This little piggy…

projects portrait1Rebecca Wakefield assesses the latest Government scheme designed to accelerate the release of public sector land to the market.

The Department for Communities and Local Government (DCLG) has recently announced another initiative to assist government bodies and departments to release surplus public sector land for residential development. A fund of up to £290m has been made available to assist public bodies to bring sites to market for disposal to house builders. Any funds drawn down by the public body will have to be repaid at the earlier of disposal or after four years.

The aim is to release enough land to build 100,000 new homes across the public sector portfolio. The first initiative was back in June 2011, with the announcement by the DCLG that the four major landholding departments (the Department of Health, Ministry of Defence, Department for Transport and Department for Food and Rural Affairs) would publish land release strategies.

What are the barriers to disposal?

Barriers to the disposal of public sector land have traditionally included:

  1. Planning constraints and suitability of sites for development.
  2. Political implications.
  3. Accounting treatment of losses.

Planning

The new fund announced by the DCLG aims to tackle this first constraint by providing two routes of assistance:

  1. providing investment to reduce site specific risks e.g. decontamination, lack of infrastructure and some planning work; and
  2. enabling the Homes and Communities Agency to buy land from public sector bodies at market value, presumably for onward disposal to developers.

Separate to the new fund are other existing resources and support such as the HCA’s ‘Delivery Partner Panel’ (to smooth the procurement of a developer partner), the ‘Build Now Pay Later’ scheme (which enables an early start on site with a deferred receipt of disposal value) and the ‘Advisory Team for Large Applications’ (which is an advice service to unlock and speed up the planning process on large, complex sites).

Politics

Politically, it will always be difficult for public bodies to close and sell off a hospital or a school with playing fields. People do not like to see health and education facilities or the green belt sold to developers and they generally make these views known to their local councillors and MPs – who hasn’t heard stories of politicians privately supporting development, only to oppose it in public?

Universal support for development is impossible to achieve but the Government clearly has a strategy of blaming high house prices on a lack of supply and, in acknowledging that the Government has a large role to play in providing land for development, it seeks to garner support from local communities. In the words of former housing minister Grant Shapps: "As one of the country’s biggest landlords, the Government has a critical role to play in making sites available for developers so we can get the homes this country needs."

Accounts

Accounting treatment for losses is also a difficult problem to resolve. Public bodies - such as the NHS - have the land and buildings on their asset registers valued on a cyclical basis by the district valuer. Any write down in the value of land is a loss to be covered out of the NHS budget, which means either less money to spend on the provision of services to patients or else it will result in the NHS body declaring a loss for the year (and in extreme circumstances receiving a central bail out).

One way of tackling losses is to seek overage on the disposal of land, under which the developer will pay additional money should the land be sold on at a profit. This contingent interest may go some way to alleviating the loss.

Unfortunately, the new fund announced by the DCLG does not assist public sector bodies in reducing any such losses and, where land is sold to the HCA, overage will only be agreed in exceptional circumstances. In addition, any money drawn from the fund will have to be paid back, which may compound the loss.

Until these issues are addressed, public sector bodies may well take the view that they should quietly hold onto land until land values recover to a palatable level.

Addressing the housing shortage in this country in any significant way is necessarily a huge job and we wonder whether the Government initiatives, while welcome, are but a drop in the ocean? Given the economic benefits of housing development, is it time for the Government to take the bold step of embarking on a public programme of house building, targeting areas where social housing is in short supply, and accepting the cost to the public purse?

Rebecca Wakefield is a solicitor at Hill Dickinson LLP.  She can be contacted on 0151 600 8198 or byThis email address is being protected from spambots. You need JavaScript enabled to view it..