The current system of land value capture, a public finance mechanism that captures developer contributions to fund public amenities such as a new GP surgery or a school, fails to deliver the full potential funding for local communities, says the cross-party Housing, Communities and Local Government (HCLG) Committee in a new report.
The Committee report comments on the cut to London’s affordable housing target and raises concerns about the Government’s ability to meet its 1.5 million new homes target.
Land value capture is a public finance tool that captures increases in land value following the granting of planning permission, which is used to help fund public amenities.
The report recommends that the Government undertake a series of land value capture reforms, including to Section 106 agreements and the Community Infrastructure Levy, to ensure developers make fair contributions towards community infrastructure and affordable housing, including homes for Social Rent.
On efforts to meet the 1.5 million new homes target, the report is critical of the Government’s delay in publishing its Long-Term Housing Strategy, which has, “left industry in the dark, without a clear sense of the trajectory of housing supply, and without an overarching plan as to how such an ambitious target will be achieved”.
The report recognises the need for a significant increase in housing supply in London but expresses serious concern about the prospect of reducing London’s affordable housing target, insisting that a significant proportion of new homes must be affordable to local people, and concern about changes to the charging of the Community Infrastructure Levy. The report calls on the Government to provide evidence of how changes to the affordable housing target may deliver more affordable housing units and recommends the introduction of a clawback mechanism for developments which exceed pre-agreed profit benchmarks.
On the Government’s New Towns programme, the report notes the Government has not yet set out where the billions of pounds of public and private investment needed will come from. The Committee calls on the Chancellor to use the upcoming Budget to announce new funding to establish development corporations and ensure they can press ahead with land acquisition on the first New Towns sites without delay by spring 2026.
On the recent shortlisting of potential New Town locations, the Committee also raises concern about the Government’s approach. The report highlights that the Government has published detailed maps of the 12 potential New Towns sites without a planning policy to protect land value, which risks allowing speculative developers to profiteer and could jeopardise the plans for a new generation of New Towns.
Florence Eshalomi MP, Chair of the Housing, Communities and Local Government (HCLG) Committee said: “Fixing the housing crisis and meeting the 1.5m new homes target requires the Government to pull all the levers at its disposal. The Government should immediately pursue reforms to land value capture to ensure developers make fair contributions towards the infrastructure and affordable housing which communities rightly expect.
“We need more homes, but we need homes that are affordable. Any proposed changes to land value capture measures, such as the Community Infrastructure Levy, should be able to answer the crucial question of how it will increase the number of affordable homes available, alongside vital infrastructure.
“We are in a housing crisis, and I want to see the Government bring forward the delayed Long-Term Housing Strategy to set out the comprehensive range of policies needed to address the slow pace of housing delivery and ensure 1.5 million homes are built in this Parliament. The Government must not lose sight of the need for the infrastructure which residents expect in high-quality new developments, and developers must continue to make a fair contribution towards this.”
The report emphasises the importance of affordable housing as part of the housing mix. The report recommends that all local authorities in England should set a minimum percentage target for affordable housing in their Local Plan, with a 'fast-track' planning route for developments which meet this local target. On New Towns, the report recommends that development corporations are mandated to prioritise homes for Social Rent within the 40% affordable homes requirement, rather than other types of affordable housing.
The Committee’s report recommends a series of reforms to land value capture, calling on the Government to:
- introduce new template clauses for Section 106 agreements to focus negotiations on site-specific factors rather than legal wordings;
- reinstate access to funded Level 7 planning apprenticeships for students over the age of 21;
- establish a statutory dispute resolution scheme to settle deadlocked negotiations between local authorities and developers fairly; and
- publish updated land value estimates data, which have not been updated since August 2020, to inform future reforms to land value capture.
