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Media Briefing Note: Land Auctions

15 March 2011

LONDON, 15 March 2011 - In light of recent discussion regarding the potential introduction of pilots for new land auctions in next week's Budget, Michael Gallimore, Head of Planning at Hogan Lovells, comments:

"The Government has been keen in recent weeks to focus on how the Localism agenda will deliver economic growth and this appears to be an attempt to enhance that message.
However the philosophy underlying land auctions appears to be that local authorities should be entitled to capture for themselves the uplift in land value through the allocation of land for development and the grant of planning permission. It appears to be a form of development land tax by another name. We saw a similar attempt when the Planning Gain Supplement (PGS) was floated as a proposal some years back. That was opposed by the development industry and was dropped.
The proposal raises a number of important questions;
-  Whilst superficially attractive for green field sites where a number of landowners or developers are competing for allocations or planning permissions, it is unlikely to work for brown field sites where land assembly and development is inherently more complex.
-  the proposal suggests that allocations would be made and planning permissions granted after the land sale prices have been submitted by landowners. That raises serious questions over the propriety of the planning process and the possibility that planning authorities will take decisions not on the basis of proper planning considerations but rather by reference to the sites which will swell the authorities' financial coffers to the greatest extent - potentially a slippery slope.
-  Property development is an essentially entrepreneurial business. Landowners and developers have to weigh up issues of risk and reward. By "capping" the rewards on offer for both, there is a risk that landowners will sit on their land until the system is again reformed (the experience of previous land taxes) and that developers will go and pursue other activities where the risks are appropriately rewarded.
-  It is unclear how Section 106 Agreements and the Community Infrastructure Levy (CIL) will operate in this system. Presumably development sites selected under a land auction process will not produce planning benefits through those mechanisms. This raises the question as to how the impacts of development will be properly mitigated by the planning authority as development is brought forward. The authority will need to apply some of the cash it has realised towards works of mitigation and the delivery of benefits for the local community. There would need to be transparency on this issue as the planning process takes place, to ensure proper linkage between development, mitigation and benefits."

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