Policy shifts, developer contributions and land value capture in London 2005–2017

Abstract

Since the early 1990s developer contributions have been the main instrument for land value capture by local government in the UK. There has been little empirical research that has investigated the extent of land value capture and how it may have varied over time in the light of shifting policy regimes and changing real estate market conditions. This paper attempts to address this issue by investigating trends in land value capture through developer contributions in inner London during the period 2005–2017. Using a land valuation model that attempts to simulate the approach to land pricing used by real estate developers, a time series of land values and developer contributions has been generated. It is estimated that, over the study period, developer contributions amounted to 45%–65% of land value assuming a no developer contribution regime. In a period during which national housing and planning policy has changed significantly, non-market housing contributions have comprised a significant proportion of land value capture. As residential property prices have increased, the absolute amount of land value capture has also increased, yet the relative proportion of land value captured has decreased. This finding is mainly due to the failure of local planning policies on developer contributions to keep pace with house price growth. The findings also reveal that, despite a policy environment that has been unsympathetic to delivery of non-market housing through developer contributions, the removal of the social housing grant for non-market housing developed as a component of private schemes in 2010 seems to have increased land value capture relative to the pre-2010 policy regime.