Planning - the value, incidence and impact of developer contributions: research

1. The Project

1.1 Research Objectives

The original tender document issued in February 2020 stated:

Following the passage of the Planning (Scotland) Act 2019, Scottish Government is taking forward a comprehensive programme of planning reforms, the details of which were published in September 2019^[1]. As part of this, Scottish Government pledged to continue exploring how increases in land value can be more effectively captured for public benefit (e.g., to fund infrastructure required to support new development). Before exploring new potential approaches such as the infrastructure levy and/or changes to compulsory purchase rules, Scottish Government has committed to review the effectiveness of current mechanisms.

This research will help to inform Scottish Government's review by providing evidence on the effectiveness of current mechanisms, namely planning obligations, focussing in particular on how much they currently raise in Scotland, what the funds are being spent on and what this represents as a proportion of development value.

The purpose of the review is to evaluate the effectiveness of planning obligations as a means of securing timely contributions to - and delivery of - the infrastructure and affordable housing that are necessary to create high quality places. The findings of the review will inform future policy development on infrastructure planning and delivery in Scotland. More information about the background to the review can be found on the Scottish Government's Transforming Planning website.

The key requirements set out in the research specification were to answer the following questions:

• How much increased value is being captured, where is it being raised and how is it being spent?
• How effectively is value being captured through existing mechanisms? What are the practical issues associated with current approaches? Are they a transparent, effective and equitable way of funding infrastructure to support planned development?

The specification added:

A range of qualitative and quantitative evidence is required to address these questions, not all of which is readily available and/or up to date. Current evidence gaps are most acute with respect to quantitative data: there is limited information available on the value of planning obligations in Scotland, which makes it challenging to address questions under the first strand in particular.

1.2 Timetable

The initial timetable expected that the research would take around five months and would be completed by the end of September 2020. However, Covid intervened and as a result the contract was not signed until the end of July. Some adjustments were made to the methodology and programme to address the reality that there were likely to be no face-to-face meetings and authorities might have problems in providing material because of working from home.

1.3 Methodology

Our research approach included six main elements:

1. An initial scoping review of existing policy documents, academic and practical studies and official statistics relevant to the issue of developer contributions to provide a clear understanding of the context and the relevant data available. This allowed us to specify a framework for identifying the main sources of increased land values arising from development; the instruments by which these values might be captured in the current legal and economic environment in Scotland; methods of estimating the extent to which these values might be captured; and other factors that might impact on the values actually captured.

2. Developing an online questionnaire to enable us to collect reliable information on the incidence, value and delivery of developer contributions (mainly by S75 but also by other mechanisms). The questionnaire was sent to all 34 local planning authorities – 32 local authorities and 2 national parks - after piloting with a small group of experts. We provided a support system to help the authorities to complete the questionnaire consistently and to ensure a high response rate with full information – ideally 100%.

3. Analysis of these data, to give both qualitative evidence on processes, practice and the PAs' understanding of challenges and effectiveness and quantitative estimates of the number and value of developer S75 and other contributions.

4. Four case studies of larger PAs that reflected a range of contexts and approaches to the issues around developer contributions. In each of the case study areas we undertook four site or topic specific case studies. In each area we sought information from all involved in the negotiation and delivery of contributions: local authorities, landowners and land assemblers, agents and developers (including public, private and not for profit), and housing associations.

5. Three 'roundtable' workshops with authorities, developers, infrastructure providers and other stakeholders to help understand how current policy and practice impacts on the land, property and development market. Follow up interviews were also undertaken with a range of experts to address particular issues raised in the roundtables.

6. Using available data, survey and interview responses to estimate the value of the developer contributions being captured for affordable housing and infrastructure by the full range of developer contribution mechanisms currently available and the use to which these contributions are put.

The findings with respect to each topic area are covered in sections 2 to 6. Please note: Each of these sections has an associated Annex where the detailed analysis is provided. Section 7 brings together the summary and conclusions.

1.4 Context

In order to interpret our findings, it is important to understand the context in which the developer contributions are operating in terms of factors which will impact on both capacity and value. We therefore examined a range of variables and looked at how they varied across the country. These variables included population, incomes, housing output, house prices and some basic information about the contributions themselves.

Given that our core interest is in the capacity to obtain developer contributions and need for such contributions, we have concentrated particularly on the spatial distribution of many of these variables--as even before starting the research we were aware that there would be considerable concentrations of both capacity and need.

1.4.1 Population

The latest figures on Scotland's population which are for 2019 show a total of 5.46 million, an increase of 200,000 since 2010. It is expected to increase to over 5.6m over the next decade. Figure 1 taken from the National Records of Scotland website shows the population in each of Scotland's 32 local authorities (although not in the national parks, which are also planning authorities). Population numbers per authority range from 22,000 to around 633,000. However, these numbers do not necessarily reflect relative densities because the physical areas also vary enormously – with some of the lowest populations living in some of the largest physical areas. In addition, it is important to note that some of the most populated areas are surrounded by other relatively populated areas, and there is considerable commuting between them. The areas with the highest populations are concentrated around Edinburgh, Glasgow and Aberdeen with the lowest populations in the Islands.

1.4.2 Incomes

The main source of income statistics is the UK Annual Survey of Hours and Earnings. This suggests that median gross weekly earnings in Scotland were around £575 per week in 2019, up from £485 per week in 2010.

Looking across the country, the highest median earnings based on workplace were in Aberdeen at £647 per week followed by Edinburgh at £618 per week. In Glasgow median earnings were around £580, while in Dumfries and Galloway and East Dunbartonshire at the bottom end of the scale they ran at around £510 per week. Figure 3 (Annex 1) shows how median earnings vary across the whole country.

The picture is rather different if one looks at earnings based on residence. Here East Lothian is at the top of the list followed by Edinburgh, and more generally residents of commuter belts around major cities have higher earnings than the cities themselves.

1.4.3 Households and dwellings

The housing stock in Scotland in 2019 was 2,637 million, up from 2,321 in 2010. As Figure 4 (Annex 1) shows, at the national level the number of dwellings across Scotland is considerably greater than the number of households – by around 5.6%. Moreover, while there has been some variation – and some limited relative growth in dwellings v households since 2010 – the ratio has generally been fairly stable for many years.

In 2019 the proportion of unoccupied dwellings across Scotland (based on council tax records) was around 4.1% overall, with considerably lower rates in remote areas but fairly consistent rates elsewhere. In terms of Strategic Development Areas, Glasgow and its SDA area had the highest occupancy rate followed by Edinburgh and its SDA area.

1.4.4 Housing completions

Turning to new build activity, Figure 5 (Annex 1) shows completions by tenure for Scotland as a whole. In 2018/19 there were 21,187 completions with around 75% of these being in the private sector. Edinburgh accounted for some 13% of total output (as compared to 9.5% of households), followed by South Lanarkshire, Glasgow, Highlands and Fife. These top five authorities accounted for some 40% of overall housing production.

1.4.5 House prices

House prices have risen by nearly 20% over the last decade (Figure 6, Annex 1) although there have been periods of stagnation and even slight decline. While the average price for Scotland as a whole was around £197,400 in the fourth quarter of 2020, prices in Edinburgh were almost 50% higher, followed by East Renfrewshire, East Lanarkshire and East Dunbartonshire, where averages were all above £250,000 in the last quarter of 2020. At the bottom end of the scale was West Dunbartonshire with average prices of around £132,600. Average prices in twenty-one of the authorities were below the Scotland average, reflecting the extent to which large parts of the country face relatively slow markets and might well find it relatively difficult to obtain developer contributions.

1.4.6 Developer contributions as a proportion of planning applications

Finally, Figure 7 (Annex 1) shows national data on the number of planning applications. It shows a decline in 2016/7 and 2017/8 but a steep rise between 2018/19 and 2019/2020.

1.4.7 Context: conclusions

The statistical evidence shows the very significant spatial variations in Scotland with population, economic activity and land values concentrated in a relatively small physical proportion of the country and therefore in a minority of PAs. This will inherently mean that large proportions of the funding generated by developer contributions will be concentrated in these areas – which are generally also where requirements for affordable housing and infrastructure related to economic activity will be concentrated. What is less clear from the general evidence is whether there is enough potential for developer contributions to mitigate the impacts of development and provide affordable housing in areas of the country with lower levels of activity and value.