That is the economic price that land is worth to develop it to the standard that we want it developed. That is called right pricing land and it is actually the simplest and most effective market-driven mechanism for land value capture, but it does not work because our planning system is too gameable. Every local plan and every developer knows this can be gamed. They game away the policy requirements in the planning committee and you end up with very little. Strengthen the plan and be clear about the expectations that landowners can realistically get from their land.

The problem with that is, when you have put those policies in the local plan, you have determined that planning application and said, “No, that is not in compliance with our local plan policy of 40% affordable housing”, or whatever that may be, they will then take their council to appeal. There is no point having that. If that was a safeguard, then land values would not go up as much as they do, because developers would understand that they have to meet these policies. Otherwise, they would not be getting planning permission. The fact that they can circumnavigate that pushes prices up for land value, because they know they can get away with not delivering that.

That is why it is important to bear down on the gameable system. The Levelling-up and Regeneration Act gives more prominence to the development plan, but that has not been brought into law yet. We are still waiting for that to happen. Maybe this is the most simple way we can get out of this complex issue. Develop requirements that cannot be gamed. Then the developer will say, “I have paid too much.” If it has been optioned, they can renegotiate the option, and they will say, “We have paid too much,” and it will not develop. In that case, local authorities need to be able to say, “We will compulsory purchase land and we will build it out.” That is a system that works, but it is very radically different from the one we have inherited.

Dr Ellis, you have said repeatedly that it is a gameable system. What rules of the game would you change first, and what is the biggest change you would make?

The biggest simple change is that, if you want an effective system, you need the public sector to be able to set standards that cannot be gamed away through appeal decisions or in other mechanisms. Viability testing contributes to the gaming of that process. That said, once those standards are there, either nationally or locally, the idea is that the land market would adjust over time. The difficulty is the adjustment. That is a real issue. How does the land market adjust in the medium term? In relation to most pieces of land in this country, the increasing cost of infrastructure is going to mean that that happy period from the 1960s to now, where landowners have taken super profits out of a development process, is over. The question is how we move gradually to make that understanding clear, by reducing the amount of gaming in the system. A development corporation is the prime example of how you end gaming in the system.

I do not know whether you have analysed the data. I have not in great detail. You might do more data analytics than me. It is really important, as a counter to that, to effectively say that, in 2018, the NPPF, if its rules are applied properly, was supposed to be a frontloaded, plan-led system, determining viability in terms of affordable housing and all those contributions at the front end with the plan. The local authority makes its choice in terms of how it is going to allocate the land and involve the public, with a data-driven approach. In terms of the sales price, rather than the amount paid to the land, it is coming from Land Registry sales data from the market. The cost is coming from the Building Cost Information Service and relates to tender stuff. It is going to be live data. We are down to whether we are overpaying for land. The really important point is that the whole reason for 2018 and the update to the NPPF was that that was happening. Everyone wanted to break the circularity of developers overpaying for land, coming in and saying, “I have bought it now. I want to do the development, but I cannot put any affordable housing in. Sorry.” That absolutely, historically, became a squeeze point. If you look at the data, I know from market values, et cetera, that things are on the turn and improving.

I have a very quick observation and a reflection point. This question is very much focusing on the development community as the beneficiary and as someone who is gaining uplift in their land values as a result of a planning decision of infrastructure investment. It is fair to challenge how that viability assessment system works and make improvements if necessary, but there is also the wider context, which I mentioned earlier. We do have other beneficiaries of public sector actions in play too. It is quite important that we try to capture value from those beneficiary groups as well, not just the development community.

Moving on to the community infrastructure levy, Tom, you probably already answered earlier the question I am going to ask the others. Why is it only at about 50% uptake from local planning authorities? Should the objective be universal coverage?

Yes. Some 32% of local authorities in the north charge sale currently. Land values are lower. A far higher proportion have consulted on a potential regime and have modelled the impacts, and have decided that there is little or no additional value to capture through that without jeopardising private development in their area and ruining scheme viability. They have also decided that we cannot use CIL to fund affordable housing. We would rather use that finite amount of developer contributions that we can capture to help address the housing crisis. That is their decision to make, in my view.

There is unfinished business, maybe, in the CIL review team report from 2016, which had some positive suggestions about how it could be applied nationally. They are certainly worth considering, but they do not in any way overcome the fact that development values are just not there. There are ways of improving the CIL regime technically.

What did you make of the idea of switching to the infrastructure levy?

The infrastructure levy is ultimately a good idea. Their recommendations were positive in dealing with that, as were the recommendations to try to make the system procedurally simpler. That basically underpins that recommendation. All of these things seem to be tinkering with the fundamental issue of how much value it creates. That does not get away from the fact that Gateshead and Kensington and Chelsea, it turns out, are rather different housing markets.

There are lots of issues with CIL in Kensington and Chelsea, by the way, which we will not get into. Even at a micro level, the distribution is very unequal. Does anyone else want to add?

The take-up of CIL in London is significantly higher than in some other parts of the country: 34 out of 35 boroughs have their own borough CILs, albeit some of the land uses may be nil-rated to reflect the value dynamics in specific parts of the city. MCIL, the mayoral community infrastructure levy, has been in operation since 2012. It has done an incredible job in raising funds for the Crossrail project and continues to do so. The original target we set was £600 million, in combination with section 106, so £300 million from each source. MCIL exceeded that number and went well beyond it. The total amount raised now stands at £1.3 billion to date, and it is definitely a very important component of the Crossrail debt repayment profile. Just to reflect on the Peace review back in 2016, if my memory serves me right, MCIL was picked out as a good example of how a CIL can be made to work, due to its simple charging structure at the time and broad geographical coverage. Those are the strong points in its defence.

Do you think there is an argument that a council should do both? There are some examples where, if used effectively, you can get large amounts of money out of 106, but if you are building fewer than 14 dwellings, you do not pay any 106, but can charge CIL. Do you think, on smaller developments, where a council is using 106, they should be allowed to do CIL on the ones that are sub-14 and then still negotiate if they want to do 106 for both? Do you reckon the two can work in tandem?

At the end of the day, there is going to be a finite amount to capture, no matter which way it is done. If anything, on those smaller sites, you are talking about the small and medium builder that we want back into the market, because there are not any. If you can come up with a system where, yes, it is CIL and you know what it is, it is fixed, simple, easy and transparent and we are all happy with it, then that is fabulous. There are shortcomings in the way the whole system works at the moment that we are all trying to make suggestions on improving. In principle, yes.

Anna, are there any further lessons that you would like to highlight in terms of your experience of how land value capture has been used as part of that Northern line extension scheme? I know you have spoken at points this morning about that.

Yes, sure. The funding package for the Northern line extension was quite innovative in its time. Just to recap what that was, about two-thirds to three-quarters of funding came from the incremental business rates levied within the enterprise zone within the Vauxhall, Nine Elms and Battersea opportunity area. About a third came from the developer contributions, the majority of which is from Battersea Power Station as an anchor development within the area. The reason why the enterprise zone component in particular was successful was due, in large part, to the fact that this is a prime part of central London that laid underdeveloped for many years. The business rates baseline of that area was quite low. Because a lot of the new development that is happening within the area is commercial, rather than residential, there was a strong argument and rationale for creating the enterprise zone using the business rates as the tax of choice to raise the funding. Do I think this model can be recreated in other parts of London? The opportunity for that is quite limited, because there are limited places where we will see a significant amount of new commercial development being delivered. There are, however, many parts of London where we can accommodate greater levels of new residential development, and this is echoing back to what WSP and Business London were saying about the resi-TIF model. A model that uses residential taxes, rather than commercial taxes, might be more applicable in those circumstances. Going back to the NLE and the lessons learnt and the success we had with that, another important reason for that success was the close collaboration between TfL, the Greater London Authority, the local boroughs and the central Government. Essentially, the central Government stepped in and enabled the creation of the enterprise zone and the ability for London to retain that incremental business rate, instead of it going back to the Treasury for 25 years. Also, HMT established a worst-case scenario safeguard. If incremental business rates do not materialise at the speed that we expect and it takes us longer than 25 years to repay the Northern line debt, then the safeguard is the ability for us to extend the enterprise zone by an additional five years. That is a great approach to manage that financing risk.

Hugh, thinking about new towns, what sort of land capture tools do you think would be most effective in supporting those developments?

If there was one thing we could do now, recognising the Government are exploring it, it is a new programme of new towns, for the reasons you have heard about. They are total planning and, therefore, they present the most effective and efficient way of land value capture that exists. A public corporation is buying land at current use value or close to it in the original model, through compulsory purchase if it has to, and it is using that uplift and development value created through the development of the town to recycle, to pay down debt and pay for future infrastructure. There is a “but”, of course, and the but is that you have to have up-front loans or investment to kick that process off. That gets back to some of the issues you have heard from previous witnesses about where that money could come from. Ultimately, the new towns programme housed 2.8 million people in 32 places, designated in 20 years, that paid for themselves. They paid back Treasury in the early 2000s all of the fixed-rate loans that were given to mark ones. The mark one new towns were so profitable they were lending money to other public bodies. The model of land value capture is there. The question is on what scale you can apply it, because that deals with a small proportion of development. The point is that that kind of total planning, so long as you can get the democracy right, which is probably for another time, is the way that you deal with effective development. It is the model of infrastructure-led development that applies right across Europe, to some degree or another. It is public sector authorities derisking. That is the heart of really good planning. That is how you build Freiburg and Copenhagen. Those are the models that really work. The Dutch model really works. It is important that they get rolled out. In the short term, it should also be about local authorities needing to play that master developer role on smaller sites. They have the powers to compulsory purchase any land earmarked for development in their development plan, but nothing like the money resources or capacity to do it. That capacity issue has been well made by other witnesses.

I am just conscious of time. There is one final question from me. For many of you, you have been there, done that and got the t-shirt and the stamp. In 2018, the predecessor Committee looked at this. Some of the written evidence we have received is saying that, for the Government to get this right, we need to be more radical, instead of tinkering around the edges. Some have asked to replace council tax and business rates. Do you think this would be feasible? In your view, do you think land value capture would help the Government in terms of building 1.5 million homes?

Within this Parliament, in the context of 1.5 million homes, I am averse to radical reforms. We have a very bad and worsening housing crisis. Our members are committed to doing everything they can to help with that, by building more homes. The way that we want to do that is by consistently increasing the amount of development we do every year throughout this Parliament. We are going to have to overshoot our annual allocation by the end of this Parliament if we have any chance. Anything radical on the land market could result in that freezing up. I have to stress—again, I know it has been a very well-laboured point—that local authorities do not have the capacity to compulsory purchase land at any kind of rate to compensate if land is not coming forward voluntarily. I will give a little bit of extra information on that. In the last five years, there have been 157 compulsory purchase orders actually completed. 83 of them have been in the north, so slightly more, but only 35% of local authorities in the north have actually carried one out. Only 20% have done more than one. That is the level of actual experience that we have in the sector of doing CPOs. You tend to see a very small number that have done multiple over the last few years. In some areas, the capacity just is not there. That will take time to build up. On the feasibility of something more radical, as everyone on this Committee knows, we have not updated council tax valuation bands in 34 years.

That keeps coming back. Don’t worry, Tom.

Exactly. I am sceptical as to how we can design a new land value system, consult, implement it, establish transition and protection arrangements and then build some houses on that new basis.

I will make a really quick point. Radical reform of existing land value capture tools is not a good idea at this point in time. As Tom said, it is going to put pressure on the delivery of housing, rather than help it. Thinking widely on the question of land value capture is a good idea. The process should start now so that, in the medium to long term, there may be tools available to help us deliver infrastructure and housing that we need further down the line. It does not have to be done in one radical reform route. There can be incremental changes along the way. Reforming council tax is a very big task, but thinking about something like additional precepts on council tax within specific zones may be a route forward.

You did say radical thoughts. Land inequality and property is one of the greatest sources of inequality in a nation that is riven by inequality. I agree entirely that we are not going to unpick section 106 and CIL to deal with that, but the Committee needs to think hard about that original logic. We nationalised development rights in 1947. Why are we letting a public asset be captured privately without sufficient response to dealing with public interest outcomes? While that is a general point, it actually slowly helps redistribute land wealth. That is important if you want a more equal society.

Because we have a free market, everything is pegged by everything else—your own house, your own extension. Although in metropolitan areas, capturing investment in London from big TfL projects, et cetera, is something to roll out, just be careful with a transition to something else. The market is balanced. We have loads of trains at the stations waiting for new plans to be created. That is where this needs to start and there have been great moves on it. The numbers will come. It is about tweaks. If there is a big change, if that is what everyone wants, then set it out here and transition towards it. Your targets are deliverable, but they are very challenging. All of this should be done over these two Parliaments.

Thank you very much for attending the Committee this morning.