Local planning authorities are subject to two government tests for housing supply. First, they must demonstrate that they have a five-year supply of suitable land. Second, they must pass the Housing Delivery Test (HDT).
The five-year land supply must be set out in the local plan and it must comprise housing sites that are deliverable. The National Planning Policy Framework (NPPF) says 'to be considered deliverable, sites for housing should be available now, offer a suitable location for development now […] with a realistic prospect that housing will be delivered on the site within five years'.
In essence, sites with detailed planning permission that are not major developments are considered suitable, unless there is evidence to the contrary. All other sites with major detailed planning permissions, all outline planning permissions, permissions in principle and sites on brownfield land registers are not suitable, unless there is evidence that houses will be built in the next five years. For sites without planning permission the bar is even higher. These are tough tests.
The HDT meanwhile is set out in the NPPF and measures the net number of homes built in a local authority area against the number required. The secretary of state publishes the results each year.
Criteria for the HDT are as follows.
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Councils must provide at least 95% of their housing target to pass the test.
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Councils that supplied between 85% and 95% must assess why they missed the target and make plans for remedial action.
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Councils that provided between 75% and 85% must also identify a buffer of 20% more land – in addition to their five-year supply – and develop an action plan.
Those whose rate is less than 75% of the target fail the test and the 'tilted balance' in paragraph 11(d) of the NPPF applies to all DM decision-making. This means that local plan policies relating to housing development are considered out of date. Planning applications for housing will then be judged against the NPPF in most circumstances.
Assessing the tests
The Planning Officers Society (POS) accepts that housing should be a priority in the planning system. It also agrees there should be sanctions against local authorities that do not have an up-to-date plan, or a poor record of decision-making for housing developments. But these tests go way beyond that by punishing councils for factors beyond their control.
After all, councils do not build housing – developers do that. Furthermore, owners and developers can game the system by not bringing forward brownfield sites, thereby failing the tests. This enables greenfield sites that are cheaper and easier to work with to come forward through the tilted balance process.
The government's response to these complaints is that local authorities should be proactive when it comes to housing provision. It says that local authority planning officers should be discussing the sites with the owners and developers to ensure housing completion rates are maintained.
However, an owner or developer that has decided to slow down housebuilding on a site or not to build will have done so for commercial reasons. The decision would not have been taken lightly. No amount of pleading by the local authority is likely to change their minds.
If the government is unwilling to alter these tests to make them fairer, then POS maintains it should give planners the tools to be proactive. That means if an owner or developer is unwilling to bring a housing site forward and complete housing at a reasonable rate, then the local authority should have the power to acquire the site so another party can provide the housing, including the council itself.
POS recommends three changes to the compulsory purchase regime to enable this.
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a specific new power to serve compulsory purchase orders (CPOs) on housing sites
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an alternative to the CPO process
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a review of the compensation regime.
If the government is unwilling to alter these tests to make them fairer, then POS maintains it should give planners the tools to be proactive
Using CPOs to secure land for housing
Local authorities need to be able to use CPOs where land is a designated housing site and development has not come forward after a specified period. Such circumstances should be sufficient to justify making a CPO under the Acquisition of Land Act 1981.
Sites where this power could be exercised would include:
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a site with a valid planning permission
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a site with an appropriate permission in principle
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a specific site allocation in a development plan document, including a neighbourhood plan or brownfield land register.
The specified period could be three years, to match the life of a planning permission.
The risk with this approach is that developers would not put sites forward for local plan allocations, or would not apply for planning permission or permission in principle on land that they wished to hold. There could also be problems with stalled local plan allocations that need to move forward. We need an effective tool to deal with these.
A POS paper on the subject of permission in principle argued that local planning authorities should be able to issue a such a permission unilaterally. This would establish the principle of developing a site for housing despite an obstinate landowner. Landowners would still have a right of appeal.
This specific power is necessary because a local authority is unlikely to succeed with the current CPO tests in these circumstances. Essentially it must be necessary in the public interest to compulsorily acquire land. The unilateral permission in principle and reset CPO test would be powerful tools for authorities want to be proactive about encouraging additional housing in their area.
A simpler alternative to CPO
In most cases, councils do not have the funds to buy land themselves as part of a CPO process. They enter either a development agreement or a land transfer agreement with a developer in what is commonly called a back-to-back arrangement. This is where the council uses its powers to acquire the land and the developer effectively funds the process through an indemnity agreement.
These arrangements generally needed to be procured through a process that follows the Official Journal of the European Union (OJEU) rules. Following Brexit, there will no doubt be a similarly complex process to replace this in due course.
Under such arrangements, the time taken to procure the right partner and negotiate the various agreements can be as long as, or even longer than, the CPO process itself. It is not surprising then that councils can be unwilling to go down this road.
POS believes there should be an alternative route, particularly where councils' aim is to unlock sites that have development potential and the problem is the owner's recalcitrance rather than site assembly issues in a town centre regeneration scheme.
One solution could be a compulsory selling order (CSO). Local authorities could do this without a development partner, so it should be quicker and cheaper. The process would be similar to a CPO, but the outcome would be an order to sell the land with a specified minimum price. That price would be the existing use value, and set as part of the CSO process.
The sale of the land needs careful consideration. POS has suggested two alternative approaches: a public body model and a market model, set out in our paper Compulsory purchase: three essential improvements. These are designed to ensure that the landowner receives at least the existing use value, and any hope value would be obtained through a market sale and what the buyers are willing to pay.
It is often the case that CPOs are effective as a threat as much as an actual process. The same would apply with CSOs. Landowners would know that they cannot simply withhold land that is needed for development. Local authorities would have a simpler, more accessible process to tackle any landowners that drag their feet. It would speed up the provision of housing and give the public sector an effective tool to tackle land banking, particularly when combined with a new CPO-enabling power.
A compulsory selling order would be similar to a CPO, but the outcome would be an order to sell the land with a specified minimum price
Modernising the compensation regime
Land value capture is a challenge, and failing to pay a realistic hope value would not comply with human rights with respect to Article 1 of the First Protocol: Protection of property. When land is compulsorily acquired the owner is entitled to fair compensation, which should include a realistic element of hope value. However, the regime that deals with hope value is cumbersome and has had unintended consequences.
In a CPO scenario, alternative uses that the landowner has never previously pursued suddenly become much more viable and valuable than the current use. These theoretical scenarios of appropriate alternative developments can be esoteric and obscure. There must be a better way to compensate owners that has the public interest at its heart.
POS believes that where the CPO scheme has a clear market value, there should only be two compensation options available for CPO land and property owners. One would be the existing use value.
If the owner considers that there is a higher hope value, however, the amount would be the total value of the CPO scheme less the cost of providing it, including supporting infrastructure and a suitable contingency. An independent and appropriately qualified third party could arrive at a reasonable residual land value in such cases. Our understanding is that such an approach would comply with human rights.
Only where the CPO scheme is a public works development, such as a power station or road, with no real market value that an approach like the certificate of appropriate alternative development may still have a role. However, POS would advise that any alternative uses the landowner has not hitherto pursued need careful justification. Public interest may be best served by an existing use-value approach.
POS maintains that reconsidering the compensation regime along these lines would give landowners appropriate compensation when it is in the wider public interest to bring forward the CPO scheme. This method would use the uplift in land value from the grant of planning permission to ensure the CPO development, particularly its necessary supporting infrastructure, is delivered. In a time of constrained finances, this is an important consideration.
If the changes set out in our paper were implemented, POS believes that the CPO regime would be more accessible and useful for local authorities. It would enable us to be more proactive in providing sustainable development that meets the needs of our communities.
RICS encourages CPO debate
RICS has recently published an insight paper on compulsory purchase which asks fundamental questions about the practice in the 21st century.
Compulsory purchase plays and will continue to play an important role in our economy as we develop our infrastructure, regenerate communities, and ensure provision of housing and essential public services and utilities.
