Scottish Government

Land Values and the Implications for Planning Policy

DTZ Pieda Consulting

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Main Findings

Introduction

Over the 1995-2001 period, residential land prices in Scotland have risen from an average of just under 500,000 a hectare to around 800,000 a hectare. This figure disguises huge variation within Scotland however, with land prices flat or falling in real terms in some areas, but rising very sharply in others - particularly in Edinburgh.

Residential land values in Edinburgh have risen much more sharply than in any other part of Scotland - over this period the average value of residential land rose by 200-300%, depending on the size of site being considered. Sites suitable for flatted development have risen from around 2.8 m per hectare to around 7m per hectare.

Seen in a UK context, Scottish residential land prices are generally relatively low, but Edinburgh has land prices which are comparable only with inner and outer London. The gap between Edinburgh residential land prices and those in the rest of Scotland has widened considerably.

Land values within cities are also not uniform - the complex contours of land value maps within cities reflect the impact of environmental amenities as well as distance from the centre. Even in Edinburgh, where land values are generally very high, there are some areas - generally the city's most deprived communities - where land values are very low or indeed effectively negative.

Industrial land values are much lower throughout Scotland and have not tended to rise so fast, so that the gap between residential and industrial land values has widened. High residential land values in Edinburgh encourage owners of industrial sites to sell their sites for residential use - and there is some evidence to suggest that this is also happening in surrounding districts.

It has been argued that this trend is likely to result in employment loss, particularly in the manufacturing sector, but there is as yet little evidence of an adverse impact on total employment. There is, however, some evidence that manufacturing employment has declined more in the two major cities than in Scotland as a whole, but this decline was more than matched by the growth in service employment.

There are no indications of any change in land value trends at present - but changes in the housing and property market and in the wider economy clearly have the potential to impact on land values in the short term. In the longer term, the underlying trends suggest that the recent pattern of land value growth is likely to continue.

Population and household projections suggest that Edinburgh and the districts around it will be amongst the fastest growing areas in Scotland. Without a substantial increase in housing supply, rising population and household numbers are likely to maintain the housing market at a level of demand which results in very high residential land prices.

Where land values are high and rising rapidly, the benefits are that the market in land clears rapidly, so that there is virtually no land vacancy or overhang of brownfield land; land values are high enough to fund substantial amounts of planning gain; and there may be sustainability benefits from the denser, more compact city which is likely to emerge.

The disbenefits are various - housing associations find it difficult to find sites for affordable housing to rent which meet Communities Scotland value for money criteria and declining affordability of family housing in the city itself may result in long distance, unsustainable commuting patterns. Substantial amounts of windfall development - often a feature of high land value areas - may result in renewal taking place in a piecemeal, haphazard fashion, without the benefit of planning briefs or masterplans.

Low land values are associated with a number of negative scenarios. Very low land values are no more than a symptom of low demand, - and so are an indicator either of the weakness of the local economy or of dysfunctional neighbourhoods which fail to provide the quality of life required by those who can exercise choice in the market.

Cheap land does not stimulate development - there may be persistent brownfield land problems, with land lying vacant for long periods. It may be difficult to encourage housing development, renewal and change without substantial subsidy. Where there is low demand for housing, declining property values - which include an element of land value - can make it more difficult to secure appropriate levels of investment in the private sector stock and in the worst cases, a downward spiral of decline may develop. It may be difficult for authorities to attract the amenities - retail and other - they would wish to see in deprived areas, as developers are deterred by weak market conditions, not encouraged by cheap land.

The positive aspects of low land values include affordability - it is possible to build new houses and other facilities at a lower cost than elsewhere. Low land value areas may be in housing markets which offer households considerable choice and value for money - in some housing market areas households can afford more space and enjoy higher amenities than they would in a higher land value areas.

Recommendations

'Town Cramming' and Open Space: High land values encourage greater focus on so-called "windfall" sites. As a consequence, populations in city neighbourhoods may rise sharply, but with no compensating provision of worthwhile public space - incidental open space, amenity tree planting and play space. Too often, the provision associated with brownfield developments is inadequate in quality. More sites need planning briefs or development guidelines.

Residential Land - Easing Supply: the exceptionally high residential land prices in the City of Edinburgh are an indicator of a growing imbalance between the demand and supply. Priority must be given to ensuring that the supply of development land in and around the city is adequate, and that the major sites identified for housing become available within a reasonable time frame.

Sustainable Family Housing: There is a market for medium density housing and there are some locations in Edinburgh where land values would allow such housing to be built. In this connection, we question the desirability of promoting building at high net densities in areas of the city where land values are very low.

It is, however, important that the new peripheral sites should have excellent access to public transport, to avoid unsustainable commuting patterns on the part of those who move outward to find family housing.

Employment Land: Both in Edinburgh itself - and in surrounding districts such as West Lothian - there is likely to be a need for new land for industry and small-scale service business, which is unlikely to be provided by the market. Intervention on the part of local authorities and LECs is likely to be needed.

Planning Gain: Planning gain is only an option in areas where there are sufficiently high land values to allow developers to pay for the infrastructure required. High values are a powerful enabling factor - they make it possible to fund substantial infrastructure provision through developer contributions. However, in many areas in the West of Scotland, not only have land values been insufficient to fund infrastructure contributions, but gap funding has been needed to facilitate the development of brownfield sites and sites in disadvantaged areas for housing.

Without doubt, the major policy issue relating to land values is the debate about the best way of harnessing land values to meet the needs associated with development and the growth of the city. The present situation in planning gain negotiations is that developers may be asked to contribute variable amounts toward education, transport public realm and other local facilities, and in some locations they may be asked to provide affordable housing, or sites for affordable housing.

This is not a satisfactory situation: it is messy, potentially inequitable and lacks transparency; it makes huge demands on the time of both authorities and developers, with each development needing detailed, protracted individual negotiation; the process of negotiation about planning gain has delayed the development of certain major sites; and because there is a lack of clarity about what will be asked of developers, it is less likely that planning gain demands will be fully reflected in the price paid to landowners, and a risk that they become built in to the costs of the housing built on the site.

The negotiation of planning gain makes it harder for local authorities to maintain a focus on development quality in the development control process - development quality becomes one of a number of competing benefits which planners are attempting to secure from developers. Planning gain is not a good mechanism for securing major new elements of infrastructure which may be needed as a city expands - for example new public transport developments and new secondary schools - because such major schemes require the pooling of planning gain from a large number of sites.

Much of the debate about reforming developer obligations has centred on the idea of a setting out infrastructure requirements more explicitly at the beginning of a development period, often as the basis for setting a development tariff. Development tariffs may be more transparent but they also raise certain difficult practical issues for local authorities and central government.

In our view the option of the taxation of betterment, which could then be hypothecated to fund development infrastructure has been dismissed too quickly. Because a number of unsuccessful attempts have been made in this country to introduce the taxation of betterment, a view appears to have developed that betterment taxation is not a feasible option. We believe that the issue warrants further investigation - several major European nations operate such a system or take into public ownership land required for development at existing use values.

Skills Needs: Some planning departments may be ill-equipped to negotiate with developers over planning gain, and may need to acquire additional skills in development appraisal. This issue can be addressed by developing training courses, engaging consultants and making use of in-house surveying and valuation skills.

Turning Round Low Demand/Low Value Areas: The key principle is that perceptions of the area have to change. The scale of change has to be substantial - small isolated interventions are unlikely to succeed. High quality masterplanning and design can be extremely helpful in shifting perceptions. Finally, it helps if the change is going with the grain of the market - the regeneration of areas like Leith and Glasgow Green was assisted by a shift in consumer preferences, with larger numbers of people opting for inner city living.

Legal Structures for High Density Development: The trend toward brownfield development means that a high proportion of the new owner-occupied housing stock is in multi-owned structures. Although Scotland's legal system has always provided for maintenance arrangements in such structures, there are a wide variety of title provisions, very few of which make effective provision for collective decision making and there is little clarity on the part of flat owners about common maintenance responsibilities.

There are proposals for reform. The increasing proportion of flatted development - including multi-storey structures of anything from eight or more storeys in Edinburgh - makes it all the more pressing that this issue should be brought higher up the agenda and new legislation introduced to resolve the evident problems.

About the Study

The study was undertaken between August 2001 and March 2002 by DTZ Pieda Consulting. It included a review of land value and employment trends, a review of the literature on land values and urban structure, four detailed case studies of inner city areas in Glasgow, Edinburgh, Dundee and Aberdeen and extensive consultations with planning authorities, developers, housebuilders, the Executive and Communities Scotland.