Despite a well-evidenced shortage of housing in the UK and an unprecedented rise in house prices, landowners are witnessing pressure on their returns from greenfield land which has residential development potential. A major factor in this is downward pressure on Benchmark Land Values brought about by planning policy.

With further uncertainty surrounding a Draft Planning Bill, the future direction for housing growth is unclear. However, the drive for forms of land value capture continues. Last year, the RICS published a guidance note Assessing viability in planning under the National Planning Policy Framework 2019 for England, which included additional cross-checks on the calculation of Benchmark Land Values.

Carter Jonas works extensively with landowners – private landowners, organisations and government bodies – and we regularly advise on this subject.

The Government, in its need to increase housing numbers, has identified various ‘barriers’ to delivery. One is a perception that landowners are seeking ‘excessive’ minimum returns before proceeding with development. Another barrier is that of strategic infrastructure, specifically sustainable transport links and the necessary community infrastructure for new settlements and extensions.

Public policy instruments including Section 106 and CIL have evolved over recent decades, both to deliver necessary strategic infrastructure and affordable housing, and as a method of land value capture, utilising this to benefit the wider local authority area.  In conjunction with this, the push to limit perceived ‘excessive’ land receipts manifests itself in reduced Benchmark Land Values. This can impact minimum contractual land values and other terms within standard land 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.

The mechanisms for sharing in longer term returns include overage agreements, exposure to housing market risk (for example through build licence arrangements) and landowners working directly with master developers as opposed to housebuilders, thus ensuring competitive market pressure through the evolution of schemes.

This represents an exciting evolution in the standard land agreement approach, with benefits for all parties.