The land of Scotland and the common good: report

Section 20 - Urban Renewal

8 The urban environment is characterised by continuous change as old industries decline and new ones develop; as existing buildings are adapted for new uses; and as buildings are demolished and new ones built on the resultant cleared sites. Successful urban areas therefore depend on this process of 'land recycling', and the effectiveness and efficiency of land recycling is thus crucial to the long term prosperity of Scotland's towns and cities.

9 Commentators such as Adams however point out that left to their own devices, urban land markets do not work particularly well, and are replete with imperfections and failure. ^[1] Indeed Balchin et al argue that the widespread nature of the imperfections in such markets, make urban land and property markets among the least efficient of all. ^[2]

10 Linked to the imperfections of the urban land and property markets, are a number of specific ownership failures or constraints. These include ownership being unknown or unclear; ownership rights being divided (land held in trust or subject to leases or licences, etc); and the existence of ransom strips which can act as a barrier to land assembly for urban development. Other problematic contexts include situations where either the owner is willing to sell, but not on terms acceptable to any likely purchaser, or where, for any one of a number of reasons the owner is unwilling to sell.

11 This combination of market imperfection and ownership failures or constraints, manifests itself in two ways. The first of these concerns the gap that often opens up between the allocation and availability of land for development. Specifically, planners may allocate or set land aside for housing or urban uses, but this does not necessarily make it available to those who wish to develop such uses. The second aspect concerns the hangover of vacant and derelict land, which often has a significantly detrimental effect on local communities. Creating opportunities for local communities and others to take over and regenerate vacant urban land in Scotland could potentially make a hugely important contribution to kick-starting regeneration where it is most needed.

12 As with most examples of inefficient markets, the case for intervention in urban land and property markets seems compelling. However, any reform of these markets requires us to consider how far we can go, without impinging on human rights. Allen offers a useful analysis of how Article 1 of the First Protocol of the ECHR has evolved in a way which a number of the original signatories to the Treaty never intended, and highlights the competing liberal and social democratic interpretations. ^[3] Reform of urban land and property markets require us to rethink our understanding of what we mean by 'public interest' within this context. Rather than simply considering the 'micro' public interest in relation to any one particular site, we need to instead regard the 'macro' public interest in relation to sustainable development and sustainable economic growth across Scotland as a whole. In other words, reform is needed to help Scotland flourish more generally, rather than simply to release particular sites for development.

20.1 Derelict and Vacant Land

13 A key test of effective land reform in Scotland will be whether it helps reduce the long-term urban land vacancy and dereliction which blights many of Scotland's older urban areas. In addition to the undoubted economic benefits, simply bringing former vacant and derelict land back into productive use can immediately boost local confidence. It is difficult to conceive of circumstances in which it is in the public interest for urban land, whether it is public or private land, to lie vacant or neglected by its owners for any length of time, other than for strategic transport or infra-structure requirements. It follows that bringing such land back into productive use should not be frustrated by recourse to the discussion of private property rights.

Extent

14 The term 'vacant land' refers to land that is unused for the purposes for which it is held, and is viewed as an appropriate site for development. This land must either have had prior development on it, or preparatory work has taken place in anticipation of future development. 'Derelict land' (and buildings) on the other hand, refers to land that is so damaged by development that it is incapable of development for beneficial use without rehabilitation. Planners also refer to this as "brownfield land" and a body of planning policy has emerged which specifically deals with this concept.

15 The Scottish Vacant and Derelict Land Survey ( SVDLS) is an annual survey undertaken by the Scottish Government, using information provided by local authorities. It was initiated in 1988 and has been undertaken on an annual basis since 1993. The survey aims to establish the extent and state of vacant and derelict land in Scotland, and highlights recent trends in levels and patterns of vacant and derelict land.

16 The 2013 report established that there are 11,114 ha. of urban vacant or derelict land in Scotland. This figure breaks down into 2,355 ha. (21%) classified as urban vacant, and 8,759 ha. (79%) classified as derelict. Interestingly, over 40 per cent of urban vacant or derelict land has been unused for at least 21 years. At moderate development densities this could site more than half a million new homes.

17 The SVDLS identifies that the most common previous use for urban vacant land, where previous use is known, was agriculture (414 ha. or 21%), closely followed by residential development (399 ha. or 20%). It is also interesting to note that 56% of people living in the most deprived decile in Scotland live within 500 metres of derelict land, compared to 13% of people in the least deprived decile. This would suggest that an approach which successfully addressed urban and vacant land is likely to have a positive impact on disadvantage.

18 Despite the best efforts of local authorities, supported in some instances by the Scottish Government's Vacant and Derelict Land Fund, there has only been a decrease of 265 ha. (2.3%) in the total amount of derelict and urban vacant land recorded in the survey since 2007. While, on average, in excess of almost 400 ha. of derelict and urban vacant land has been brought back into use each year, this figure is continually offset by further urban land falling into decline and being newly classified.

19 While the SVDLS now provides much better information on the extent of vacant and derelict land, the statistical nature of the exercise offers few clues as to why this remains such a serious problem. Cameron et al and Couch and Fowler distinguish between frictional, demand-deficient and structural vacancy. ^{[4] [5]} Land that is either frictionally vacant or suffers from demand-deficiency will be involved in the development pipeline. The former tends to be blocked by constraints at the feasibility stage, while the latter is awaiting the next upturn in the market. Structural vacancy, however, is defined as land rendered permanently surplus to requirements by changes in technology or in the nature of demand. It is especially characteristic of de-industrialised locations left behind by structural economic change. In this form, the problem is 'hardcore', often seeming to be intractable, and the land is unlikely to reach the development stage without market intervention.

20 It is also important to consider who actually owns vacant and derelict land. A study by Adams et al which focused on the cities of Aberdeen, Dundee, Nottingham and Stoke identified almost three times as many private sector owned brownfield sites as public sector ones. ^[6] The report stresses that crucial to understanding the relationship between ownership and development is whether the owners (private or public) are passive or active, and concludes that one objective of any market intervention should be to get derelict and vacant land into the hands of active owners.

Compulsory Sale Order

21 Keeping urban land and property vacant when someone else could put it to beneficial use impedes the chances of achieving sustainable and resilient settlements. Compulsory Purchase Orders ( CPOs) are one measure currently available to local authorities and other public bodies to address this situation, and these are discussed in Section 8. However, even within an improved CPO regime, this mechanism alone is unlikely to suffice, and the development of other mechanisms is clearly required to address the challenge of vacant and derelict land.

22 The Group considers that one new measure worthy of consideration is a Compulsory Sale Order ( CSO). This mechanism is based on the recognition that there comes a point when it is no longer in the public interest for an owner to retain land and property indefinitely, without use or sale. When this point is reached, a CSO would be triggered, effectively requiring the land to be sold by public auction.

23 Public auctions arguably provide the most effective means to ascertain a fair price for vacant land and property, especially at a time of economic restructuring. They cut through the inherent difficulties involved in the valuation of such assets, which arise because actual transactions in vacant urban land are relatively few in number. The price paid per hectare can vary substantially and the lack of comparable evidence makes it hard to make a realistic valuation. A key feature of this uncertainty is that sellers are often reluctant to go to auction because the price achieved may well be lower than that which they believe to be achievable by waiting indefinitely for a purchaser. But, from a public interest perspective, this is precisely the point.

24 Indeed, it may well be necessary to write-down land prices across much of urban Scotland to enable regeneration to flourish, and if auctions are an effective means to achieve this, then this supports the case for the introduction of a CSO. The mechanism would provide a powerful means to convert 'exchange value' back into expected future 'use value', thus acting as an important stimulant to bring those future uses about. By introducing greater realism into land and property pricing, the CSO would have a significant knock-on effect on regeneration across the whole of Scotland.

25 Legislation would need to define when a CSO could be exercised, who might have the power to do so, and to which categories of land and property it might and might not apply. In principle, the CSO would apply to any 'abandoned' land that has remained in a vacant or derelict condition for an unacceptable period of time. This will require that local authorities, who already collect and supply information on vacant and derelict land to the Scottish Government, use this information as the basis of a new, publically available, statutory register.

26 Because of the increasing importance of the register, it is likely that a formal procedure would have to be included for circumstances in which an owner wished to object to the inclusion of land within the register, or where other bodies, such as community groups, considered that land had been omitted. In responding to such challenges, local authorities would make decisions on a purely factual basis of whether, in view of all the information presented, the land did or did not meet the required definition. There would also need to be some limited right of appeal against the decision.

27 The use of CSO's could be linked to the current validity of planning permissions (generally 3 years), reflecting the already well-established principle of public policy that it is reasonable to expect development to commence within 3 years of permission having been granted. Applying this principle would suggest that a CSO could be served at any point after land had been registered as vacant and derelict for more than 3 years. The CSO would be initiated by new powers granted to local authorities, although extending this to other public agencies with CPO powers could also be considered.

28 Once triggered, the CSO would involve the local authority serving a notice on the Owner, requiring arrangements to be made for the land to be offered for sale by public auction within a period of six to eight months. The local authority would have reserve powers to organise the auction itself if the owner failed to act, or if the proposed arrangements for holding the auction were deemed unsatisfactory. The notice served on the owner would be accompanied by a planning statement prepared by the local authority. This would detail any existing planning permissions and relevant development plan allocations and policies. The statement would be intended to clarify what types of development would and would not be likely to be permitted on the land. The statement would be published on the local authority website and would be expected to be referenced in any sale particulars.

29 Although there would be no restriction on who might participate in the auction, measures would need to be introduced to avoid speculative purchases by parties who continued to keep the land vacant. This could involve attaching a condition to the sale which gave the local authority the right to purchase the land three years after the sale, at a valuation set at that date by the District Valuer, if no development on the site had commenced. Alongside the planning statement, this condition would help ensure that bids made at the auction were based on realistic proposals, and not speculative ones.

30 If no bids were made at the auction, the land would remain unsold, and there would be a period of time, possibly 3 years, before a further CSO could be initiated. While possible, this scenario is highly unlikely as, in most circumstances one would expect a community organisation or local authority to make at least a nominal bid for the land, especially as no reserve price would be allowed. Indeed, interest and action would be stimulated by the intended auction notice period of 6 to 8 months.

31 Since it is often the local community which suffers most directly from vacant and derelict land, it would seem reasonable to give communities a right to trigger a CSO, particularly in circumstances where they have an alternative use for the site. This is discussed within Section 17 of the Report. While there would of course be no guarantee that the community bid would prevail at the resultant auction, the CSO would ensure that the land is sold for a realistic 'market' value, and that the derelict or vacant site is brought back into productive use. It is important to note that any proposed community use might not necessarily be a built development: communities may well use this power to provide more open space, allotments or community growing sites. However, even in these circumstances, these uses would contribute much more in the broad sense to urban renewal than keeping the land vacant.

32 The Review Group considers that further mechanisms are required to address the persistent challenge of vacant and derelict land in urban areas. The Group recommends giving local authorities a new power of Compulsory Sale Order.

20.2 Land Assembly Mechanisms

33 In addition to those situations which the CSO would address, there are also other contexts in which ownership failures and constraints act as a barrier to derelict and vacant land being bought back into productive use. At the most basic level, effective urban land and property markets require access to quality information: the ability to discover quickly and precisely who owns the various patchwork of interests that make up a potential development site. Crucial to this is the updating of the Land Registry, which is addressed within Section 4 of the Report.

34 There are other existing measures which can help facilitate the re-development of derelict or vacant land in an urban context. Many people regard the planning system as the prime means to do this, but while the planning system has significant power in preventing unwanted development, as Adams argues, its ability to generate desirable development, at least on its own, is really quite limited. ^[7] The use, or threat of use, of CPOs to help assemble sites for development is the other tool currently available, and Section 8 discusses the need to modernise and reform these.

35 In order to deliver significant urban regeneration however, there is a need to complement the planning system and more effective use of CPOs with additional policy tools. Traditionally this has involved developer subsidies, but these tend to be expensive and symptom-focused, rather than being tools which get to the root of the problem. As such, some new policy tools and approaches are required to support existing mechanisms. Within a land reform context, new measures which specifically seek to address the problem of multiple and fragmented land ownership could be achieved by redefining property rights.

Majority Land Assembly

36 In land law, a developer must either acquire or respect all the existing property rights in the site before development can proceed, making it extremely difficult in practice to assemble such sites by negotiation. This is often because, by owning what is referred to as 'hold-out parcels of land' (often in the middle of the development), the last owner to settle is left in a powerful position to drive a hard bargain with the developer.

37 Adams however, contrasts this situation with company takeovers in corporate law, where once the bidder has acquired a certain proportion of the company shares (which in most jurisdictions is around 85% to 90%), the remaining shares held by those who did not accept the bidder's offer, can be compulsorily acquired by the bidder. ^[8] This, therefore, raises the question of whether the principles of corporate law offer Scotland an effective way to solve the problem of land assembly, without the need for compulsory land purchase by the state.

38 Such a measure would require the intended redevelopment area to be clearly defined, along with all the ownership interests potentially affected. Within this area, the developer would be expected to acquire the vast majority of ownership interests, say 90%, through negotiation and voluntary agreement. At this point, the dynamics of the remaining negotiations change fundamentally. The crucial negotiation is no longer with the last seller, but with a much earlier seller, beyond which the stronger negotiating position switches from the outstanding seller(s), to the buyer (a transfer of power from the remaining landowners to the developer).

39 In 1999, the Hong Kong Government introduced precisely this measure in the form of the Land (Compulsory Sale for Redevelopment) Ordinance, which enables private developers who had acquired 90% of the property rights in any redevelopment project to apply to the Lands Tribunal to, effectively, force the sale of the remaining 10 per cent of property rights. ^[9] The ordinance removes the advantage of holding out to the very end, and so encourages all owners to settle by negotiation. While this example is a privatised form of compulsory purchase, it does provide a useful illustration of how markets can be re-shaped to achieve desired policy ends (in this case, speeding up urban redevelopment) by making relatively minor adjustments to property rights.

40 The Review Group considers that additional policy tools are required to more effectively enable land assembly for urban renewal purposes. The Group recommends that the Scottish Government explores the feasibility of introducing a Majority Land Assembly measure.

Urban Partnership Zone

41 An effective alternative mechanism to compulsory purchasing land for redevelopment is that of 'owner participation'. Again this applies to fragmented or multiple ownership and involves reforming property rights to enable land assembly. Many countries throughout the world already do this effectively through statutory arrangements known as land readjustment or land pooling, the strength of which is creating opportunities for land owners to share in the financial benefits of redevelopment in return for sharing some of the risk. This approach originated in Germany in the early 20th century. ^[10] It has since been applied and adopted in many other countries. ^[11]

42 The system enables fragmented and irregularly shaped plots of land to be consolidated to create serviced and usable parcels. Land is then redistributed to the original landowners, with public infrastructure costs being borne collectively by the increase in development value. As a development stimulus, land readjustment thus connects land assembly, disposal and infrastructure provision with a method to distribute the financial benefits of development between landowners and public agencies.

43 If this approach was introduced in Scotland, it would speed up urban regeneration by providing a statutory framework to encourage voluntary co-operation between owners. Indeed, Scotland could actually do much better by integrating the development process as a whole under local leadership, through a form of 'land readjustment plus' which Adams calls an 'Urban Partnership Zone' ( UPZ). ^[12] The UPZ offers an innovative approach to land assembly by combining a statutory framework with greater planning certainty and, possibly, with taxation and other financial benefits. This would enable local authorities to drive forward redevelopment projects with minimum compulsory purchase.

44 In practical terms, a UPZ would be an area specially designated for redevelopment by the local planning authority, and would involve a development partner being selected by the authority through open competition. At that stage, neither the local authority nor its development partner need own any land within the proposed UPZ. A joint-venture development company would be formed between them, in which the local authority would be entitled to at least a minimum share, irrespective of any land owned, in order both to reflect its own commitment and to ensure local democratic accountability. In some circumstances, partners who already hold an ownership stake in a suitable UPZ might invite the local planning authority to enter into partnership rather than vice-versa. It would be for the local authority to decide how best to respond to such an approach.

45 Once a UPZ is declared, existing landowners would acquire the statutory right either to join the development partnership or to sell out to it. Crucially then, in contrast to compulsory purchase, the process of land assembly would be designed to promote co-operation not confrontation between the joint-venture development company and existing landowners. This would provide a welcome means by which those already owning land and property within the UPZ could benefit from the proposed redevelopment, either financially or by taking reserved space in the new scheme.

46 To prevent further fragmentation of ownership within a declared UPZ, declarations would be entered as land charges and would entitle the local planning authority to pre-emption rights to any land and property in the area. To provide vision, direction and planning certainty, UPZ declarations would be accompanied by an overall master plan or development brief to ensure quality design and development. This would grant outline permission for the uses specified, so creating early planning certainty and enabling valuation disputes to be resolved more quickly.

47 By linking strategic development intentions at an early stage to a planning approval in principle, development risk would be reduced and valuation disputes between owners minimised. The majority land assembly measure proposed above, would help address those owners who neither wished to sell their land, nor enter the development partnership. If owner participation proved popular, it would be necessary to invoke compulsory purchase only against a minority of the original owners, making such action easier to accomplish and politically more acceptable. A UPZ would mean that on confirmation of any compulsory purchase order, title would transfer directly to the joint-venture partnership, rather than the local authority, and the partnership would be directly responsible for compensation payments.

48 Although some aspects of UPZs draw on successful regeneration practices, others would be quite new in a UK context. These include the status of outline planning permission accorded to master plans and development briefs, the grant of pre-emption rights to the local authority, the vesting of compulsorily acquired land directly in a joint-venture development company and, especially, the proposed statutory rights and processes to encourage owner participation. Importantly, the blunt instrument of compulsory purchase would be supplemented with a process which encourages interested owners to participate while challenging those owners whose actions discourage redevelopment.

49 The Review Group considers that the well-established international practice of property land readjustment or land-pooling provides another effective means of addressing fragmented or multiple ownership of land. The Group recommends that the Scottish Government investigates the potential of introducing an Urban Partnership Zone mechanism in Scotland.

Financial Disincentives

50 Within this context of vacant and derelict land, the final point to be noted is that there are currently no holding costs or taxes which discourage passive land owners from retaining vacant or derelict land. The introduction of one or more of a range of fiscal disincentives, including Land Value Tax, Stamp Duty Land Tax, land holding charges, or empty business rates could be considered as a means of complementing or reinforcing those other tools and mechanisms which seek to address vacant and derelict land in urban areas. These are discussed within Section 25 of the Report.

20.3 Public Interest Led Development

Prime Developers

51 Future Scottish prosperity depends to a significant degree on the ability of cities and towns to reinvent themselves, and transform vacant and derelict land into productive use. This needs to be done in a way which simultaneously delivers better urban 'places' (in terms of design and quality) and maximises the local development impact (through local production and sourcing local materials).

52 For a large part of the post-war period, the predominant development model was characterised by the proactive intervention of well-focussed public organisations such as development authorities and / or proactive public housing authorities. ^[13] These bodies made land available for housing and other development and, through their interventions were able to capture most of the rising land value. Crucially, they influenced the quality of development taking place. More recently, however, urban development has increasingly become private sector-led, involving fewer and larger companies. Within this model, it is the private developer who will assemble and acquire the land for development, carry nearly all of the risk and, along with the land owner, capture gain from rising land values.

53 Various commentators suggest that if we are to develop a more efficient approach to urban development we need to draw on historic experience, and shift towards 'public interest led development. This will involve local authorities and other public agencies increasingly taking on the role of prime developer, with the responsibility of producing local development plans and of proactively acquiring and assembling the land necessary for the implementation of these plans.

54 Gulliver and Tolson point out that, at different points in time, urban development has always been driven by either the search for market value or by public sector intervention. ^[14] They go on to argue that, particularly in the current economic context, where markets, private credit and public and private investment have all but 'dried up', the public sector will be the only driver of any substance and " now needs to play the role of 'Prime Mover' in Placemaking".

55 In addition to the historical evidence, it is also instructive to look at examples from Europe which continue to deliver urban development of the required scale, design and quality. In Germany, local authorities continue to adopt an approach which was widely practised in the UK for much of the 1930's and 1940's. Once land is identified by Councils as being necessary for development, the farmer or landowner gets a small premium for losing it, and the Council then makes it available (usually as serviced sites) in a way which supports their urban development objectives. Similarly, the much heralded urban development of Ljburg in the Netherlands over the last couple of decades has been planned and driven by the Municipality of Amsterdam, which bought the seabed on which the island is built from a national government agency at the outset of the development process.

56 This model of public interest led development effectively redefines the relationship between the various public and private actors. It involves the local authority or other public agency taking a proactive role in zoning the land for specific development purposes and then assembling the land, with land owners being fairly compensated. However as prime developer, the local authority or public body does not necessarily have to take on the role of master planner, a role which could equally be undertaken by a private sector body or through a partnership arrangement. It is also worth noting that local authorities tend to have a 'triple A' credit rating and therefore have the potential to raise development finance of their own. In addition, local authorities have land, property and planning powers at their disposal, all of which suggests that they are ideally placed for public interest led development.

57 Adams argues that the scale and challenge of much urban renewal requires, what he describes as, 'strategic market transformation'. ^[15] This involves the integration of masterplanning, land ownership consolidation (and division), regulatory approval and financial planning in a way which facilitates the emergence of new markets whose potential would otherwise be constrained.

58 While this model would incur greater initial costs, Gulliver and Tolson suggest that these could be funded through different types of public-private relationships. ^[16] However, any initial investment to unlock land constraints at an early stage, would undoubtedly deliver significant financial and non-financial rewards for both public and private sectors later on. This approach would also increase the ability of local authorities to co-ordinate the provision of physical and social infrastructure. Moving towards increasing public interest led development would require clear leadership from the Scottish Government, who could provide further support through the provision of an underwriting facility.

59 The Review Group notes the greater public interest outcomes from public interest led development processes and considers this to be a necessary requirement for most effectively addressing urban renewal challenges in Scotland. The Group recommends that the Scottish Government should encourage and support a greater emphasis on public interest led development.