1. Planning-gain Supplement (PGS)
John Stewart
HBF Director of Economic Affairs
20 March 2007

2. Presentation Outline S106 Agreements PGS: Treasury Proposals
HBF Position on PGS
Some Major PGS Concerns
PGS Alternatives

3. S106 Agreements

4. HBF set the S106 hare running
Circular 1/97 excellent…but ignored. Negatives:
Delays, especially Affordable Housing
Escalating & excessive demands
Inconsistent within and between LAs
Uncertainty
Viability threat
Pressure for open book
LAs monopoly power; developers roll over

5. But hanging concentrates the mind…
S106 positives:
Levy roughly related to land value
Contractual infrastructure delivery
Infrastructure timing matched to development timing
Working better: experience, 05/05

6. Estimated value S106: 2003/04 Open space: Transport, travel:
Community, leisure:
Education:
Other:
County councils:
Affordable housing:
TOTAL
Sheffield University
£115m (6%)
£279m (15%)
£111m (6%)
£118m (6%)
£64m (3%)
£6m (0%)
£1,200m (64%)
£1,887m

7. S106 Affordable Housing S106 Affordable Housing Supply (England)
: 16,380 units
: 18,185 units
: 23,869 units (+46% )
Source: Yvette Cooper, Parliamentary Answer, 22 January 2006

8. Multiple S106 objectives Is S106 the best way to:
Tax land values/land value uplift from pp?
Fund infrastructure?
Provide infrastructure?
Increase land with pp/incentivise development?
Fund Affordable Housing?
Provide Affordable Housing?
Allocate scarce LA resources?

9. Affordable Housing (S106)
S106 Affordable Housing doesn’t:
Increase housing supply
Make housing more affordable
But it does:
Lever in private land-value subsidy
Ration part of inadequate housing supply

10. PGS: Treasury Proposals

11. PGS Treasury objectives
Remedy many S106 defects
Tax on full pp land value uplift (Barker)
Hit all development – only 7% pps have S106, 40% ‘major residential’ pps (Sheffield CLG research)
Fund infrastructure (not provide)

12. PGS Treasury objectives
PGS funds > S106 (£1.9bn 2003/04)
Not redistributive – or not much
Not hamper development – capture ‘modest proportion of the value uplift’

13. But surely any land tax reduces supply?
Not necessarily if taken in the round:
“Modest proportion”
Largely replaces S106 ‘tax’
Increased infrastructure funds => more land for development
Net impact…?

14. Treasury PGS proposal PGS levy: (PV-CUV) x PGS ‘modest’ rate
PGS as % rate => related to site value
PGS rate set nationally, admin HMRC
All development (except household)
Scaled-back S106 (incl. AH) statutory basis
Self assessment
PV, CUV fixed at date full pp
Valuation based, not transaction price

15. Treasury PGS proposal Payment at start of development, not pp
Paid by developer, incidence land owner
Hypothecated infrastructure levy
70% LA, 30% to region
Not before 2009
Transition arrangements vs steady state

16. HBF Position on PGS

17. HBF position on PGS Agree objectives
Accept ‘modest’ levy on pp land value uplift
PGS as proposed won’t work – probably can’t be made to work
But work with Government to find solution
Critical: better alternatives, including raising extra funds for strategic infrastructure?

18. HBF position on PGS
But reserve final judgement until Cross-cutting Review of infrastructure delivery:
Combine PGS + other funds
LDF, RSS infrastructure plans
Coordinate providers (LA, Highways, etc.)
Adequacy of funds
Flow of funds vs timing of needs
Timing of delivery vs timing of development

19. Knight Frank research Joint HBF/BPF/RICS/CBI - case study based
Some key implications:
Less funds from large schemes than S106, more from small?
Valuation: assumptions critical, sensitivity to assumptions, disputes/challenges
Distribution PGS funds vs LA needs?

20. Some Major PGS Concerns

21. Some major PGS concerns
Must fall on land value, not developer
Pre-clearance essential – but Treasury anti
Artificial PV and CUV valuations vs development valuation/land price
Proposals for scaled-back S106 inadequate
Proposals for Affordable Housing inadequate

22. Some major PGS concerns
Transition arrangements – some comfort
Will PGS raise sufficient funds, in total and in right locations?
Infrastructure delivery??
Will Treasury cut LA grant by PGS funds?
Conservative repeal – impact?
‘Modest’ rate not guaranteed in future

23. PGS Alternatives

24. S106
See above!

25. Tariff
MK special case – greenfield, land owners known, sites identified, infrastructure needs quantifiable, development timescale known, S106 ‘contract’
Tariff set according to LA needs – requires plan
But needs unrelated to land values – either LA collectively or individual sites
Negative brownfield/regeneration impact
Would still need extra strategic levy

26. Optional Tariff Tariff (above) as default
Developer can opt for S106 – but likely to require open book to ‘justify’?

27. Towards a solution…
S106: Circular 1/97 model, statute based (so can be appealed), build on Circular 05/05
Affordable Housing – national guidelines
Truly modest (e.g. 5%) nationally-set Strategic Infrastructure Levy (SIL)?
Strategic Infrastructure Plans
LA infrastructure plans

28. Will PGS go ahead?
The Government “will move forward with the implementation of PGS if, after further consultation, it continues to be deemed workable and effective” (PBR, December 2005)

29. Will PGS go ahead?
Government wants to extend levy on land wider than S106 (only 7% all pps, 40% ‘major residential’ pps)
PGS linked to Cross-cutting Review
Tory repeal impact? (General Election )

30. Planning-gain Supplement (PGS)
John Stewart
HBF Director of Economic Affairs
20 March 2007