We posted in May that the general scheme of the Planning and Development (Land Value Sharing and Urban Development Zones) Bill 2022 (the General Scheme) had been published by Government.
The Joint Committee on Housing, Local Government and Heritage (the Committee) has just published its report (the Report) on its Pre-Legislative Scrutiny of the General Scheme. The Report identifies a number of issues with the General Scheme and makes certain recommendations. These recommendations will now need to considered by the Office of the Parliamentary Counsel as it seeks to finalise the text of the draft bill.
As was the case with our May post, the focus of this post is on the land value sharing (LVS) elements of the General Scheme. However, it is important to note that the Report does also identify issues and make recommendations in respect of the proposed introduction of Urban Development Zones.
The Report identifies issues regarding the LVS proposals under 4 key areas, as follows:
The Report questions the clarity and consistency of the definitions and methods for calculating the existing-use value and the market value of the land, which are the basis for determining the LVS contribution. It suggests that the valuations should be updated regularly and at the date of the planning application, rather than at the date of zoning, to reflect the current market conditions and transactions. The Report also raises concerns about the availability and capacity of valuation experts and the role of the Valuation Tribunal in resolving disputes.
The Report challenges the rationale and evidence for setting the LVS contribution at 30% of the zoning value of the land, being the difference between the existing-use value and the market value. The Committee notes that this rate was informed by a third party economic appraisal on LVS (which appraisal has not been published) and that the rate does not take into account other existing charges and taxes on land and development, such as capital gains tax, development contributions, and Part V obligations. The Report also queries why the LVS rate is fixed and whether it would be preferable that it would be adjustable, where the Minister for Housing, Local Government and Heritage (the Minister) is of the view that this is necessary to support housing supply.
The Report expresses concern that the LVS contribution may affect the viability of development projects, especially in the context of rising interest rates, construction cost inflation, and market uncertainty. It warns that the LVS contribution may be passed on to the purchasers of housing units, or may discourage development altogether, if it cannot be absorbed by the landowners or developers. The Report also acknowledges criticism by certain stakeholders of the retrospective application of the LVS contribution, which may create tax instability and unfairness.
The Report examines the exemptions from the LVS contribution that are proposed in the General Scheme, such as for social and affordable housing, and for small-scale developments. It questions the justification and implications of these exemptions, and suggests that they may create a competitive advantage for certain types of development or tenure, or may encourage low-density development.
In light of the issues identified, the Committee make a number of recommendations, as follows:
- Considering the 10 year development plan cycles proposed under the Planning and Development Bill 2022, there should be regularity in reviewing existing-use value and market value on the valuation register.
- Land should be valued at the date of the planning application, with the self-assessment being submitted with the planning application so that it is up-to-date and takes other transactions on other sites in the area into account.
- Landowners should be contacted directly by the planning authority to complete the self-assessment, not just through newspaper or website notice.
- The bill should provide that all applications are to be accompanied by a self-assessment of the existing-use value and market use value of the land.
- LVS funds should be committed to the provision of infrastructure, with a ring-fencing model to be considered. Local authority elected members should also have an approval function over the use of the LVS contribution funds.
- The delivery of infrastructure as a means of discharging the LVS contribution should be more explicitly provided for, outlining the timing of the delivery of such infrastructure and the preference for upfront delivery.
- The third party report which informed the setting of the 30% rate should be published prior to publication of the bill, with the rationale underpinning the 30% figure to be set out.
- The Minister should be empowered to reduce the LVS contribution amount to nil where the Minister is of the view that this is necessary to support housing supply.
- The Department of Housing, Local Government and Heritage (the Department) should “take the appropriate time” to consider the impact LVS will have on the viability of projects and housing supply, through further engagement with industry and citizens prior to the publication of the bill.
- Transitional arrangements should be reviewed to ensure the viability of projects is maintained post-implementation of LVS.
- The Department should carefully consider and report on the cost impact of LVS on new home purchasers due to the retrospective nature of its application on lands purchased prior to 21 December 2021.
- Exemptions for LVS and Part V processes should be aligned to create greater efficiencies for implementation.
Our Real Estate and Environmental and Planning Teams are tracking the legislation as it moves through the legislative process and will be providing further updates to this post.