No grey-vy train for green belt landowners?

One of the headlines in the new government’s consultation on revisions to the NPPF is the proposal to permit the release of so-called “grey belt” land. Grey belt land is defined as land in the green belt, which has either been previously developed, or makes no – or only a limited contribution – to green belt purposes (preventing urban sprawl, etc).

Grey belt land may be released from green belt restrictions if required to meet housing targets, but a significant aim of the government is that such sites should meet in full policy requirements, such as providing 50% affordable housing. To achieve that objective, the current consultation proposes to limit the use by developers of viability assessments to limit contributions that would otherwise be payable.

The government proposes to set indicative benchmark land values for land released from green belt restrictions recognising that, but for its release, it would have had a low value – often for agriculture or a similar relatively low value. In normal circumstances a premium is added – as the consultation acknowledges normally in the form of a multiplier – recognising that, if planning permission can be achieved the land has a significantly greater value. That multiplier, depending on the nature and location of the land, can be anything from three times to 40 times its value without the prospect of development. The consultation makes clear that the government wants to see benchmark values at the lower end of that range.

Two options are then considered where more than the benchmark value is paid: (1) no viability assessment is permitted so that the full policy requirements must be paid for, presumably even if that makes the development unviable and therefore highly unlikely to be built out; or (2) a viability assessment is allowed, but, as happens in London now, a second viability assessment is carried out at a late stage of the development to test the accuracy of predicted build costs, the end values of the residential units, etc, so that, if it turns out the scheme can afford more, for example, an increased number of affordable houses must be provided. The government is clearly trying to ensure that as far as possible, as a quid pro quo for the release of green belt land, the full amount of affordable housing and other infrastructure is provided. A laudable aim.

The developer industry is, I suspect, more likely to favour the second option. Those developers who operate in London will be used to the two-stage viability process which produces a fair result in that, if the development turns out to be more viable than thought, the additional profit is shared between the developer and the community in the form of additional affordable housing.

The first option might well on the face of it be self-defeating. Landowners may simply decide it’s not worth their while selling at such a relatively low value. As a result, sites which could otherwise have made a valuable contribution to housing generally might simply never come forward.

That is where the final aspect of these proposals comes into play. Consideration is being given to changing the compulsory purchase compensation rules to allow local authorities to assemble sites using compulsory purchase powers without having to pay “hope value”. Compulsory purchase compensation is based on the value of land in the “no scheme” world (i.e. ignoring any effect on value that the scheme underlying the CPO might have). However, normally, compensation will take account of any planning permission (other than that for the scheme of course) that might reasonably have been expected to be granted for the land. This is termed hope value. The government’s proposal is to not take account of such hope value in assessing compensation for compulsorily acquired grey belt land.

A similar provision was introduced in April this year in relation to schemes to provide affordable housing, hospitals and schools. Section 190 of the Levelling Up and Regeneration Act 2023 amended CPO legislation to permit the acquiring authorities to apply for a direction that hope value is not to be taken into account in assessing CPO compensation. Those provisions could easily be extended to apply in the case of released grey belt land, although are not without controversy due to the perceived unfairness for landowners as it is felt by some to go against the principle of equivalence. There are also question marks over whether local authorities have the resources and the required professional skills and experience to take advantage of the ability to assemble sites using these provisions.

The government’s consultation closes on 24 September 2024, giving developers, local authorities, landowners and their advisors a small window of opportunity to respond to what is clearly a significant update to the NPPF.

Nigel Hewitson is a partner at Davitt Jones Bould