Land value capture and the impact of Biodiversity net gain
Appearing before the House of Lords' Built Environment Committee in November, as part of the inquiry into meeting the UK's housing demand, Housing minister Christopher Pincher said, ‘Land value capture is an important item in our considerations.
It's one of the reasons why we're looking at a better system than section 106 and the community infrastructure levy (CIL). So I'd watch this space on that particular point.’
A week later, the Environment Act made it a legal requirement for all new development to provide a minimum 10% biodiversity net gain (BNG).
The question for developers and landowners is whether BNG can directly create monetary value on specific sites as an amenity asset, or instead function as a further developer contribution – that is, as a form of land value capture - potentially reducing other contributions (for affordable housing, infrastructure, community benefits) or driving down land values.
Impact on developers
Potentially, developers can benefit from attractive, biodiverse sites having greater appeal to consumers. This is already common and is a proven benefit, often delivered in combination with the SUDS strategy.
On the other hand, developers (even local authorities) may struggle with the requirement to manage land for 30 years (as required by the Environment Act) because of the management challenges and maintenance liability. This can represent a significant cost. Community ownership is often mooted as a solution, but its benefits are constrained by the need for an underlying entity to provide certainty.
Over time, it is likely that developers and landowners will find innovative ways in which to address the requirement on developers to provide BNG and on farmers to meet environmental targets, to the benefit of both – but in the meantime the cost is unclear and consequently the calculation of any additional land value capture will lack the necessary data.
Impact on landowners
Land value capture combined with an increased cost of providing BNG would suggest that land would change hands at a lower price, to the detriment of landowners.
However, BNG represents some benefits to landowners. For many, the principal impact is that of legacy: landowners who are selling land which borders their own estates will welcome well managed and attractive green spaces. Those with a social/ecological/environmental conscience will welcome the potential for the land to address climate change and protect or regenerate native species.
Furthermore, with farming subsidies increasingly moving from production to environmental targets, this change sits well with farmers’ new objectives.
Impact on land sales
Land value capture is likely to be expressed as a cost to development, rather than taken into account when a land sale takes place. At this stage its impact is clearer, more definable and upfront. However, the interplay with the push towards zero carbon development is likely to change the dynamic of the discussion over time.
However, this change represents an opportunity for more creativity and more flexible agreements. Our advice to landowners is that to maximise value, they adopt a creative approach, rather than relying on the mechanisms within a standard land agreement. This typically means taking a longer-term view of land promotion. Many major estates, corporates and local authorities see the benefit of agreeing reduced upfront land receipts on the basis that they share in longer term returns. In some cases they choose to remain actively involved in the creation of new developments, delaying the financial return on investment until the point at which the value has risen, while also maintaining a role in the evolution of the scheme – something that is proving popular with landed estates in particular.
