Land Value Capture, Infrastructure Levy and Compulsory Purchase – The Three Musketeers?

The cost of development is a serious business.

On the whole, developers accept they have to pay to mitigate the impact of their projects, and are prepared to accept a reasonable level of “planning gain”.

How much a developer will have to pay is a key part of any development appraisal, which will affect the value of the land and the viability of the development.

The rules around planning gain are reasonably well understood.

A developer cannot simply ‘buy’ planning permission by agreeing to make a contribution that has nothing to do with the proposed development, and on the other hand the planning authority cannot insist on payment for something that is not reasonably connected to it.

The infrastructure conundrum

One of the issues with this regime is that it does not really work to deliver major infrastructure. That was the problem that put paid to Aberdeen’s Strategic Transport Fund.

This is not a minor issue. The Scottish Government recognises the need for an infrastructure-led approach if Scotland is going to deliver the scale of new homes it requires (private and affordable).

The money to pay for that infrastructure has to come from somewhere. It cannot come from “conventional” developer contributions. The reality is it will need to come from a variety of sources.

Land Value Capture, Infrastructure Levy and Compulsory Purchase have all at one time or another been put forward as solutions to the problem.

However, a crucial consideration is the effect each of them (or all three together) may have on viability.

If planning authorities seek to capture too much value from a development there is a risk that the development site could become commercially unviable, or might not be brought forward by the landowner in the first place.

On the other hand, if planning authorities are too cautious in their approach they could miss funding that could be used to support vital infrastructure.

Three for one, or one for all?

The Planning (Scotland) Act 2019 provided the statutory framework for an Infrastructure Levy – essentially a development tax – as a means of funding infrastructure.

The Scottish Government stated when the Act came into force that its detailed proposals would be brought forward as part of its work on Land Value Capture.

The Scottish Government has now explained in its recently published Programme for Government that it will bring forward new legislation for “Land Value Capture” in 2023-24, taking into account its powers for an infrastructure levy (bit of chicken and egg going on there?).

It will also introduce a Bill “later in the parliamentary term” to reform and modernise the compulsory purchase system to help support the delivery of infrastructure, development and regeneration projects.

What does the future hold?

The coordination of these three work streams, and understanding the cumulative impact on the cost of development is a serious matter that developers will need to be alive to.

We will wait and see exactly how and when they are taken forward, but it is unlikely that will be as a single work package.

This means the development industry will need to consider all three work streams when considering the potential effect of any one alone - and in particular when engaging with stakeholder consultation and commenting on draft proposals.

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