Planning-gain Supplement
(PGS)
John Stewart
HBF Director of Economic Affairs
20 March 2007
Presentation Outline
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S106 Agreements
PGS: Treasury Proposals
HBF Position on PGS
Some Major PGS Concerns
PGS Alternatives
S106 Agreements
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
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
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
S106 Affordable Housing
S106 Affordable Housing Supply (England)
• 2003-04: 16,380 units
• 2004-05: 18,185 units
• 2005-06: 23,869 units (+46% 2003-04)
Source: Yvette Cooper, Parliamentary Answer, 22 January 2006
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?
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
PGS: Treasury Proposals
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)
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’
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…?
Treasury PGS proposal
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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
Treasury PGS proposal
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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
HBF Position on PGS
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?
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
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?
Some Major PGS Concerns
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
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
PGS Alternatives
S106
See above!
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
Optional Tariff
• Tariff (above) as default
• Developer can opt for S106 – but likely
to require open book to ‘justify’?
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
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)
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
2009-10)
Planning-gain Supplement
(PGS)
John Stewart
HBF Director of Economic Affairs
20 March 2007