Committee Reports::Report - Building Land::05 May, 1985::Appendix

Appendix 8

The Report of the Committee on the Price of Building Land (The Kenny Report)

A8.1 The most important issue arising in relation to the Kenny Report is whether its conclusions and recommendations are appropriate to the building land situation.

A8.2 This depends on what the problems with building land are. The principal objectives of the Kenny Committee were to consider possible measures for:-

(a)controlling the price of land required for housing and other forms of development;

(b)ensuring that all, or a substantial part, of the increase in the value of land attributable to the decisions and operations of public authorities … shall be secured for the benefit of the community.

A8.3 With regard to (a), which is an economic problem, the Joint Committee feels that the approach was too narrow. It was unduly concentrated on dealing with land prices, which are a symptom rather than a cause. In consequence, it did not examine many of the basic problems involved in the behaviour of prices. The Joint Committee feels that the Kenny Reports’ recommendations are inappropriate to the main problems.

A8.4 With regard to (b), which is an equity problem, the main issue with the approach recommended by Kenny is constitutionality. There are, in addition, problems with the practicality, scope and distributive implications of the recommendations.

A8.5 The reasons why the Joint Committee is of the view that the Kenny recommendations are inappropriate are, it is hoped, clear from the content of this report. However, some of the more important areas of difference are outlined below.

The Issues of Land Prices and the Land Market

A8.6 A central problem with Kenny’s treatment of the economic question is that it fails to distinguish between price and value when such a distinction becomes necessary. The role of land values is crucial to issues connected with building land. Reducing prices by an administrative mechanism does not mean that land values are also reduced, therefore, the proposals imply transfers of wealth which are not given explicit examination.

A8.7 The economic problem, at one level, has to do with the role and operation of the land market. The Kenny proposals were twofold insofar as a market role is concerned. Continuation of a normal market was envisaged in the case of commercial land but in effect the suspension of the market in the case of social (including housing) land was proposed.

A8.8 Following acquisition (through the designated area scheme) the Kenny Report expects local authorities “… when leasing land to seek the highest price or rent for commercial developments…”. Prices for these then, would remain market determined and subject to much the same influences as in the past.

A8.9 A different treatment was proposed for building land intended for social purposes (in which Kenny included housing) where local authorities were expected to make land available on terms which covered costs only. Now this proposal would invovle simply replacing market determined prices with administered prices, (which presumably would be below market prices) and would not reflect land values. The economic problem is avoided, it is not resolved and inevitably must appear somewhere else in the land/housing market. Whilst the land price might be reduced this is clearly an artificial reduction and there is no suggestion that the market value of the land would also be reduced.

A8.10 A fundamental point must be noted with regard to this approach. The land market is but one part of a general market in property. Whilst this general market continues to operate, whether it is in raw land or finished houses or other buildings, it is almost inevitable that market values which are suppressed in one sector of the market will re-emerge elsewhere. Therefore, a proposal to supplant the land market must recognise that its implications and effects are more far reaching than this market sector alone and have to be dealt with in a much wider context.

A8.11 On a more detailed note, the Kenny Report adopts the position that the amount of land available is fixed. It argues that “influences on prices must stem predominantly from the demand side” and concludes that “a combination of increasing population and rising incomes provides the basic mechanism for the continuing upward trend in the price of land for development purposes”. Whilst the broad thrust of the conclusions might not generally be disagreed with, particularly since they emphasise the role played by demand pressures, they nevertheless create some difficulties. The assumption of fixed supply can hinder rather than assist a full analysis of the land market. In particular, it diverts attention from the type of problems arising with regard to land availability which this Committee feels are very important.

A8.12 It is important to note that the analysis does not identify any persistent imperfections or structural inadequacies in the operation of the market, but concludes nevertheless that “if the present free market system of determining price is allowed to continue, the price of building land will continue to move in an upward direction”.

A8.13 It should also be noted that the Report “did not propose to discuss … (what) … are the main causes of the high prices which are being asked for new houses”.

A8.14 It is the view of the Joint Committee that a basic economic objective appropriate to building land is to ensure that the market is operating as effectively as possible within the necessary guidelines on land use set out in the planning system. The Kenny Report is unduly hasty in virtually condemning a market in land and, therefore, neither the implications of its analysis (e.g. whether the market works reasonably well in reflecting land values and allocating land among competing uses) nor the possibility of developing alternative strategies to deal with individual forces or pressures which might be considered undesirable, are given adequate consideration.

The Approach to Equity

A8.15 The Kenny Report states with regard to its Designated Area proposal — “the foundation in principle of this scheme is that the community is entitled to acquire land at existing use value plus some percentage when it can be established by evidence that works carried out by the local authority have increased the price of the lands”. This indicates that the Kenny proposals were designed primarily to recover for the community the betterment value of building land rather than dealing with issues of land values and the market discussed above.

A8.16 Firstly, it may be noted that these proposals have relatively narrow scope. They would apply only to land which was, or would be, increased in market price by works carried out by a local authority. It specifically excludes cases where land is increased in market price through planning decisions only because “legislation which provided that a local authority could acquire lands...... when the price had been increased, not by local authority works but by planning decisions only, would, in their view, be unjust and repugnant to the Constitution”. In effect, it would apply only to publicly serviced land as defined in this Report.

A8.17 Secondly, it is implied that the increase in land values would be passed on to the final new house purchaser. It would clearly be open to the purchaser, therefore, to realise a windfall gain by disposing of the property (in a manner not unlike situations which can arise in the existing tenant purchase schemes for local authority houses). No reasons were given in the Report as to why individual house owners should be the beneficiaries of increasing land values, which is surprising since this aspect of the proposals in effect departed from (and undermined) the overall equity objective of acquiring the gain for the community as a whole.

A8.18 The main problem, however, with the Kenny proposals, as a means of allowing local authorities to acquire land more cheaply, is in their constitutionality. In this connection, the Joint Committee have been provided with the following information by the Department of the Environment:-

The Legal Adviser to the Minister for the Environment was requested to advise generally on the question of whether the scheme proposed in the Kenny Majority Report would be likely to be held to be Constitutional.

His opinion was requested on the following specific points arising from the Kenny Majority Report:-

(i)basis of compensation: would it be acceptable to operate a scheme of compensation based on 125 per cent (or some other arbitrarily selected proportion) of “existing use value”?

(ii)designating authority: would it be essential that the designating authority should be the High Court?

(iii)assessment of compensation: would it be essential that compensation for lands acquired by local authorities in designated areas should be fixed by the High Court, rather than by means of the existing arbitration system or a variation thereof?

(iv)areas to be designated: would it be possible to extend the scope of the “designated area” as defined in the Majority Report, for example, to include all land designated for development in local authority plans?

(v)application to all land in designated areas: whether the omission of the proposed statutory obligation on local authorities to apply to the High Court to designate all land in their area falling within the definition of “designated area” could lead to further Constitutional challenge on grounds of discriminatory and inequitable treatment of different land owners?

The advice of the Legal Adviser (to the Minister) on the matter is as follows:-

“1.I have considered the Constitutional issues arising in connection with the implementation of the Kenny Report on the Price of Building Land.

2.The first and most fundamental question arising is whether the proposal that local authorities should be enabled to acquire land in a “designated area” at its existing use value plus 25 per cent would be held to be unconstitutional. It is now clear that the Courts accept the view that Articles 40 and 43 of the Constitution provide distinct and separate protection to the property rights of citizens. The rights of Article 40 are very strongly stated and I am satisfied that this proposal of the Kenny Report would have little chance of surviving a Constitutional challenge in the Courts based on the argument that it would amount to an unjust attack on landowners’ property rights. This opinion is strengthened by the views of the Supreme Court in the recent cases on the Constitutionality of the Rent Restrictions Acts.

3.If the Kenny proposals were to be put into effect but with a body other than the High Court as the designating authority, I am of the opinion that the prospect of successfully resisting a Contitutional challenge would be seriously diminished. It is possible that with a different basis for compensation — such as a betterment levy on lands being acquired by the local authority related to works carried out by the local authority — the possibility of surviving a Constitutional challenge would be enhanced but difficult questions as to discrimination between landowners within a designated area and landowners outside such an area could still arise. It is quite unreal to suppose that development of the kind contemplated within designated areas will never take place outside such areas.

4.The Kenny Report contemplates that compensation, where the local authority compulsorily acquires land in a designated area, should be determined by the High Court and bases its belief in the Constitutionality of its proposals partially on this. It is difficult to follow this argument. Provided the basis for determining compensation is Constitutionally sound, it does not appear to be necessary for the High Court to be the tribunal involved. If the compensation proposals do conflict with the Constitutional property rights of landowners they will not be rendered Constitutional merely by being administered by the High Court. The decision as to Constitutionality will depend on the validity of the compensation provisions and on the equality of their application.

5.What would be the position if, instead of applying to an area designated by the High Court, the powers of the local authority to acquire development land at less than market value were to apply to all land designated in the Development Plan for development? This immediately raises the question of discrimination as between various landowners, and the last sentence in paragraph 3 applies. The Kenny Report contemplates that all land designated could be acquired compulsorily but they accept that the designated areas should be confined to lands in the vicinity of the larger urban areas. Again something in the nature of a development tax or levy on all development land would have a better prospect of Constitutional survival. The legal import of what is rather loosely referred to as “zoning” in a development plan is that the planning authority states its development objective in respect of the land. This does not mean that all land “zoned” for a particular class of development will necessarily be so developed within the period contemplated by the Development Plan.

6.If the proposal in the Kenny Report that applications should be made by local authorities to designate all relevant land in their area were modified by the deletion of the reference to “all” land, the same difficulties that are referred to in paragraph 5 would apply. Unless a betterment levy or tax were to apply to disposals of land otherwise than to the local authority, the discriminatory nature of the legislation would be even stronger.”