ONE of the issues that has featured high on the Government’s ‘To Do’ list, for virtually the entire period that it has been in office, is how to foster regeneration in many of our urban areas, encouraging the development of brownfield sites and promoting the development of affordable housing — particularly in the South East.
The list of subsequent initiatives is long: the Sustainable Communities plan, the development of the Thames Gateway area and the Barker report on housing in the South East which led to the proposals for the Planning-gain Supplement (PGS) published in December. But the extent of appreciable progress is much shorter. Why? Government complains that developers are sitting on large land banks, such as the Ebbsfleet site in the Thames Gateway, and hopes that ideas such as the PGS will help to bring forward development and fund infrastructure.
Meanwhile developers complain that government is looking to them to fund too much of the infrastructure associated with development up front — for instance, land reclamation, transport links and social infrastructure, schools and health centres — such that the economics of development just don’t work. In their view, the PGS is in fact more likely to deter, rather than encourage, development.
In fact, both are right. The current framework of incentives does not encourage either the public or private sector to act.
For landowners there are substantial risks in developing land and to expect them to fund, up front, the often very substantial costs of infrastructure development through Section 106 contributions (or perhaps in the future through the PGS) to public authorities is usually unrealistic. Moreover, unless the landowner owns most of the area that will benefit from the improvements, much of the property value enhancement will flow to others who are not required to contribute.
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Likewise, there is actually little financial incentive for a local authority to encourage development. The financial benefits of any commercial development through the National Non-Domestic Rate flow to central government and future council-tax income through complex equalisation measures is unlikely to benefit the local authority. So more development and people in an area simply means more costs in terms of providing schools and local services. Is it any wonder therefore that development isn ‘t happening? The situation in the UK contrasts with that in the US where local property and income taxes and limited income equalisation means that there are real incentives for municipal and state governments to promote development in their area. Up-front investment in transport and social infrastructure to promote commercial and residential development can be funded by borrowing against the future taxes arising from those developments. The review of local authority funding being carried out by Sir Michael
Lyons provides the opportunity in the UK for such options to be considered.
At best, the proposals for the PGS provide only a partial answer. At worst, they may be a deterrent to development. But unless there is greater fiscal autonomy for local authorities in the UK, it is unlikely that there will be the regeneration and housing development that the Government wants in the South East.
Chris Nicholson is the head of public sector at KPMG