Planning - the value, incidence and impact of developer contributions: research

Executive Summary

Research Specification

The purpose of the research is to inform Scottish Government's review of existing developer contributions mechanisms by bringing together evidence under two broad themes:

• Quantitative: How much are existing mechanisms raising, what purposes are they being used for and how does this vary geographically?

• Qualitative: How effective are existing mechanisms and what are the practical issues associated with their use?

The value of developer contributions

• While every local planning authority responded to our questionnaire, data on planning obligations (and developer contributions more generally) were not recorded in a consistent way across planning authorities and in some cases authorities were unable to provide the detailed numbers we requested.

• Some of the data problems we encountered were undoubtedly the outcome of Covid 19. Equally, the relevant 2019 Planning Act provisions about monitoring will enable the more fundamental issues about data to be addressed.

• Based on the evidence we were able to collect, we estimate that in 2019/20 approximately £490 million worth of developer contributions were agreed, of which £310m was for affordable housing and £180m towards infrastructure.

• In 2017/18 the equivalent figure for affordable housing (excluding commuted sums) was £251m and that for 2018/19 was £220m. Thus, the agreed contributions for affordable housing has increased by more than a third over the three-year period.

• We are not able to provide estimates of the contributions to infrastructure for the two earlier years as the data were not available. The figures for 2019/20 were grossed up from the available data.

• The value of developer contributions is concentrated in a relatively small number of areas. The five largest contributing authorities, all in the central belt, accounted for about 43% of agreed contributions towards affordable housing in 2019/20. This proportion had declined from around 50% in 2017/2018, suggesting that their use had become more widespread. With respect to infrastructure the proportion was around one third of the grossed-up figure.

• In this group of 5 authorities, our estimates suggest that the affordable housing contributions accounted for perhaps 30% of the land value with planning consent and without contributions.

• All these figures reflect the agreements made to provide contributions, not the amounts actually delivered. The evidence we received was that the vast majority of contributions agreed are subsequently delivered as long as the development goes ahead and is not subject to revised planning consents.

• It is clear that, while the purpose of planning contributions is to mitigate negative impacts of development and so make the development acceptable, it is also a form of land value capture by which some part of the increased land value following planning permission is implicitly taxed.

The incidence of developer contributions

• All but two planning authorities use developer contributions. However, the value of what is achieved is heavily concentrated in a few areas. Many authorities also make extensive use of planning conditions to secure in-kind contributions. Around 75% of authorities use developer contributions to secure affordable housing.

• Affordable housing accounted for over 60% of the value of developer contributions. The vast majority of infrastructure contributions relate to education, transport, open space and leisure provision.

• Most contributions contributed directly to the funding or in kind provisions of local authority or housing provider services. Where other service providers were involved the process was often more complex.

• It was generally agreed by respondents that landowners ultimately pay the developer contributions through lower land values. However, while this is true in principle, in practice uncertainties and negotiation may mean that some costs are borne by other participants. Levels of policy certainty/clarity also have a bearing on the extent to which costs can be passed on to landowners in the form of lower prices.

• Of particular relevance in this context is whether the availability of affordable housing subsidy, even in areas where land values are high, helps to maintain land values. In this context the data suggest that grant levels are similar across the country and at least one authority has policies to reduce competition for land among RSLs.

Developer contributions in practice

• Most stakeholders were comfortable with the overall approach to developer contributions and saw it as strongly embedded in the planning system. Affordable housing in particular is well understood and accepted – in part because national and local expectations are clear.

• Stakeholders also thought that the vast majority of agreements were delivered, particularly those agreed for affordable housing.

• Infrastructure contributions worked less well. There were significant issues around timing of the funding and delivery of the infrastructure, particularly when they address requirements arising from a number of developments.

• Lack of integration between infrastructure providers' plans and programmes and development planning also makes the negotiations more difficult – especially when other infrastructure being financed from different sources must also be put in place.

• There was agreement that local development plans that clearly spelled out requirements made it easier to reach agreement. However, developers and others argued that authorities often depart from policies specified at the application stage, making it difficult for them to negotiate appropriate land prices.

• There was also concern that contributions were being sought for a wider range of purposes than in previous years including those not specified in local plans and other policy.

• There was general agreement that planning obligations should focus on site-specific mitigation including generated local needs.

• There was also a clear consensus that planning obligations are not generally an effective means of addressing the cumulative impacts of development, or an appropriate mechanism for securing funding for sub-regional and regional infrastructure requirements.

Key implications of the research

• Planning authorities have developed their own systems for monitoring developer contributions to address their local needs. However, the lack of consistent and comprehensive data makes it challenging to evaluate the effectiveness of developer contributions across the country. A coordinated and comprehensive monitoring system would help to inform both local planning authorities and central government policy.

• The developer contribution system is generally accepted and is working well in operational terms. The amount negotiated has increased significantly over the last three years. However, it could work better if experience was shared between authorities more effectively.

• Affordable housing contributions at around £310m in 2019/20 account for over 60% of the identified contributions negotiated. In the five largest contributing authorities the amounts achieved captured around 30% of market land values.

• It is inevitable that the funding secured via developer contributions is heavily concentrated among a small number of authorities with high land values, where authorities are able to negotiate a wider range of contributions, notably with respect to education and local infrastructure. This raises questions of equity between low and high value areas.

• On the other hand, the flexibility to waive affordable housing in areas has been used effectively to help support employment and growth.

• The evidence on infrastructure contributions, measured at £180m, was less complete than that for affordable housing. There was optimism that the value of contributions would increase over the next few years.

• It was generally accepted however that developer contributions could only be expected to support site mitigation together with necessary local infrastructure. More generally there appears to be a gap between developer contributions and the funding needed for infrastructure. City Region Deals provide only for specific infrastructure and are not available everywhere.

• There were also concerns around the timing of contributions, especially when infrastructure needed to be provided at an early stage in the development when the necessary up-front funding may not be available.

• Similarly, there were concerns about cumulative requirements involving a number of developments which do not fit easily within the negotiation process.

• But the core message must be that developer contributions are being increasingly negotiated, the system is generally accepted, and levels of funding achieved are comparable to those obtained in England.