Critique of Part V of the 2000 Planning and Development Act

13/09/2002

It can happen that, while concentrating on one area of concern in a piece of legislation, the Government fails to recognise the impact on or relationship to others. This is the case with Part V of the 2000 Act which has laudable aims of addressing social exclusion and housing affordability but which has overlooked important economic and environmental considerations and has failed to consider its very different impact on rural versus urban areas. The following paper examines and critiques Part V of the 2000 Act under Feasta's focus of sustainability using environmental, economic and social criteria. The Government is required to deliver sustainable development as expressed in Sustainable Development, A Strategy for Ireland 1997 which outlined national objectives related to the UNCED Summit at Rio in 1992 and reiterated again at the WSSD at Johannesburg. We are faced with the choice of building-in sustainability or unsustainability into 500,000 new homes over the next ten years. There is no higher priority issue facing the government at the beginning of its term.

The paper is necessarily broad ranging. The purpose is to sketch the overall form of a sustainable housing strategy in the Irish context. The suggested changes can be carried out in the order described. Obviously, the home benefit and site value tax proposals need a carefully managed transition period and the levels of taxes and benefits need further research and modeling. But Feasta believes these fiscal tools would prove invaluable to the government in the context of expected slowed economic growth and a consequential fall in house prices.

In brief our main recommendations are: -

1. The remit of Part V of the Act should be extended to cover all categories of zoned and non zoned land in the context of 'proper planning and sustainable development'
2. An annual development site tax on the site value of development land triggered on zoning or granting of Planning Permission should replace the existing provisions of Part V triggered on development.
3. The annual development site tax receipts should be ring fenced (hypothecated) and made available to local authorities (and through them to the housing association, co-operative, community company or trust etc) to support the land element of purchase of community-owned housing and facilities at market value.
4. The annual development site tax should be nationally set and applied as an even percentage throughout Ireland of the increased value of the land due to zoning or granting of Planning Permission, replacing the Housing Strategy provisions.
5. The 'affordable' designation should be changed to 'community-owned' and should provide not-for-profit rented housing for a range of social categories and income groups.
6. Housing benefits should be paid on the basis of a single home benefit system which could be used to pay rent to a local authority, housing association, co-operative or private landlord and even replace mortgage interest relief.
7. A gradual shift from income taxes to an annual site value tax on all property including residential is necessary for intergenerational equity, mitigation of property price cycles and efficient use of land.

1. Exclusions to Part V Foster Unsustainable Rural Settlement Patterns:

Part V of the 2000 Act only covers existing residentially zoned land. It does not cover land currently in agricultural use in open countryside that is under development pressure for one-off housing, nor does it cover groups of less than four houses in areas zoned residential, nor local authority and social housing estate development, nor non-zoned land in and near towns and villages subject to development pressure for housing estates nor all land zoned for non-residential uses. This is a major flaw with many negative consequences.

1. Part V reinforces the pressure for urban generated one-off housing in the countryside as the site owners of such housing are not required to contribute to affordable housing in contrast to the owners of housing sites in zoned villages and towns. This represents a subsidy to the one-off site seller or owner and disincentive build or buy in existing rural settlements which are subject to the Act. There is already a substantial economic incentive and benefit to land and house owners of one-off housing over urban housing (to the tune of €810 million per annum according to Convery et al in After the Celtic Tiger), which cannot be justified, in social redistributive terms. Part V reinforces this economic incentive to build in the rural countryside.
2. As up to 80% of all housing in some rural counties is one-off in the countryside it leaves a greater percentage of affordable housing to be built in the existing villages and towns. There is already evidence of the hollowing out of existing rural settlements and their abandonment by the middle class. This trend repeats the faults of urban social housing in rural areas, faults which Part V sought to address, that of ghettoisation of the socially excluded in single class areas.
3. Most smaller villages and towns lack Area Plans and thus specific zoning for residential (beyond a broad requirement that land within the speed limit signs on approach roads may be considered for development). There is anecdotal evidence that some developers are targeting such sites to avoid the Part V provisions for social and affordable housing. This puts further pressure to site an undesirable high percentage of social and affordable housing in those towns that are zoned reinforcing the tendency towards social exclusion.
4. No requirement to provide mixed housing for sale or for rent is placed on local authorities and housing associations where they are lead developers and owners of land. It is difficult to see why social mixing is seen as desirable and necessary for private developers to provide but not so for public and social developers. Again, this anomaly will reinforce the tendency to build single class estates in cities and rural towns where local authorities have substantial land banks.
5. The exemption of non-residential uses from Part V creates a situation where some landowners and developers are singled out to contribute to community need while others are not. There is no clear reason why this should be so. Experience has shown us that sustainable communities require more than the mere provision of affordable shelter even in a socially mixed estate. They require integrated social and cultural facilities, proximity to work places, good accessibility to services, play spaces for children, community gardens, landscaping and nature reserves to preserve biodiversity and to provide recreational amenities. The clear absence of such mixed and balanced uses in new urban and rural developments indicates that developers will not plan and build for long term sustainability without effective incentives and penalties.

The remit of Part V of the Act should be extended to cover all categories of zoned and non-zoned land in the context of 'proper planning and sustainable development'.

Mixed uses are required to meet internationally agreed standards of settlement sustainability, including our Kyoto targets.

This extension would apply the principle of capturing development value for the public good in a fairer way thus protecting the provisions of Part V from legal challenge in a particular case.

The economic incentives for one-off urban generated rural housing would be partially reduced. In parallel, the tendency to reinforce social exclusion in some rural towns would be partially reversed.

2. The Method of Capturing Land Value is Counterproductive

The requirement of contributing 20% of the housing development land area to the Local Authority at previous use value or an agreed percentage of the completed social and/or affordable units in lieu, is a very blunt instrument to capture land value to benefit the community. It impedes supply and leads to unfair exemptions. Furthermore the illiquidity of this mechanism can cause cash flow impediments to the take-up of the land or completed housing by local authorities.

1. The provision of Part V only applies at the point development commences; - so in effect landowners have the option of not commencing development. We have seen a considerable slowdown in housing development in some areas of the country as a result of the Act that has led to a decrease in housing supply and thus an increase in housing prices. This cannot have been the intention of the legislative draftsmen. An increase of development land supply should have been a central objective of Part V as it would lead inevitably to a decrease in house prices for everyone; - not just the lucky new owners of 'affordable' housing.
2. The mechanism for capturing community value excludes one-off house owners and small developers. It is obviously impractical for the local authority to capture land value by taking site area where the site is small. There should be provisions for small developers to give the local authority the equivalent value in monetary terms to ensure equity and to prevent the unintended consequences as outlined in Point 1.1
3. Although the land transfer at the discounted price has real value for the local authority, it has to pay up front sums to the landowners for the land, particularly to those developers who bought before the designated date. 20% of all housing land bought after the designated date under development each year represents, even at agricultural prices, a considerable cost to the national exchequer where there is no balancing receipts. In the case of agreements to provide a number of completed affordable and/or social housing (a more common outcome), the costs to the national exchequer to purchase or build them represent a huge financial commitment. With public finances coming into a leaner period, this financial burden will inevitably lead to local authorities being unable to complete their agreements with developers thereby losing much of the benefit of Part V. Recent newspaper reports confirm this (Sunday Tribune 15th September).

Recommendations

An annual development site tax on the site value of development land triggered on zoning or granting of Planning Permission should replace the existing provisions of Part V. This would overcome the problem of land withholding and hoarding of development and sale-based taxes.

Such an annual site development tax could be carefully set to reward prompt development, deter speculative activity and discourage large land bank holding for future development by housing developers. It should be levied as a charge against the land, which could be recouped on sale if it is not paid annually. Such a tax could replace the Derelict Sites Tax as it essentially performs the same function.

Non zoned land would be not be exempt as the granting of Planning Permission should trigger the immediate payment of a tax representing at least 5 years of the annual development site tax. This is to reflect the fact that the zoned land is considered more optimal for development therefore there is an implied loss in efficiency to develop non-zoned before zoned land. It is also necessary to disincentivise applications on non-zoned land.

It would serve as a very effective planning tool to ensure compact development and obviate the need to over-zone to ensure adequate supply. Finally, it would serve to reduce pressure on elected representative to zone less than optimally sited or premature land, as the tax would be due immediately the zoning is passed.

An annual development site tax on development land has the further benefit of providing cash flow for the government / local authority to contribute to the purchase of land or facilities or completed housing when needed. Developers would be required to provide needed housing, other mixed uses and/or community facilities as part of their Planning Permission according to proper planning and sustainable development criteria in the normal way.

The annual development site tax receipts would be ring fenced (hypothecated) and made available to local authorities (and through them to the housing association, co-operative, community company or trust etc) to support the land element of the purchase of community-owned housing and facilities at market value. In this way, the intent of the Part V is maintained that is- to provide land at existing use value for community need, but it is delivered in a fairer, more balanced and flexible way.

The most positive outcome of an annual site value tax is that the market value of development land will drop for two reasons; - the annual tax burden would be immediately capitalised in a reduced value for the land and secondly and more importantly, more land would come on the market because of the extra cost of holding it. More development land on the market will increase supply, reduce competition thus reduce sale prices. As most of the increase in house and apartment prices over the last eight years is due to the increase in the site costs of each unit, a decrease in land prices across the board will result in more 'affordable' housing for all income categories.

3. The Reliance on Local Housing Strategies to Determine the Developers Contribution is Confusing and Restricting.

Differing housing need and difficulties in assessing it in different local authority areas has caused much confusion and uncertainty and has led to apparently arbitrary differences in the contribution required of landowners. Furthermore, the DoELG guidelines for the housing strategies do not take regional and national strategic planning sufficiently into account.

1. While we support the requirement for local authorities to plan strategically to deliver their housing responsibilities, the current guidelines ignore important housing sustainability needs not related to costs such as the need for flexibility in location and tenure and proximity to services and workplaces. Even accepting the current guidelines, statistical information is frequently not available nor in the right formats for local authorities to produce a useful Housing Strategy. Particular difficulties present in assessing numbers and prices for the 'affordable' housing element.
2. One has to question whether assessing housing need by local authority area makes sense where the draft National Spatial Strategy recognises a population and development imbalance between the Dublin region and the rest of the country. The National Spatial Strategy (due to be published shortly) is very likely to restrict development in some areas and promote it in others. A set of local Housing Strategies based substantially on existing need will not advance this objective.
3. While accepting the overarching objective of mixed local development, there are considerable advantages in de-coupling the contribution of the landowner from the level of local need, which varies considerably in location and time. It would provide a more predictable environment to developers in bidding for land; - an important factor in stimulating production and would give more flexibility to the local authority to direct provision to areas it was most needed, improving existing settlements for instance.

Recommendation

The annual development site tax should be nationally set and applied throughout Ireland as an even percentage of the increased value of the land due to zoning or granting of Planning Permission, replacing the Housing Strategy provision.

The receipts should then be allocated to local authorities according to National Spatial Strategy objectives.

As too much land is currently zoned and not all of it is serviced, landowners should be able to apply for it to be de-zoned. Or they may opt to forgo their development rights by giving or selling them to the Local Authority or a Community Land Trust.

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