Pilots set to put community land auctions to the test

COMMENT The government’s intention to pilot community land auctions to maximise the potential uplift in land value is a key feature of the recent Levelling Up and Regeneration Bill.  This is what we’ve been implementing for local authorities; albeit not directly auctioning – we’re not buying or selling planning consent. Local authorities’ ability to request data on the price paid for land or the price expected to be paid through an option or promotion agreement is already a powerful tool to aid land value capture and facilitate delivery of infrastructure and housing. Innovative landowners can also advise local authorities on the best strategic sites to allocate from a viability and delivery perspective. As part of our local plan viability commissions, we always engage with site promoters before site allocations to obtain transparent information in respect of land contracts and minimum land values. This is in the actual real estate market – not hypothetical benchmark land value.  Building the buffer Using this information allows us to analyse the amount available for infrastructure on competing strategic sites. This involves assessing the strategic infrastructure and section 106 costs as part of the overall viability appraisal in order to establish the “headroom” – or “buffer” – over the contracted minimum land value.   This minimum land value is not just a proxy benchmark land value, but the actual land value accepted by the landowner and developer. In this way we’re able to advise on the impact of infrastructure cost over-runs on the ability of the developer to deliver the land.  The lower the strategic infrastructure costs and the higher the headroom in the appraisal over the minimum land value, the greater the infrastructure cover ratio and the lower the risk of the site not coming forward. We have found landowners and site promoters are keen to come forward with information because they understand that if they’re not transparent, then their site would be red flagged as “risky” – and may be overlooked for allocation. The recording of the minimum land value ensures that future infrastructure cost increases are tolerable within the buffer at planning application stage. This also reduces the risk of site-specific viability being argued down the line.  The landowner benefits from early certainty in the local plan and importantly benefits from future upside in policy compliant residual land values. This is a win-win: the council gets a policy compliant scheme through land value capture and the landowner gets policy compliant residual land value uplift.  Pilot test Government proposals for community land auctions work in a similar way, but the minimum land price for a site allocation is offered as an option on the land. The local authority will allocate land based partly on the option price and then auction the development rights to housebuilders once the land is allocated in the adopted plan.  The difference between the option price offered by landowners and the price offered to develop the land by housebuilders will be retained by local authorities for the benefit of local communities.  It will be interesting to test this theory in the pilots. The implication of the option approach over the PPG approach is that it removes any upside from the landowners. Most strategic sites are delivered over many years with multiple land drawdowns/phases. There is less incentive for the landowner to submit their land if they cannot capitalise over the long-term. This could reduce the amount of strategic land mobilised for development.  Another implication is that if local authorities stand to make large windfalls from the uplift in land value, they could be tempted to allocate completely unsuitable land that would not come forward without the auction.  The reality with land value capture is that there has to be a balance between land value, planning gain and developer profits.  Removing all of the land value uplift from the landowner could tip the balance.  Ben Aspinall is managing director of AspinallVerdi