Infrastructure Planning & Housing Delivery –Who Pays?

Samuel Stafford

30 March 2011

The Good Times?

The Bad Times?

The Development Pie

Infrastructure

Infrastructure

Development

Development

The Bad TimesThe Good Times

What makes development viable?

LPAs secure obligations to make development acceptable in planning

terms

Developers secure sufficient return for

cost of investment and for taking on

development risk Landowners secure sufficient value to

meet expectations and release land for

development

Viable Development

Viability & Planning Gain

Residual Land Value

Threshold Land Value

Capacity for Planning

Gain

Completed Development

ValueLessTotal

Construction CostsLess

Developer Profit

- ==

Capturing Land Value

The Barker Review (2004)

“Government should actively pursue measures to share in windfall development gains accruing to landowners

so that increases in land values can benefit the community more widely”

“…the Government should consider the granting of planning permission as a suitable point in the

development chain in which to levy a charge based on local land prices that aims to capture part of the windfall

development gain.”

The Community Infrastructure Levy

"The new Planning Act 2008 will bring about real culture change for deciding the future needs of our

national infrastructure” (John Healey, November 2008).

“…the overall purpose of CIL is to ensure that costs incurred in providing infrastructure to support the

development of an area can be funded (wholly or partly) by owners or developers of land.” (Paragraph 205(2))

Calculating CIL

Calculating CIL Liability Calculating net chargeable area

Calculating CIL

Viability of development

Other funding sources

Level of CILVolume of development

Up-to-date Development Plan

Infrastructure Planning (PPS12)

A Fairer CIL

“Communities should reap the benefits of new development in their area and these reforms will put in place a fairer system for funding new infrastructure

while also providing certainty for industry. Too little of the benefits of

development go to local communities, and our ambition is to correct that with a

reformed levy under genuine local control.”

Greg Clark, November 2010

The Coalition Changes

The Localism Bill• Ongoing costs• Promotional Costs• Spending by other authorities • The role of the CIL inspector• Flexible payment deadlines

Amendment Regulations• Instalments• Threshold for payments-in-kind

The Future of Section 106 Agreements

CIL Regulation 122• Restricts use of S.106 from 6 April 2010• 3 Circular 05/05 tests now statutory. An obligation must be:

1. necessary;2. directly related; and3. fairly and reasonably related.

CIL Regulation 123• S106 Tariffs phased out by 6 April 2014• LPAs effectively forced to adopt CIL

How CIL might look

And then…

The Bad Times - Regeneration

“The next decade looks set to be a difficult one for the urban development sector. A weaker

supply of credit to the private sector will restrict the activity of developers and severe public spending constraints will limit regeneration

expenditure from the public sector. The result will be that far less money is available for

development over the next ten years than has been available over the previous ten”.

All Party Urban Development Group, January 2010

The Bad Times - Residential Land

“Bulk land has traditionally been thekey driver of volume housing delivery, but

it is likely to continue facing significantchallenges in an environment where debt

finance remains limited and regulatorypressures are increasing. As a result, weexpect the markets for serviced and bulk

land to diverge as bulk land values remainstatic. This will, in turn, probably change

the way development of these sites isdelivered and funded.”

Savills Research (September 2010)

Serviced Plots v Bulk Land

Delivering Infrastructure - The Public Sector

The Regional Growth Fund

• Discretionary fund allocated on a competitive round-by-round basis

• £1.4bn available between 2011 and 2014

• Scope limited to ‘basic infrastructure’

Delivering Infrastructure – Tax Increment Financing

“The report seeks to identify new approaches that could be used by local authorities in the Core Cities to unlock city growth…It also

introduces a new concept, ‘Accelerated DevelopmentZones’ based on the principles that underpin Tax Increment

Financing in the United States.”Core Cities Group & PWC, 2008

“We recommend that• the Government should introduce tax increment financing (TIF)

pilots in the UK, using a variety of TIFmodels to see which ones work most successfully

• TIF should only be used for regeneration schemes that would otherwise be unviable.”

British Property Federation, 2009

What is Tax Increment Financing?

Where did TIF come from?

An American Import

• Introduced in California in 1948 to promote urban renewal

• Gained popularity during federal budget cuts of the 1970s

• In use in 49 states

• Scope widened to include affordable housing, pollution clean-up, and public infrastructure projects

Generating Funds for TIF

Repayment• Speculative or secured bonds sold based upon anticipated future revenue with tax incentives for investors

Pay-As-You-Go• Public authority or developers pay upfront costs and are reimbursed from future increments

Reinvestment• Uplift in tax revenue paid into a dedicated redevelopment fund to be reinvested in future projects

Too narrow a model?

The Treasury Prefer…• Funding large scale infrastructure

• Prudential borrowing

• Repaid by uplift in business rates

…, but what about?• Using the broader tax base: sales, income, corporation, etc

• New Homes Bonus

• Using TIF for more than just infrastructure: feasibility, assembly, incentives, etc

Implementing TIF

What next?

• The Localism Bill

• Local Government Resource Review

• TIF Legislation expected 2012…

• .. In advance of Round 1 bids 2013

• TIF & Enterprise Zones

Summary

Who pays?

Who facilitates?