Planning-gain Supplement (PGS)

1. Planning-gain Supplement (PGS) John Stewart HBF Director of Economic Affairs 20 March 2007

2. Presentation Outline • S106 Agreements • PGS: Treasury Proposals • HBF Position on PGS • Some Major PGS Concerns • PGS Alternatives

3. S106 Agreements

4. HBF set the S106 hare running Circular 1/97 excellent…but ignored. Negatives: • Delays, especially Affordable Housing • Escalating & excessive demands • Inconsistent within and between LAs • Uncertainty • Viability threat • Pressure for open book • LAs monopoly power; developers roll over

5. But hanging concentrates the mind… S106 positives: • Levy roughly related to land value • Contractual infrastructure delivery • Infrastructure timing matched to development timing • Working better: experience, 05/05

6. Open space: Transport, travel: Community, leisure: Education: Other: County councils: Affordable housing: TOTAL Sheffield University £115m (6%) £279m (15%) £111m (6%) £118m (6%) £64m (3%) £6m (0%) £1,200m (64%) £1,887m Estimated value S106: 2003/04

7. S106 Affordable Housing S106 Affordable Housing Supply (England) • 2003-04: 16,380 units • 2004-05: 18,185 units • 2005-06: 23,869 units (+46% 2003-04) Source: Yvette Cooper, Parliamentary Answer, 22 January 2006

8. Multiple S106 objectives Is S106 the best way to: • Tax land values/land value uplift from pp? • Fund infrastructure? • Provide infrastructure? • Increase land with pp/incentivise development? • Fund Affordable Housing? • Provide Affordable Housing? • Allocate scarce LA resources?

9. Affordable Housing (S106) S106 Affordable Housing doesn’t: • Increase housing supply • Make housing more affordable But it does: • Lever in private land-value subsidy • Ration part of inadequate housing supply

10. PGS: Treasury Proposals

11. PGS Treasury objectives • Remedy many S106 defects • Tax on full pp land value uplift (Barker) • Hit all development – only 7% pps have S106, 40% ‘major residential’ pps (Sheffield CLG research) • Fund infrastructure (not provide)

12. PGS Treasury objectives • PGS funds > S106 (£1.9bn 2003/04) • Not redistributive – or not much • Not hamper development – capture ‘modest proportion of the value uplift’

13. But surely any land tax reduces supply? Not necessarily if taken in the round: • “Modest proportion” • Largely replaces S106 ‘tax’ • Increased infrastructure funds => more land for development Net impact…?

14. Treasury PGS proposal • PGS levy: (PV-CUV) x PGS ‘modest’ rate • PGS as % rate => related to site value • PGS rate set nationally, admin HMRC • All development (except household) • Scaled-back S106 (incl. AH) statutory basis • Self assessment • PV, CUV fixed at date full pp • Valuation based, not transaction price

15. Treasury PGS proposal • Payment at start of development, not pp • Paid by developer, incidence land owner • Hypothecated infrastructure levy • 70% LA, 30% to region • Not before 2009 • Transition arrangements vs steady state

16. HBF Position on PGS

17. HBF position on PGS • Agree objectives • Accept ‘modest’ levy on pp land value uplift • PGS as proposed won’t work – probably can’t be made to work • But work with Government to find solution Critical: better alternatives, including raising extra funds for strategic infrastructure?

18. HBF position on PGS But reserve final judgement until Cross-cutting Review of infrastructure delivery: • Combine PGS + other funds • LDF, RSS infrastructure plans • Coordinate providers (LA, Highways, etc.) • Adequacy of funds • Flow of funds vs timing of needs • Timing of delivery vs timing of development

19. Knight Frank research Joint HBF/BPF/RICS/CBI - case study based Some key implications: • Less funds from large schemes than S106, more from small? • Valuation: assumptions critical, sensitivity to assumptions, disputes/challenges • Distribution PGS funds vs LA needs?

20. Some Major PGS Concerns

21. Some major PGS concerns • Must fall on land value, not developer • Pre-clearance essential – but Treasury anti • Artificial PV and CUV valuations vs development valuation/land price • Proposals for scaled-back S106 inadequate • Proposals for Affordable Housing inadequate

22. Some major PGS concerns • Transition arrangements – some comfort • Will PGS raise sufficient funds, in total and in right locations? • Infrastructure delivery?? • Will Treasury cut LA grant by PGS funds? • Conservative repeal – impact? • ‘Modest’ rate not guaranteed in future

23. PGS Alternatives

24. S106 See above!

25. Tariff MK special case – greenfield, land owners known, sites identified, infrastructure needs quantifiable, development timescale known, S106 ‘contract’ • Tariff set according to LA needs – requires plan • But needs unrelated to land values – either LA collectively or individual sites • Negative brownfield/regeneration impact • Would still need extra strategic levy

26. Optional Tariff • Tariff (above) as default • Developer can opt for S106 – but likely to require open book to ‘justify’?

27. Towards a solution… • S106: Circular 1/97 model, statute based (so can be appealed), build on Circular 05/05 • Affordable Housing – national guidelines • Truly modest (e.g. 5%) nationally-set Strategic Infrastructure Levy (SIL)? • Strategic Infrastructure Plans • LA infrastructure plans

28. Will PGS go ahead? The Government “will move forward with the implementation of PGS if, after further consultation, it continues to be deemed workable and effective” (PBR, December 2005)

29. Will PGS go ahead? • Government wants to extend levy on land wider than S106 (only 7% all pps, 40% ‘major residential’ pps) • PGS linked to Cross-cutting Review • Tory repeal impact? (General Election 2009-10)

30. Planning-gain Supplement (PGS) John Stewart HBF Director of Economic Affairs 20 March 2007