Advocates of a planning gain tax enjoy pointing out that something similar was advocated by Winston Churchill.
In the early 1900s, Churchill called for all unearned increases in the value of land to be taxed, claiming this would raise enough revenue to replace most other forms of taxation. That may have been plausible in Edwardian Britain but by the 1920s Churchill was dismissing the idea as archaic, as land was no longer “the sole source of all wealth”.
The planning gain tax about to be unveiled by Minister for Housing Darragh O’Brien has slightly less ambitious aims. Property owners and developers will pay half the increase in the value of land when it is rezoned for housing. Revenue will fund infrastructure and social and affordable housing, on top of the levies already used for those purposes. The tax is also meant to incentivise changes in the housing market by causing landowners and developers to see themselves more as builders and less as asset holders. A ‘use it or lose it’ time limit on rezoning will motivate construction.
Government sources describe this “land value sharing” as “a transformative move” but attempting to raise serious revenue from it while taming the housing market is a contradiction. The price of land ultimately ends up being paid by homeowners or tenants. If a tax is passed on to buyers, it will reduce affordability. Ideally, it should squeeze land value increases down – but then there is less to ‘share’.
In a letter to this newspaper on Monday, Green Party MEP Ciarán Cuffe pointed out that the 2009 National Asset Management Agency Act Act introduced an 80 per cent land rezoning tax, which was abolished in 2014 for not generating significant revenue, although that proved it had worked.
Perhaps there is a sweet spot for O’Brien’s twin objectives and 50 per cent is a credible figure. The complex system of ‘planning agreements’ used in Britain extracts up to half of land value gains, with the remaining half considered a vital incentive for landowners and developers to increase housing supply.
However, this system gives councils almost total freedom to negotiate agreements according to local circumstances. Attempting to standardise terms always runs into the reality that what works in wealthy urban areas will not work in poor rural areas, for example.
The political advantage for the Coalition of setting a nationwide rate is sending a clear message that things have changed in the relationship between government, landowners and developers. A simple, radical policy is required to shift perceptions of a cosy nexus. But setting the rate at 50 per cent could look like dividing the spoils rather than tackling speculation. It would be easy for Sinn Féin to portray this as another flap of the Galway tent.
Like myself, Sinn Féin is on shaky ground making such judgments from Northern Ireland. The North is uniquely hapless in the UK and Ireland at extracting planning gains, particularly for social and affordable housing. Legal powers comparable to those in Britain for planning agreements have been available since 1990 and the legislation was updated in 2011.
Major official reviews have repeatedly advised using these powers to develop a social housing obligation on developers, as with the Republic’s ‘part five’ requirement for 20 per cent of new builds to be social or affordable. Planning policy recommends mixed tenures and social housing in private developments, yet it remains almost unheard of for this to even be pursued in Northern Ireland, let alone enforced. Housebuilding has now ground to a halt in many areas because the sewage system is overloaded, although that could also be funded from development.
Division of responsibilities
Part of the problem is division of responsibilities. Planning, housing and infrastructure are split across local and regional government, housing associations, executive agencies and state-owned companies, rather than mainly dealt with through councils, as happens elsewhere. That excuse goes only so far: the same parties have been in office together across local and regional government for a generation, spells of direct rule notwithstanding. If they wanted to tackle this issue they could do so.
Northern Ireland undoubtedly has its own cosy nexus of government, landowners and developers. Social attitudes are another obstruction. Many people who moved to new developments in the decade-long construction boom from the late 1990s did so to get away from areas built exclusively as social housing, which had been initially successful before falling victim to sectarianism and deprivation. People fear the ‘pepper-potting’ of social housing in private estates, as described by one Stormont review, would herald the same decline. It has never been properly explained that this policy works well in the rest of the UK and Ireland. There is a suspicion it suits certain parties to keep social housing in segregated, deprived areas, to maintain division and control. That view may be overdone but it is understandable when inaction goes unquestioned.
The Coalition parties would be doing Northern Ireland a favour, as well as themselves, if they made a few more cross-Border policy comparisons.