1. Concern with the supply and cost of building land has been a recurrent feature of the seventies and earlier decades. In the early seventies, building land prices were increasing rapidly and this led to the setting up of a Committee under Mr Justice Kenny to “consider .... possible measures for controlling the price of (building) land .... and ensuring that all or a substantial part of the increase in the value of land .... shall be secured for the benefit of the Community”.1 The Committee reported in 1973 and its report (usually referred to as the Kenny Report) was the first broadly based assessment of many issues and problems connected with building land.
2. The Government accepted in principle the basic approach recommended in the Kenny Report, subject to consultation on matters of detail with interested parties. The Kenny recommendations were not subsequently implemented. They gave rise to much debate particularly in relation to the Constitutionally and scope of the recommendations, their practicability and to some fundamental issues concerned with the conceptual approach adopted. Many of these issues are re-examined in this report.
3. In the later seventies, there was another period of rapidly increasing land prices which led to the setting up of the Joint Oireachtas Committee on Building Land with the orders of reference set out above. These differ from the terms of reference set for the Kenny Committee; the latter was asked to address a particular issue connected with building land whilst the Joint Committee’s orders of reference permit a wide ranging approach to all issues connected with supply and cost. This reflects the wider appreciation which has grown up over time of the range and complexity of issues connected with building land.
4. A large number of submissions were received from interested parties, in a number of cases supplemented by oral presentations. Where further information was sought, the organisations involved have put considerable effort into responding to the Joint Committee’s requests. The assistance provided is gratefully acknowledged. A list of those who made submissions is in Appendix 1.
5. The submissions reflect the wide range of issues connected with the question of building land. They also show major differences in the problems identified and their causes. Whilst the supply and cost of building land * is the main concern of the Committee under its orders of reference, the content of the submissions and the openness of the orders of reference have largely determined the structure of this Report. Overall, the issues arising are grouped under four main headings:—
•Ensuring the best use of land.
•The supply and cost of building land.
•Distribution of gains from increases in land values.
•Related policy areas.
6. The first and fourth of these headings are discussed in Part 1 which develops the scope of the Committee’s approach and sets out some general principles. It also examines the relationship between building land and other policy areas. Part 2 is directed towards a factual examination of the supply and cost of building land and the existing distribution of gains from increases in land values. Part 3 contains an assessment of problem areas and policy recommendations.
The Committee wishes to express its sincere appreciation of the excellent quality of the work done by Mr. Kieran Coughlan and Ms. Patricia Ryan during their respective periods as Clerk to the Committee.
In preparing the Report the Committee was greatly assisted by An Foras Forbartha and wishes to express its sincere thanks for the expert and unstinting help given by Mr. R. Jennings, Senior Research Officer, An Foras Forbartha, who acted as Technical Adviser to the Committee and prepared drafts of the Report.
The Committee acknowledges the valuable assistance given by Mr. T. C. Smyth, Senior Counsel and Mr. P. Kelly, Barrister-at-Law, both of whom provided legal advice to the Committee.
The Committee’s thanks are also due to Ms. Ashling Kehoe, Staff of the Houses of the Oireachtas and Ms. Mairí Thomson, An Foras Forbartha, who, among other duties, carried out the typing work of the Committee.
The Committee also wishes to acknowledge the assistance given by the Oireachtas staff.
THE UNDERLYING ISSUES
Ensuring the Best Use of Land
Section 1.1 Land Use and Land Values
1.1 Land is a resource of both the community and the individual. The effects of individual decisions on land use often outlive the individual interest and in many cases are irreversible. Furthermore, the use of a parcel of land for one purpose usually means that it cannot be used in any alternative manner. In urban areas, use of land in one location may influence the whole urban structure by affecting the possibility of similar land use in other locations. In smaller towns, ribbon development on access routes can severely restrict other development options. For these reasons, the community has a fundamental interest in ensuring that the uses to which land is put are the best achievable and that the community interest is upheld.
1.2 The importance of using land properly is emphasised in a number of submissions to the Committee. Some have argued that good agricultural land is a scarce national asset and that it should be conserved as far as possible. Others have cautioned against the view that the use of building land on the urban periphery should be made cheaper, as this may simply encourage further urban sprawl and inner urban dereliction. It is evident that decisions on land use must take account of a wide range of factors which carry benefits and costs to the community at large.
1.3 The main issue in the Committee’s orders of reference is “to consider … measures to deal … with the supply and cost of building land”. It is clear that whilst the proper allocation and use of land are important for community welfare, investigation of many of the issues connected thereto would range far outside this Committee’s brief. It would involve comprehensive examination of the operations of the local authorities and the planning system.
1.4 Though all of the more wide-ranging issues cannot be examined, it is necessary to clarify the relationship between them and the orders of reference. Rather than defining a specific cut-off point, which would be impractical and unsatisfactory, it is considered more useful to establish the standpoint from which any of these questions will be addressed.
The Role of Land Values
1.5 The Committee’s approach is based on the role which land values play in the allocation and use of land. The basis of land value is the benefit which the community, as individuals, groups or collectively, will obtain from its use. The value of most land in the country is related only to its potential for agriculture. Development land differs in that it usually has a variety of other possible uses, which give rise to large differences in land values.
1.6 Stated briefly, land values, properly determined, are fundamental to ensuring the best use of land. The importance of this role must be recognised and it is the benchmark against which the Committee has considered issues arising, identified problems and made recommendations. The role of land values is implicit in much of the debate which has taken place on building land, but it is seldom addressed directly. As a result it is often overlooked in proposals for dealing with land problems. This most often occurs in discussions of the land market because of confusion between the need to ensure best use of land and the need for equity in dealing with the gains to some individuals from high land prices.
1.7 Building land is normally an input to the production of building services including housing, industrial, commercial and recreational facilities. These provide different benefits to different individuals whether they are a household, industrial workforce or property renter. In urban areas, the most beneficial use is not necessarily for building purposes; land may be retained as open space by groups for sporting facilities or by the community in public parks. The benefits derived from land use include not only the services provided by buildings, but also their location, which is a crucial factor in differences in land values.
1.8 The objective of development land policy should be to ensure that land is used so as to get maximum benefit for the whole community. In some circumstances, the best use of a particular parcel may be for office development; alternatively, it may be better to retain that parcel as open space if there would otherwise be insufficient open space available. In the latter case, the land has a higher real value to the community as open space than if used for offices.
1.9 Another aspect of this question can be illustrated by taking an example of housing. The high cost of urban land is a constraint on local authority housebuilding in inner urban areas. Consider, however, the difference between a local authority which has to pay £100.000* for an acre of urban building land and another authority which owns a similar site worth £100,000. It may be possible to devise a scheme which would enable the first authority to acquire the site at substantially less than its market price. Having done so, there is another question facing each authority; whether it is desirable to build houses on land with that market price. There is a cost involved which could be measured by the number of extra houses which could be built on lower valued land if the site were sold. Longer waiting times for some prospective tenants are part of the cost of proceeding with the inner urban scheme. There are also benefits to society in general and to individual tenants from urban renewal and more central location. It is up to each authority to balance the benefits and cost involved, but it is important that they be known and taken into account in such decisions.
1.10 The examples discussed in paragraphs 1.8 and 1.9 show some of the questions which arise with land values. It is important to keep in mind a distinction between land costs, market price and the value of land. They are not the same and, indeed, actions which may be taken to influence one need not necessarily affect the others. Underlying the approach to issues connected with the supply and cost of building land, the Committee emphasises its view that the allocation and use of land in accordance with land values is important for community welfare. Clearly, if a parcel of land has a high value in a particular use, then it should normally be allocated to that use; to do otherwise is to diminish the total welfare of the community. Therefore, in the case of conflicting perception of value, it is the value to the community which should be upheld.
1.11 What this means in practice is discussed below, both in terms of how land use is currently decided and the relevance of this principle to identifying problems with supply and cost. Whilst the role of land values in guiding land use is of central importance, achieving this desired result is by no means easy. There are major considerations arising from the Constitution, legislation, custom, public opinion, inadequate information and organisational imperfections. Reference is made throughout this report to those problems.
Section 1.2 How Land Use is Currently Decided
1.12 Both the Physical Planning and Development Control System (referred to below as the Planning System) and the land market play a part in deciding how land is actually used. Their relative degrees of influence are dictated to some extent by private ownership of property as interpreted under the Constitution, and the fact that Ireland is largely a market economy.
The Role of the Planning System
1.13 A freely operating land market cannot achieve the best use of land because the interests engaged in the market do not take account of costs and benefits to the community at large. A planning system is necessary, therefore, to ensure orderly development and to counterbalance the individual interests represented in the market with the community interest.
1.14 The basis of the Irish (physical) Planning System is the Local Government (Planning and Development) Acts, 1963 to 1982. Within the framework of these acts, including the roles played by An Bord Pleanala and the Minister for the Environment, the planning process operates at local level. Each authority must prepare, review and update development plans, but formally they are relatively free, in doing so, to adopt their own criteria in relation to the type, mix and density of development permitted and the locations in which development should occur.
1.15 A planning authority, in preparing development plans and setting out development criteria, is expressing an attitude towards land values (irrespective of whether or not this attitude is made explicit). This is an extremely complex operation which, in balancing the benefits of development against its costs, must take account of spatial, economic, technical, social and political considerations as well as general and individual property rights.
1.16 Under ideal circumstances the community, through the planning system, would decide that certain patterns of land use are in its best interest and through zoning, provision of services, acquisition (where necessary) and other measures would ensure that land is used accordingly. The development plan, therefore, and the actions of local authorities would reflect explicitly or implicitly the communities’ view on land values.
1.17 The operation of the physical planning and development control system encounters many problems. Insofar as these interface with land use and land values, they may be examined under three headings:-
•Planning tries to anticipate the amount of land likely to be required for development so that adequate services are provided at the right time and place. The development pressures which give rise to the demand for land are usually outside the control of any individual authority. Too much or too little land may be zoned and serviced resulting in either poor use of resources or undue pressure on land prices. Problems of this type cannot be eliminated because of inherent uncertainty; they can be countered to some extent by effective regional development policies and a high level of technical competence in the planning authority.
•Whilst it does not give rise to the development pressure which underlies land values, the planning system does channel land values in specific directions. On the periphery of urban areas, the provision of main services dictates the pattern of development potential. Zoning also permits or constrains particular types of development. This is a distributive influence which benefits certain property owners and not others. As a result, planning authorities may come under severe pressure from property owners who are attempting to acquire the windfall gains accuring to development land. This can lead to excessive or premature zoning of land, dissipation of resources available for servicing and to the adoption of undesirable development patterns.
•Planning authorities also decide how land should be used. This is their most direct expression of land values. The more obvious examples arise in decisions on urban structure such as the desire to retain certain lands in existing (agricultural) use, reservation for amenity purposes (non-building) and reservation for social infrastructure (schools, community facilities, etc.). Attitudes to land values are also included, however, in decisions on permitted densities, mix of development, road standards, although other technical and social considerations are also involved. The criteria involved in the latter group are the subject of much debate, but as is pointed out above, most of the issues are outside this Committee ’s orders of reference. Problems arising with regard to the former (i.e. reserving land for particular purposes) typically give rise to major difficulties with implementing development plans. The core of the problem involved here is that the planning authority cannot reserve land for a particular purpose unless it compensates the landowner. Local authorities may not have the resources to do this and their intentions are thereby frustrated.
1.18 The planning system thus addresses land values directly and indirectly; in anticipating and reacting to development pressures, in channelling development potential and in imposing (where possible) wider community interests (values) on the use of the land. Its objective is to control or counteract market forces which are contrary to the community interest, to encourage desired development and to provide the framework within which the market can operate effectively. The effectiveness of planning depends on a myriad of factors, including interpretration of Constitutional rights, issues of political, technical and administrative performance, legal powers and resource availability as outlined above.
The Role of the Market
1.19 The land market also allocates land to different uses and, therefore, forms a view on land values which are expressed in the market price and result from the activities of all those who influence the market. These comprise a large number of persons and organisations. Essentially, the land market reflects the valuations and intentions of all those who are active in owing land, supplying it for sale or purchasing it for individual use. Market price then, assuming the market is operating well, is a legitimate expression of land values which are relevant and important to ensuring the best use of land in the community interest.
1.20 In considering market price and land use it is necessary to make a distinction between the use value and exchange value of land. Use value is the benefit from the point of view of the existing or potential property owner. An existing owner may, for example, derive benefit from a family attachment to the land and this benefit is, by its nature, non-transferable to a potential purchaser. Exchange value on the other hand is the price at which land is transacted on the market.
1.21 Land markets, by their nature, are subject to many imperfections which affect the degree to which they influence land use in a desirable manner. Some of the more important are:-
•As noted earlier, individual decisions (by persons or private organisations) are usually based on costs and benefits affecting themselves alone. If no third party is affected, either by the imposition of additional costs or benefits, there need be no conflict between the values perceived by the individual and the community. The individual’s decision and the community’s, with regard to best use, coincide. If, however, there are third party effects (typically pervasive where land is concerned) the individual’s decision may not be in the best interests of the community. This is essentially the difference between the market valuation of land and the valuation decided by the planning system.
•The market is usually interested in land because of its potential for building use and its valuation of land is related to expectations of the market for different types of building services (houses, offices, factories). If these expectations are ill-founded the market may value land incorrectly. In addition, the fact that land can be held as an asset also brings into play a wider set of influences which may have no connection with the building potential of the land and this can have important implications for the level and trend of land prices.
•Raw land has no cost of production (although costs are incurred in land development) and, therefore, the basis of supply decisions is unlike most normal market situations.
•Although it is convenient to refer to a single land market, it must be noted that the normal definition of a market implies transactions in a reasonably homogenous product. This is a feature which is not shared by building land. No two parcels of land are the same, as can be observed in the very wide range of prices paid per acre even for parcels which appear similar. The total market may, therefore, be made up of a number of sub-markets with quite different price influences.
•Finally, unlike most other factors production, the market in land involves transactions not in land itself but in property right — interests in, on, under and over land. The precise nature of the rights involved may be a matter of legal interpretation. In the case of building land these are also related to the planning acts. The existence of a constitutional basis for property rights in itself predetermines to some extent the nature of the relationship between the market and planning systems.
1.22 These features (and others which it is unnecessary to detail here) show that land constitutes a very unusual market. It is one of the reasons for the widely divergent and often conflicting views on the operations of the land market.
Section 1:3 The Role of the Committee in Relation to the Allocation and Use of Building Land.
1.23 The purpose of this Chapter is to define the limits of the Committee’s interest, under its orders of reference, to the wide ranging issues which arise in ensuring the best use of land and to establish a framework or benchmark for identifying and defining problems in the supply and cost of land.
•As an underlying principle, the role of land values in guiding land use must be recognised and accepted, whether expressed through the planning system or through the land market. Problems indentified in this report will concentrate on influences which run counter to the objective of achieving best use in accordance with properly determined land values.
•Problems connected with building land are considered in there own right rather than as an appendage to other areas of social and economic policy. Some of these other policy areas are discussed in the next Chapter.
•The planning system and the market operate on the basis of explicit or implicit criteria of land values. They may differ, however, in the range of interests involved and in the criteria of value which are taken into account. In a sense, a major issue which faces both systems is, who is making the decisions on land use, what is the basis on which decisions are made and what are the effects.
•The relationship between planning and the market is also a major issue discussed in this report.
1.24 Although similar questions can be posed for the planning system and the market, the approach to each must differ. In the building land market, there is an established measure against which the operation of the market can be assessed. That measure — a properly determined market price which reflects the development potential of the land — does not involve a judgement on the actual land use decisions made. The Committee’s concern is with ensuring that the market operates in a manner likely to lead to optimum decisions. This involves considering in particular whether price is distorted by other influences such as bad information, speculation or other imperfections in market behaviour.
1.25 In dealing with the planning system, there is no similar established measure to allow adoption of the same approach. Within the framework of the planning acts (as discussed above) each authority is relatively free to adopt its own land use criteria which, therefore, reflect (or should do) the political will of the community in relation to type, mix and density of development permitted. It is not the function of the Committee to second guess the decisions of these authorities as to the “proper planning and development of their areas”. With regard to the planning system, therefore, this Report concentrates mainly on how it affects, and is affected by, the supply and cost of building land.
Related Policy Areas
2.1 Much of the debate on building land is connected with other primary policy areas which are affected in large or small measure by the supply and cost of land. This Chapter discusses some of the issues which arise in the more important related policy areas — housing (the major user of building land), urbanisation and the building industry. The main point to be noted is that quite often when proposals are made for these policy areas, proposals with implications for land, they are made without reference to any objectives which should guide land policy. This approach is fraught with dangers in that it can oversimplify problems in the related policy area and disregard issues connected with building land itself. It has created undue concern with the cost of building land, per se, and inadequate attention to problems of land and resource allocation.
2.2 The Committee, in Chapter 1, have argued against this approach and in the favour of treating building land issues in their own right, both to ensure proper development of policy on land use and to provide a better context for addressing other problems.
2.3 Housing policy is concerned with “ensuring that as far as the resources of the economy permit, every household can obtain a house of good standard, located in an acceptable environment, at a price or rent it can afford”.2 This is a social objective which implies a need to assist lower income households by some form of subsidy, either through local authority tenancy or through transfers (grants, etc.) to households in the private sector. Specially geared forms of mortgages, such as those provided by the Housing Finance Agency, may also be used. The appropriate type and level of subsidy or mortgage finance and target groups to be assisted are matters for decision in the context of housing policy; there are many forms of assistance available or possible which have no connection with building land.
2.4 Subsidies to housing do not have to be provided via cheap building land and, if this were adopted as a general measure, it could be an ineffective and wasteful way of using the limited resources available to the community. Consider, for example, the proposal in the Kenny report that “land (for housing) be made available on terms which covered costs only”. If the market value of the land is higher, then there is a transfer of wealth from the community to households and there are no grounds for supposing that the recipients are households in need of assistance. From time to time the new housing market has been dominated by higher income purchasers, whilst some lower income purchasers find more suitable accommodation in the secondhand market. If wealth is transferred to households not requiring assistance then there is less available for those in need.
2.5 Similarly, in the case of local authorities there are alternatives to new building. These include encouraging vacancies in their existing stock, purchase of secondhand houses or refurbishing rundown buildings. It is up to each authority to choose the most cost effective method of meeting the objectives of housing policy. The point to be emphasised is that there is no direct or even necessary connection between doing so and either the cost of building land or indeed the bulk of activity in the housing market.
2.6 The relationship between new house prices and land prices has been a central issue in the debate on building land. Since this arises directly under the Committee’s orders of reference, it is discussed in detail later in the main body of the report.
2.7 Urbanisation is a major phenomenon which Ireland has experienced in common with most other countries. In some ways, policy in relation to building land could be regarded as a subsidiary part of a more general policy on urbanisation, the latter embracing a wider set of issues than the former. Many of the issues arising in relation to building land can indeed be seen in this way and it is true that some of the most pressing problems connected with building land are ultimately connected with urbanisation. The Committee notes the views expressed by the NESC3 that land policy is fundamental to urbanisation and that the latter is an area where conflicting land uses give rise to the most serious problems of land values.
2.8 Physical planning and urbanisation are also intimately connected and the Committee agrees with the view of the NESC that effective development planning must be based on an ability to control the spatial pattern of development and, in particular, to ensure availability of land for development. The manner in which these are achieved is a separate matter, however, but some reports have suggested that good town planning is only possible if local authorities get access to cheap land.
2.9 The Committee has argued in Chapter 1 that attempting to resolve problems in other policy areas without regard to land values is to lay a foundation for bad development. For example, one of the issues in urbanisation is the conflict between peripheral development and the utilisation of existing building stock. If the price of land on the urban fringe is artificially depressed, this could lead to a concentration on new building in excess of the socially desirable level. Similarly, high land prices around urban areas may in part reflect weakness of regional policy and regional imbalance in infrastructural investment. In the absence of a well thought out land policy and a strategy for implementing that policy, manipulation of prices could serve to avoid the consequences of such failures, rather than achieving the desired aim of optimum development.
2.10 The ability to acquire land at low cost is only one part of more general problems faced by local authorities. Effective physical planning and desirable urban development do not depend solely or even primarily on problems with land costs, but would include problems with financial resources, personnel and technical skills and adequacy of legal powers available to local authorities. Some of these have direct implications for the supply and cost of building land and are examined further later. However, problems such as “planning blight” result in part from the same causes. The availability of cheap land in itself is not a solution and indeed if the wider problems are not resolved, could serve only to exacerbate the situation if local authorities were thereby encouraged to reserve large tracts of land for development which they do not have the resources to undertake.
2.11 Finally, it may be noted that some questions relating to building land are only indirectly connected with urbanisation if the latter is understood to refer primarily to major urban centres. This applies notably in the case of private single housing and to aspects of industrial and infrastructural development.
The Building Industry
2.12 Land is a basic requirement for most building activity though, in most work, the industry itself is not directly involved in either land acquisition or obtaining development permission. This is so for most contract work, maintenance and for many jobs on which there is a relatively informal relationship between the builder and the client. The sector where builders are most directly concerned with the availability and price of building land is in speculative work, which covers private estate housing and some industrial, commercial and retail shopping development. These sectors account for about one fifth of total building output.
2.13 Availability and price are not the only important issues to this sector of the industry. Land is not only an input to the builders’ production, it is also an asset which plays a role in finance of production. The terms and conditions on which development may proceed are vital to the overall marketability of projects undertaken and to the builders’ ability to obtain working finance from financial institutions.
2.14 It has been submitted to the Committee that the principal objective of the planning system should be to ensure adequate availability of land at reasonable prices. The Committee agrees that these are central to its orders of reference. It will be clear, however, from much of the preceding discussion that the Committee would consider them in the context of wider issues arising in relation to planning and development.
2.15 Chapter 1 and this Chapter are aimed at clarifying the Committee’s approach to its orders of reference in relation to many of the underlying issues connected with building land. The Committee has underlined the importance of treating land as a distinct policy area with the overall objective of ensuring best use in the community intetest. The Committee believes that this approach can highlight the contribution which a well developed policy on building land can make and avoid the pitfalls of competing, and sometimes contradictory, efforts to utilise land simply as an instrument for achieving other objectives. Land values have a crucial role to play in decisions on land use and as a guide to decision making in related policy areas.
DEMAND, SUPPLY, COST AND THE DISTRIBUTION OF GAINS
The Demand for and Supply of Building Land
3.1 It is useful at this point to introduce a number of sub-sectors within the building land market. The first includes agricultural land on the periphery of urban areas and other towns which is zoned for building purposes. Supply of this land will normally entail provision of main services to allow development to proceed. The second subsector covers land outside development plan boundaries where planning permission is obtained, usually for single buildings. The third includes existing serviced land, both infill or built land undergoing change of use, within urban built up areas. For ease of reference, these subsectors are identified respectively as:
•publicly serviced land,
•privately serviced land, and
Section 3.1 The Demand for Building Land
3.2 The demand for building land is mainly a derived*demand for the production of buildings now or at some time in the future (this is not true where land is purchased as an investment). The Committee did not have separate data showing actual demand for land but the trend and composition of construction industry output can provide a reasonable indication of recent trends and developments.
3.3 Between 1971 and 1984, total building output increased by about one fifth. The trend of output is shown in Figure 1 and displays a number of marked features. There were two periods of rapid growth, 1971 to 1973 in which output increased by 25 per cent and 1976 to 1979 in which output grew by about 50 per cent. There were also two periods of decline, 1974 to 1975 and 1982 to 1984 in which output fell by some 11 per cent and 25 per cent respectively. The periods of rapid growth would generally coincide with strong pressure of demand for building land whilst the converse would hold in periods of decline. The volatility of construction output and the very rapid rates of growth illustrate the severe pressure on available land which can arise from time to time.
Construction Industry Output (at 1975 price levels)
Source: Derived from National Income and Expenditure, CSO and Review and Outlook, Dept. of the Environment.
3.4 It is estimated in Appendix 2 that average annual usage of building land has been of the order of 6,500 acres in recent years. Some 5,000 acres were used in housing and ancillary services with slightly more than half being privately serviced land for private single houses. In the case of estate housing, the land usage includes allowance for ancillary services — shops, community facilities, open space. The balance of annual usage, about 1,500 acres, is used by industry, public utilities and related activities.
3.5 The estimate of annual usage does not of course indicate the level of demand in any year. As noted above, some indication can be obtained from the trend of construction industry output shown in Figure 1 but the pressure of demand can also vary for other reasons such as changes in the composition of construction output, structural change in the building industry, changes in end user markets and involvement by non-building interests in land transactions. Table 1 shows the composition of construction output since 1975; some of the more notable developments which have affected the pattern of demand for building land are discussed below.
Construction Output 1975-1984 (at 1975 prices, £m)
Source: Report of the Sectoral Consultative Committee on the Construction Industry.
3.6 Housing is the largest sector of construction output and has increased its share from one-third during the sixties to over two-fifths during the seventies. It is also the largest user of building land; with its ancillary services, it accounts for about three-quarters of total land usage.
3.7 There were three notable phases in new house building since 1970 which have affected the demand for building land. Some of the main features are illustrated in Figure 2.
House Completions 1970-1983
Source: Quarterly Bulletin of Housing Statistics, Dept. of the Environment and Private House Building in Ireland, An Foras Forbartha.
3.8 In the first phase, house completions doubled from 13,400 in 1970 to 26,900 in 1975 and most of this growth occurred up to 1973. Both private and local authority housing contributed; local authority completions more than doubled from 3,900 to 8,800.
3.9 In this period, the bulk of housing was estate type, usually on the periphery of urban areas and in the three bedroom semi-detached sector of the market. The growth in demand was, therefore, heavily concentrated on publicly serviced land. In addition to demand for land usage, there was a notable amount of advance land acquisition by building firms (expecting fairly large scale building programmes) and by local authorities for their own use and for release to smaller private builders.
3.10 The second phase covers the period from 1976 to 1981. House completions stayed at a high level with a further increase to 1981 when output peaked at almost 29,000. The mix of output in this phase, however, was quite different from the early seventies.4
3.11 Firstly, local authority completions reduced to around 6,000 per annum. Secondly, private single houses increased from 5,600 in 1976 to 11,500 in 1981 and from one-third to over half of all private house completions. Thirdly, private estate housing did not increase much in number of units but it did shift upmarket to larger typically four bedroom detached houses. There was also a very strong location preference for infill sites in urban areas, later coupled with emergence of the purpose built apartment sector.
3.12 In the second phase, therefore, there was a marked increase in the demand for privately serviced building land due to wider spread of population and employment growth. The growth in private single housing diverted pressure which would otherwise have been felt on publicly serviced land. In the private estate sector, there was some emphasis on urban land. Advance acquisition for largescale building development was not a main feature of this period.
3.13 The final phase is from 1981 to the present. Total completions have declined to just under 25,000 in 1984. Private single housing has remained strong up to 1983* and it appears that most of the decline occurred in the private estate sector which is down by about one quarter. This sector has also shifted back from its upmarket character and there has been some increase in small two bedroom houses (14 per cent of all private estate completions in 1983, almost one quarter of completions in Dublin). There appear to be increased numbers of secondhand houses on the market which are an added source of competition with new housing. Mortgage approvals in fact reached an all time high in 1983 but a larger proportion were for secondhand houses.
3.14 This influence of the housing sector illustrates the variety of influences on demand for building land and the type of changes which the market can experience.
Industrial Development and Public Services
3.15 A substantial amount of the non-housing demand for building land comes from the IDA and other industrial promotion agencies, semi-state bodies such as ESB and An Bord Telecom (who are involved in land purchase on a regular basis) and from other public authorities.
3.16 We do not have much detailed information on this sector. It can be seen from Table 1 that industrial and semi-state building output grew rapidly in the later seventies and peaked in 1981. This suggests substantial growth in demand for building land in the period.
3.17 The IDA is the major land user in this sector with an annual usage of the order of 1,000 acres. IDA policy is to purchase and develop land in locations nominated in its industrial development plans to ensure that serviced sites in a variety of locations are readily available for new projects. In general, the aim is to have a land bank sufficient for three to five years, depending on location. The bulk of IDA usage is publicly serviced land in main urban centres. However, in the later seventies, part of the increase in industrial building was due to an expanded programme of advance factory construction which is more widely dispersed. At present, large quantities of unused factory space are available from the IDA programme and from the secondhand market.
3.18 In addition to industrial building, other State bodies became more active in construction in the later seventies. Telecommunications, for example, undertook an accelerated building programme and large projects were also in hand by ESB and a number of other agencies.
3.19 It can be seen that expenditure on main infrastructural works such as roads also increased. In the case of roads, there has been more emphasis in recent years on improvement rather than maintenance works; this would give rise to greater demand for land although much of the land involved would not come under the heading of building land.
Private Development (non-housing)
3.20 Unlike most housing and industrial building, much other private development takes place within urban areas. Almost all office development and some retail building is close to the central business district in main urban centres and would generally reflect a demand for urban land. Some retail building and also private industrial (warehousing and factory building) has taken place on the urban fringe. Part of this activity is believed to be of a restructuring nature where existing services are relocating for economic reasons.
3.21 Building trends in this sector are closely related to the performance of the economy as a whole. However, land (or site) acquisition is usually a long term activity often involving a lengthy process of site assembly. Provision of services is not normally a main issue since much of the land is in fully serviced built-up areas. Problems tend to be concentrated on legal issues of site acquisition, the type of planning permission obtainable and similar matters.
General Overview and Prospects
3.22 In the past decade or so there was remarkable growth in building output. Construction’s share of total national output (GDP) increased from 12 per cent in 1970 to almost 17 per cent in 1981. Its share of national output has declined since then but total building output in 1984 was still about one fifth higher than in the early seventies. When relating building output to demand for building land it is also important to note the volatile behaviour of output and the changes in mix which have occurred.
3.23 Prospects for construction output for the remainder of this decade were set out in the recent report of the Sectoral Consultative Committee (SCC) on the Construction Industry.5 These have taken into account the National Plan, “Building on Reality” but not the VAT changes in the 1985 budget. The following conclusions of the SCC Report are noted:
•“The overall picture is that the major decline in construction output is coming to an end.....output in 1985 should remain steady (at 1984 level) with a recovery of growth in 1986. The recovery will be relatively modest as will the general growth pattern in the remainder of the decade.”
•“By the end of the decade these forecasts imply total construction output of about 10 per cent higher than 1984. Compared with the seventies this is a modest prospect. Total output in 1989 would be about 20 per cent lower than in 1979.”
•“Housing it is felt will lead recovery with an increase in output in 1985 and 1986.”
3.24 It is very difficult to assess the impact of future construction growth on the demand for building land. The Committee does not propose to engage in forecasting but some indication of trends may be drawn from the SCC forecasts. The fact that housing output is expected to recover would indicate a continuing high level of usage. Some 2,000/2,500 acres of publicly serviced land could be required annually for private estate and local authority housing in the period up to 1987 and a further 3,000/3,500 for private single houses. Industrial usage may be some 1,000/1,500 acres per annum with, say, 500 acres for other purposes. Total usage, therefore, in the next few years could be between 7,000/8,000 acres per annum.
Section 3.2 The Supply of Building Land
3.25 There is no complete set of information on the supply of land under any of the market subsectors defined in paragraph 3.1 above. Information was obtained, with the assistance of the Department of the Environment, about main urban centres and some county and smaller towns. In general, however, the available information provides only a partial picture of the supply situation and the Report’s conclusions must be seen in this context.
Section 3.2.1 Publicly Serviced Land
3.26 Zoning and the provision of services (water, sewerage and roads) are the main stages in the supply of publicly serviced land; these functions are discharged under development plans which each planning authority is required to prepare. Most of the land in question is on the periphery of towns and urban areas.
Investment in Sanitary Services and County Roads
3.27 The trend of investment in sanitary services (water and sewerage) and in urban and county roads since 1970 is given in Figure 3.
Investment in Sanitary Services and in County and Urban Roads, 1970-1983.
(Base 1975 = 100)
Source: Derived from data provided by Department of the Environment
3.28 Investment in sanitary services in 1983 was some four times the 1970 level whilst investment in county and urban roads actually declined by a small amount. This compares with an increase in the same period of one quarter in total construction output and a doubling of new house completions. It should be noted that all of the investment expenditure shown in Figure 3 is not for meeting new requirements. Investment is also undertaken to remedy existing deficiencies to upgrade quality and to reduce or prevent pollution.
3.29 There has clearly been a very substantial improvement in provision of water and sewerage services but this has not been matched by similar improvement on the roads side. To assess the adequacy of provision it is necessary to consider the situation at the beginning of the seventies and trends during the period.
3.30 It seems that there were severe deficiencies in the supply of serviced land in the early seventies and that the level of investment at that time was too low. The Kenny (majority and minority) Reports both emphasised the “inadequate investment in the sanitary services programme in the 1960s........which was not sufficient to meet increased demands for serviced land for housing, industry and other purposes” and also the “existing deficiencies in infrastructure, especially in Dublin”. This was the general tenor of many of the submissions to the Kenny Committee and reflects anxiety about the adequacy of provision and the possibility that existing facilities would become overloaded.
3.31 Therefore, although it can be seen from Figure 3 that investment in sanitary services doubled between 1970/71 and 1973/74, housing completions also doubled in the same period and given the prevailing inadequacies at the time, it is unlikely that the supply of serviced land was fully adequate to meet requirements.
3.32 Sanitary services investment peaked in 1976 and fell back until 1978. It doubled between then and 1983. Since housing completions in the later seventies have not grown as rapidly and given the diversion of demand into privately serviced land, it is likely that the supply of serviced land is now on a much improved footing compared with the early seventies, at least where water and sewerage are concerned.
3.33 Substantial amounts of investment are still required to meet existing needs and provide for extra demand. Sanitary services schemes which were either at various planning stages or approved, were recently valued at some £882m, over nine years work at present annual levels of investment.6
3.34 Sanitary services are not the only requirement for full servicing of land. An adequate road network is also essential in the environs of urban centres and it has been represented to the Committee that some local authorities are having a lot of difficulty in keeping up the level of investment needed. From Figure 3 it can be seen that investment in county and urban roads increased by about one sixth between 1970 and 1979 but it has since fallen back below the 1970 level. The Committee notes the following from the recently published “Policy and Planning Framework for Roads”.7
•“…total State expenditure on road improvement and maintenance has increased by 63 per cent in real terms between 1979 and 1984......expenditure by local authorities on road improvements and maintenance financed from their own resources (including the rate support grants) decreased in real terms by 11.5 per cent between 1979 and 1983”.
•“In the allocation of funds, emphasis will continue to be placed on the improvement and maintenance of the national road network and of major urban roads.”
3.35 Overall, therefore, it appears that investment in sanitary services has been improved very substantially but investment in county and urban roads may be very much below what is needed to ensure adequate supply of building land.
The Supply of Publicly Serviced Land
3.36 Information on the existing supply of building land was obtained for the Committee by the Department of the Environment. The information was obtained in response to two requests; the first was sent to eleven * larger urban authorities with populations over 15,000 and the second (a more informal request) was sent to a number of county and smaller towns. The results are presented in Appendices 3 and 4 respectively.
3.37 The eleven urban centres account for the bulk of estate housebuilding, where development usually takes place on fully serviced zoned land. An estimated 10,500 new dwellings were completed in these areas in 1983; this represents about 40 per cent of all completions nationally. It includes some 3,500 local authority houses and 1,300 apartments. In total these areas would account for about 75 per cent of all new private estate houses.
3.38 All of the urban centres provided details of the supply of serviced land as at the end of 1982. Serviced land was defined as “land which is or can be readily connected to either existing main drainage and public water supply systems having adequate treatment capacity or schemes under construction at end 1982”. The Department of the Environment point out that this is likely to understate the supply of serviced land since it excludes lands which are only partially serviced or which can be serviced by systems with inadequate treatment works.
3.39 The supply of serviced residential building land in the eleven urban centres amounted to over 5,000 acres, sufficient for about 40,000 houses or some four years usage at current building rates.* The position varied from just over one year’s usage in Cork City to over 13 years in Sligo. However, nine of the eleven urban centres had about four years supply or more. Also in the case of Cork City, information was not provided on the amount of serviced land in the county area adjacent to the city. In the city itself most building land has been used up.
3.40 Replies to the more informal request were obtained from 21 county and smaller towns. These comprise, as would be expected, a rather different mix of land usage. Total house completions in the twenty one towns are estimated at 2,810 of which 720 were local authority, 810 were private estate and 1,280 were private single houses in the environs of the towns. Data on serviced land was not obtained and could in any event prove difficult to interpret since the option of building on private single sites is available and also because a variety of other methods of provision are used including local authority sales of sites (subsidised and non-subsidised) for private development, co-operative and joint venture housing schemes. The authorities were asked, however, to comment on the adequacy of supply and overall the reported position was good with most having adequate building land to meet needs arising.
3.41 Apart from the positions reported above, it may also be noted that local authorities through the country as a whole had on hand land sufficient for 58,600 sites for local authority housing at end 1982, excluding sites on which work had commenced. (See Table A3.2 in Appendix 3.). All of this land would not be serviced but it would meet needs for 10 years at current rates of usages. The position varies between authorities but seven of the eleven main urban centres have in excess of ten years supply, two have over seven years whilst two have less than five years.
3.42 Information on the supply of serviced land for industrial purposes was obtained only for the larger urban areas. In total, this amounted to some 1,600 acres. As noted earlier, total annual usage of industrial land is about 1,000 acres at present in the country as a whole and the above supply would be sufficient, therefore, for perhaps 2 to 3 years in the areas concerned. Information obtained separately from the IDA indicates that they had a land bank of almost 6,000 acres in march 1982; this would include both serviced and unserviced land in a variety of locations.
3.43 Urban land (whether infill or redevelopment) is usually fully serviced. Issues of availability, price, site assembly and development conditions are paramount. These have to do with the operations of both the planning and development control system and the land market, both of which are examined later.
Section 3.2.2 The Supply of Privately Serviced Land
3.44 Unlike land zoned for development which is provided with full services, the supply of privately serviced land does not depend on advance provision of services. It responds fairly directly to demands arising, at a price, and services tend to be provided when building proceeds. In the case of private single houses, over 90 per cent use septic tanks and between one third and half of new houses built each year are not connected to public main water supply.8
3.45 The substantial increase in numbers of private single houses in the later seventies indicates fairly ready availability of land for this sector. This is confirmed by most of the replies from the twenty one county and smaller towns.
Section 3.2.3 General Observations on the Supply of Building Land
3.46 Substantial progress has been made in the servicing of building land, particularly in the provision of water and sewerage for publicly serviced land. After a decade of unprecedented levels of building activity, there is now, according to a large number of local authorities, reasonably adequate supply of serviced land to meet needs arising for a number of years. The supply of privately serviced land appears in most cases to respond fairly readily to market demand except in cases of topographical difficulties or similar unusual circumstances.
3.47 The Committee would emphasise however, that a high level of investment must be maintained to improve existing services in some cases, to meet local deficiencies and to ensure that there is no fall back in the level of advance provision. The level of investment in county and urban roads, necessary to ensure that land can be developed, is an area needing particular attention.
3.48 The Committee’s conclusions on the supply of building land contrast sharply with a number of submissions on this issue. Since these are matters of fact, matters central to the Committee’s orders of reference, it was necessary to pursue the issue further. This was done in relation to the Dublin area where the supply position reported in the information obtained via the Department of the Environment indicated “an estimated 2,500 acres of serviced land......capable of accomodating approximately 25,000 houses”. Indeed outstanding residential planning permissions in the Dublin area in April 1983 amounted to almost 22,000 houses (including local authority houses) and the Committee was informed that the supply of unexercised permissions has remained constant at about the 20,000 mark since 1977. Other submissions to the Committee, however, pointed to Dublin as an area with particular difficulties in supply.
3.49 On the basis of further consultation with the relevant parties the Committee believes that there is no substantial disagreement about the basic supply position. However, there are a number of problems which arise between initial provision of services and final development of building land. It is here that the reasons for the apparent conflict in representations to the Committee are to be found.
3.50 The problems are interrelated but can be summarised under the following headings:
•the balance of responsibilities for servicing building land,
•the circumstances in which planning permission is given and conditions attaching thereto,
•land availability as distinct from supply.
These problems are discussed below.
Servicing of Building Land
3.51 A fully serviced parcel of building land must have access to main water, sewerage and road networks and the parcel itself must be developed with local services to each house (or building) site. Under a crude description of the responsibilities of the parties engaged in development, the local authority and the building industry, the former provided the main services whilst the latter provided the local services. In recent years it seems that this split of responsibilities has changed, for two reasons:-
•Firstly, some local authorities now grant permission where previously it would have been refused on grounds of prematurity (i.e. that main services were not yet ready to allow for orderly development). The authorities argue that they are responding to criticism about unwillingness to grant permission and are adopting a more flexible approach. In so doing, they require the developer or builder to take on, or contribute to, part provision of main services, because the development is not in line with orderly development as envisaged by the planning authorities.
•Secondly, resource constraints are forcing some authorities to try to pass on servicing costs to the industry.
3.52 The Committee is not in a position to judge (without examining a large number of permissions) whether one or the other of these reasons predominates. Also it is not clear to what extent the situation differs between local authorities. The end result is much the same in either case in that the industry is being drawn, to a greater extent, into some responsibility for provision of main services.
Conditions Attaching to Planning Permissions
3.53 In addition to being serviced, building land must have planning permission. The type of permissions granted and any conditions attached are a factor to be considered in assessing the supply of land.
3.54 As noted above, permissions granted for development which previously would have been considered premature, entail a requirement on the builder to assist in the provision of main services. In addition to conditions of this type, the Committee understands that there is also an increase in the number of conditions attaching to permissions for other reasons. An Bord Pleanala were asked by the Committee whether they had information on this area; their views were as follows:-
“From its experience to date in dealing with applications which come before it on appeal, the Board has found that a number of planning authorities (but not all) tend to attach a lot of conditions to planning permissions. The conditions which the Board might regard as particularly superfluous are those which relate to requirements of legislation other than the Planning Acts, e.g. conditions relating to bye-law control, fire prevention measures, controls under legislation governing pollution (water and air), etc.
When the Board is determining appeals where such conditions have been attached by the planning authorities, its policy is to omit those conditions which relate to matters arising under non-planning legislation and to insert only those conditions which are appropriate under the Planning Acts. In cases where the Board agrees that the proposed development is desirable from a planning viewpoint, it endeavours to ensure that the conditions which it attaches to permissions will facilitate development rather than hinder it.
In recent times, there has been an increase in the number of financial contribution conditions attached by planning authorities to planning permissions and a corresponding increase in the number of appeals relating to the same. The Board is concerned that a rational and reasonable basis should be adopted in the case of financial contributions and, to this end, has issued a letter to all planning authorities seeking details of the scales of contributions which they apply for the various services and the basis for such application. When all the replies have been received, the Board plans to assess the overall situation with a view to standardising its own approach to the issue of contributions and to preparing a document which will be submitted to the Minister for his information (in furtherance of the Board’s policy and advisory role as provided for in the 1983 Planning Act).”
Availability of Building Land
3.55 Zoning, servicing and granting of planning permission are necessary for the supply of building land. They are not sufficient conditions, however, since the land in question must also become available on the market. Although local authorities from time to time use compulsory purchase to acquire land, much of their land is acquired by agreement; virtually all land used for private building is acquired on the market. Actual availability of building land is, therefore, left to market forces and there are a number of difficulties in this area.
3.56 In the first place, publicly serviced land may not come on the market at all because the original landowner is unwilling to sell. This is more often a problem in county towns and smaller centres where the landowner may simply wish to remain in farming. It does not appear to be a central problem in the Dublin area (and by assumption in other major urban centres) since much of the serviced land has been brought to the full planning permission stage.
3.57 However, after land has been acquired by the industry (property developers or builders) it may not be developed for some time and may not be available for building. This may happen for a number of reasons, including:-
•Changes in the housing (or other end product) markets contrary to builders’ and developers’ expectations. As a result the costs incurred in land acquisition and development may be out of line with those appropriate to the market for buildings. In effect, builders or developers may pay too much for land and find themselves unable to develop and dispose of it without incurring loss.
•Advance acquisition or retention for land banks. The extent to which this influences the market varies but it appears to be less important now than it was previously.
•Speculation and holding of land for asset purposes. These are grouped together because their effect is similar although their motivations differ. They are more closely related to price behaviour than to land supply and discussion on them is deferred to the next chapter.
3.58 The relative importance of these influences varies with market circumstances. The first mentioned, however, appears to be significant in the supply situation at present.
Section 3.3 Conclusions to Chapter 3
3.59 The main points established in this chapter are:-
•Rapid growth in construction output in the 1970s gave rise to high demand for building land. There were a number of periods of intense pressure on available supply and there were important shifts in demand between publicly and privately serviced land and urban land.
•It appears that 1985 may see the end of the substantial decline in construction since 1981. Modest growth is predicted for the remainder of this decade.
•Substantial progress has been made in servicing land notably in the provision of water and sewerage. Investment in related road networks has not made similar progress.
•There is now a reasonably adequate supply of publicly serviced land to meet needs arising for a number of years.
•There are a number of problems which arise between provision of services and the availability of land for development. These result from the actions of local authorities, the building industry and, in some cases, the original landowner.
3.60 Full assessment of these conclusions and the issues they raise cannot be considered in isolation from price and cost trends, the subject of the next chapter. All of Part 2 of the Report concentrates on description; evaluation, main conclusions and recommendations are in Part 3.
Prices and Costs
4.1 The price paid for an undeveloped parcel is only one part of the full cost of building land. The price or cost of a developed site also includes the cost of site works, transaction and holding costs, contributions and levies to local authorities and other costs arising from conditions attaching to planning permissions.
4.2 Under the Committee’s orders of reference it was necessary to separate land costs and building costs. The Report’s definition of land costs will include all of the items listed above with the exception of site works.
4.3 The information available to the Committee on land prices and costs is presented in Appendices 4 to 6. Main features and developments are discussed below. In considering these, the varying quality of the information, as discussed in the Appendices, should be taken into account.
Section 4.1 The trend of Building Land Prices and their Present Level
4.4 Price behaviour is a key indicator of how a market is performing. Unfortunately information on price trends is available only for Dublin. Some information on price levels is available for many other areas. Most of the data refer to housing land. The Committee is unable to say whether the Dublin experience is typical of the country as a whole but notes that its demographic experience in the period discussed was not markedly different from national trends.
4.5 The complexity of the land market is made clear by the wide range of prices paid per acre for building land (see Appendices 4 to 6). Any reference to a “typical” price must be treated with caution.
The Trend of Building Land Prices in the Dublin Area
4.6 Taking a start point at about 1970, prices increased rapidly up to 1973. This was followed by a downturn in the years 1974 and 1975. Prices again increased rapidly from 1976 to 1978 followed by less rapid growth to 1980. They fluctuated quite a lot in the early eighties but by 1983 had fallen back below the 1980 level. The “typical” price of an undeveloped house site* in Dublin rose from £800 in 1971 to £3,500 in 1983, an increase of 340 per cent. In certain subperiods, within the total time span, prices increased by much more. Between 1971 and 1983, the average price of a new house rose from £6,000 to £38,000, an increase of 530 per cent; in the same period the consumer price index recorded an increase of 420 per cent. Apart from these overall trends the data in Appendix 5 also shows that there were widely differing rates of increase for building land in different locations.
4.7 From the data available, three main features of land price behaviour can be identified;
•long run upward trend,
•major fluctuations within the trend,
•differing rates of increase for different types of land.
4.8 With regard to the long run upward trend, the dominant cause has been the pressures of general economic growth and expansion, demographic change and urbanisation. In Chapter 3, the Committee reviewed construction activity and the rapid rates of growth in land prices that occured in the periods of rapid increase in building output. The Kenny Report, it may be noted, also concluded that demand pressures were the main reasons for increases in land prices.
4.9 It is not intended to suggest, however, that demand pressures are the sole (rather than dominant) factor since the relationship between demand and available supply is obviously important. However, even in circumstances of well ordered supply of building land it would have been extremely difficult to foresee the scale of output growth which occurred in the early seventies and even more so in the later years of the decade. Also, in the later seventies, there was a high demand for privately serviced land for private single houses and the usual supply problems of providing main services do not arise in this case.
4.10 The fluctuations within the trend are also related to construction activity but there appear to be additional influences which become active in, and exacerbate, periods of upturn and which lie dormant or withdraw in periods of downturn. Increases in building land prices occur in periods of more rapid economic (and construction) growth. This creates expectations amongst builders and developers about the level of future final demand and they engage in advance acquisition of land, bringing forward and increasing the pressure of demand. The more rapid increase in land prices gives it an investment appeal to landowners, speculators and non-building interests. All of these demand pressures may be exacerbated by short term inflexibility in supply, and by development pressures moving in unanticipated directions. The result is a severe distortion in the price of land relative to its development potential which appears to have happened in 1972/73 and 1978/79.
4.11 Experience has shown that price distortions do not persist but may take a number of years to peter out; in the meantime, they may adversely affect the availability of land. Towards the end of an upswing, builders, developers and others purchase land at prices which are unsustainable in relation to end user demand for buildings, i.e. a housebuilder who had paid such prices would be unable to produce competitively priced houses; house purchasers would buy from an alternative producer or in the secondhand market. Firms that have paid excessive prices (to which holding costs must be added over time) try to avoid downward revaluation because of the threat to the viability of the firm. Consequently, the market availability of building land at prices appropriate to its development potential is very restricted for a time.
4.12 Finally, the third feature noted in paragraph 4.7 differing rates of increase in land prices are most likely due to a combination of the fact that certain areas experience more rapid growth, the availability of serviced land in the area, locational preference and to increasing scarcity of undeveloped land in an area as development proceeds.
4.13 The demand for houses or other buildings is also a demand for location and the price paid for land reflects the value of its location to the final user. Price levels tend to be highest at or near the urban centres and decline with distance from the centre, though there are many exceptions depending on the characteristics of individual locations. Both of these features have been demonstrated in relation to new house prices in Dublin9 where the prices of otherwise similar houses may differ by up to 60 per cent due to distance from the City centre and to neighbourhood characteristics. These and other features of the relationship between land and house prices are examined in Appendix 6.
The Present Level of Building Land Prices
4.14 The price trends discussed in paragraphs 4.6, et sequi, are based on transactions in parcels of undeveloped land zoned for estate housing and in 1983 the typical price paid per undeveloped house site was £3,500. An unusual feature of data obtained for 1984 (Dublin area) was the virtual absence of transactions in parcels of undeveloped land. Almost all the transactions were in blocks of developed or partially developed house sites for small scale estate housbuilding. In Dublin then, in 1984, the prices for developed house sites ranged from £5,000 to £20,000 with a typical price of around £8,000.
4.15 Information on the price of housing land in some other urban areas, county and smaller towns was also obtained for 1984. It refers to a number of different types including fully serviced land for private development, sites for private single houses, local authority sales of undeveloped sites to builders and private individuals and local authority sales of subsidised sites to housing co-operatives and individuals. Again, there is a high degree of variation in prices depending on services, distance, nature of access, frontage, scenic characteristics and many other factors. The information is discussed in Appendix 4, main features are:-
•The prices per developed site for private estate housing are generally in the range £8,000 to £10,000.
•Fully serviced sites for private single houses range from £5,000 to £20,000. Most, possibly, lie between £8,000 and £10,000.
•Unserviced or partially serviced sites for private single houses range from £3,000 to £20,000. Most are probably sold at prices between £5,000 and £8,000.
•Fully or partially serviced sites provided by local authorities for private housing range from £3,000 to £8,000. Some of these are subsidised.
4.16 In comparing these prices a number of points should be noted. Outside of main urban centres the typical site size for private estate housing is about one-eight of an acre. In Dublin and other larger urban areas the site would be smaller due to more allowance for open space. There are some indications in the replies that estate housing in county and smaller towns may concentrate on more upmarket development. In contrast, the typical price quoted for Dublin now would be weighted towards middle and lower market housing. Finally, private single house sites vary greatly in size though most are probably in the range one quarter to one third of an acre.
The Price of Non-Housing Land
4.17 Little information is available on the price of non-housing land. The IDA said that in 1981 the average price paid by them for both serviced and unserviced land throughout the country (a total of 1,500 acres) was £9,600 per acre. In 1977 an average price of £3,800 per acre for a total of 1,000 acres was paid. They emphasise that no trend can be derived from these figures since the average in any year is influenced by the mix of purchases (whether serviced or unserviced and location). To illustrate; the average price paid by them in the East region in 1981 was £15,400 compared with £30,000 in 1977.
Section 4.2 Other Elements of Building Land Costs
4.18 Local authorities each year spend substantial sums providing services for building land. In 1984, total expenditure on water and sewerage was £96.4m and in excess of £50m* was spent on county and urban roads. All of this expenditure is not for providing newly serviced land; it includes upgrading existing services, meeting increased demand from existing users and replacing older stock. A breakdown of the totals to show expenditure on new servicing is not available.
Development Levies and Contributions
4.19 Section 26(2) of the Local Government (Planning and Development) Act, 1963, authorises the imposition of planning conditions requiring contributions towards local authority expenditure on works which have facilitated or will facilitate proposed development. The sub section appears to envisage a direct connection between the works and the development. The Act does not expressly authorise a general levy towards expenditure on all local services and leaves it to each planning authority to decide whether to attach contribution conditions and, if they do so, to determine what services should be charged for, to what extent charges should seek to recover costs and what to do with receipts.
4.20 Many authorities have taken the view that there is an implied general power in Section 26 of the 1983 Act to operate standard systems of levies in relation to the cost of all or a range of services provided, or to be provided, and have introduced schemes of standard levies applicable throughout their entire areas, or in specified parts of the area.
4.21 The method of assessing development levies varies widely as do the rates of levy and the uses to which receipts are put. Standard charges of up to £6,000 per acre are levied by some authorities while levies of between £250 and £500 are commonly charged for a single house where public water and sewerage services are available. In general, the standard levy system is justified by planning authorities primarily by reference to the cost of providing water and sewerage, and single houses without these services are not usually liable to any levy. Almost half of the planning authorities substantially increased their rates of levy in 1981; Dublin County went from £1,500 to £4,000 per acre and is currently £6,000. Dublin County have stated that the standard levy relates to the provision of main services only. The construction of additional branch services (to connect peripheral areas to main services) has to be undertaken by the developers or financed by the developers by way of additional contributions to the Council which would do the work on an agency basis.
4.22 Most planning authorities also make use of the powers to attach contribution conditions in relation to expenditure on specific works. These may include amounts for car-parking spaces, road improvements, major open space, road openings and branch water main and sewer connections. The level of contribution in these cases varies with the circumstances of the planning permission, the area in which development occurs and with the attitude of the planning authority.
4.23 It is difficult to assess the costs involved since planning permissions may also contain requirements for development works to be done at the builders’ expense, installation of services of sufficient capacity to cater for other developments and transfers in kind (rather than money) to local authorities (e.g. ceding of land for open space or road widening or other purposes).
4.24 In February 1982, the Department of the Environment asked planning authorities for information on development levies. It was estimated that the yield for 1981 was about £4.6m but this may be under-stated because in some instances planning authorities waive the levies where a developer cedes land for road widening or other purposes. The Committee is informed that it does not appear that the recent increases in standard levies will have any significant impact on 1982 receipts. In fact, the returns suggested that receipts in 1982 would amount to only £4.2m because of the downturn in activity in the building industry. The increased rates of levy and the introduction of levies for the first time by other authorities will take time to work their way through the system; when they do so receipts should increase substantially, perhaps by up to 100 per cent.
Other Conditions Attaching to Planning Permissions
4.25 Apart from standard levies and specific contributions, other conditions attaching to planning permissions also affect final building land costs. These include permitted density of development, estate layout and design standards, permitted mix of use in developments and other factors such as insurance bond requirements in case of failure to perform.
4.26 In general, these are matters of planning policy and whilst the Committee is aware that many are contentious issues of current debate they do not come within the Committee’s orders of reference.
4.27 It is appropriate, however, to comment on density because of the frequently argued case for increased densities to reduce land costs. The Committee has noted above that there are a number of elements in the cost of building land principally the initial cost (or price) of “raw” land, servicing costs and site development costs. The effect of a general change in permitted densities on the second and third of these elements can be assessed on technical/cost considerations and higher densities would usually be expected to reduce development costs per site.
4.28 This would not be the case with raw land prices. These are market determined and existing densities are reflected in the market price. A purchaser will pay a price for building land which reflects anticipated density (amongst other things). If densities are increased then other things being equal the purchaser is likely to pay a higher price. The effect of a change in density, therefore, will be quite different in terms of cost per site to a builder who already owns land and, in terms of market price, to a builder who wants to purchase land.
4.29 Time costs are an important part of the development process. They include holding charges on land from initial acquisition to completion of works and buildings. Submissions to the Committee referred to problems with obtaining planning permission, site assembly and compulsory purchase orders.
4.30 Issues related to obtaining planning permission and the complexity of the planning process were raised in a number of submissions. The strongest view asserted that “the time involved in obtaining planning permission at local authority and Bord Pleánála level has become the most significant factor in the scarcity value of land”.
4.31 The time factor, whether for planning permissions or compulsory purchase orders, is bound up with the operation of the planning and development control system which is discussed in Part 3.
Section 4.3 The All-In Cost of Building Land
4.32 The preceding discussion illustrates the large number of variables which influence the all-in cost of building land to developed site stage. The more straightforward is a privately serviced single house site where costs are made up of the price paid for the site and site development (including septic tank and water). The more complex cases arise in estate development which may include levies, special contributions and holding costs as well as costs of site development and disposal (if a developer is involved).
4.33 In addition to the land price data discussed above, a number of the submissions made to the Committee included examples of the composition of building land costs to developed site stage. These examples provide a useful context for the issues discussed in this Chapter. They are reproduced and discussed in some detail in Appendix 6 (this appendix is also concerned with other issues dealt with in later Chapters of this report). The examples are illustrative and do not purport to represent a typical situation. They reflect plausible examples relevant to a range of development and market circumstances.
4.34 For the individual builder or developer it is clear that the profitability of their operations depends on how all of the items come together and the market situation they face. If raw land is purchased at a low price prior to an upturn in the market then large profits may be made; conversely a high price paid prior to a downturn will lead to substantial losses. The extent of profit or loss depends on the circumstances of each case.
4.35 It is important for the assessment of problem areas in Part 3 of this Report to give some idea of the relative orders of magnitude of the individual costs. Table 4.1 shows two examples of cost breakdown (broadly in line with Appendix 6) for a fully developed site with a market value of £10,000.
Examples of Items in Developed Site Costs*
4.36 Apart from showing the relative size of the various items in the cost of building land, Table 4.1 also illustrates a number of other points which are relevant to the Report’s conclusions and recommendations:-
•The price of the site is market determined, it is not within the control of the individual builder or developer (see Appendix 6 and Chapter 6).
•The builders/developers profit or loss is a residual but the outcome will depend on three sets of factors:
Decisions and expectations. Applies in particular to the price paid for raw land and the sector of the housing market aimed at.
Efficiency/method of operation. This will guide choice of site and site development costs and influence also fees, overheads and holding costs.
External factors which are largely outside the builders/developers control. Levies and contributions are a major item but it also includes holding costs to some extent and the general market situation.
Section 4.4 Conclusions to Chapter 4
4.37 The following are the main points established in this Chapter:-
•Raw land prices are subject to periods of rapid escalation and decline. The dominant influence is the demand for construction output relative to land availability but trends are exacerbated by “non-building” influences.
•Price levels at any time vary considerably from area to area and within individual areas, depending on local development pressures and the potential of individual sites.
•Local authorities incur heavy expenditure on providing services to building land which are only partially recovered in the development process.
•Apart from the basic price paid for undeveloped land, a number of other elements contribute significantly to the all-in cost of building land (to developed site stage).
•Local authority levies and contributions and other conditions attaching to planning permissions have become a major point of contention due to financial difficulties of local authorities and the market difficulties of builders and developers.
The Size and Distribution of Gains
5.1 Land increases in value when it acquires development potential. This results in increased wealth to the property owner. Many owners, though not all, sell the land to realise this wealth. There are alternatives to sale; if the owner is a private individual or firm, the land may be used as collateral for borrowings. If the land is owned by a building firm it may be built upon and the increase in value realised through profits from the sale of buildings. The owner may also be a public authority (e.g. local authority, IDA); these can benefit from increases in value through not having to purchase development land on the market at higher prices.
5.2 It is not necessary that land be developed for the owner to realise the increase in wealth. Although land may have development potential, the planning authorities may wish to see it reserved for amenity purposes or retained in existing use. If planning permission is refused, the landowner is normally entitled to compensation, from the local authority, related to the development potential of the land.
5.3 The increases in land values give rise to much debate partly because landowners (and intermediaries)* have made large “windfall gains” which are not the result of effort or costs incurred by them and in some cases result from the actions of the community in providing services.
5.4 There are major practical and some conceptual difficulties in estimating windfall gains. The practical difficulties are examined in Appendix 7 and have to do mostly with lack of good information. Whilst it may be easy to point to individual cases of large profits from dealings in land, some real, some apparent, these may be the exception rather than the rule. It is much more difficult to assess the overall situation. In Appendix 7, the information available to the Committee is discussed and the type of conclusions which may be drawn from it are reviewed below.
5.5 There is a separate problem of defining windfall gain. One approach is to take the difference between the market value of land with development potential and its market value in earlier use. This, however, is based solely on exchange value and does not take account of the distinction made earlier (paragraph 1.20) between exchange and use value. Apart from equity considerations, this distinction is important because it relates to the supply price of land.
5.6 Land will be brought to the market* when its exchange value exceeds its use value; the latter, therefore, sets the basic supply price as far as the landowner is concerned. There are cases where use value may exceed exchange value even for land with development potential. For example, a religious order may wish to retain undeveloped lands in the environs of its monastery to ensure privacy; to them the existing use value of the land is high. Similarly, a farmer who owns serviced land may have a family attachment to the land and wish to remain in farming. In both cases, the supply price of land may be much higher than its exchange value on the market, at least for a time. Eventually most land of this type is developed as its market value increases.
5.7 The point at issue here is that for some land transactions the price paid will reflect its supply price, for others the price paid will be substantially higher. In the former case there is no windfall gain to the owner since the amount received is just sufficient to compensate for value in use of the land. Windfall gain does arise in the latter case. If the price paid for land includes windfall gain to the landowner then taxation or other measures which seek to recover all or part for the community will not affect the supply or price of land on the market since the landowner would have been willing to sell at a lower price.
5.8 Given the generally high level of undeveloped building land prices in the seventies, relative to agricultural values, the Committee believes that transactions in publicly serviced land usually entailed substantial windfall gain to the landowner (who would normally dispose of the full holding). Single site transactions are more problematic since they often involve only a small portion of the full holding: it is likely that some at least would not be offered on the market at a lower price.
5.9 The Report returns later to further examination of these issues. The aim in this Chapter is to place the debate on windfall gain in some perspective by examining, as far as possible, the aggregate amounts involved, the main beneficiaries and returns to the State from existing taxation and other measures.
Section 5.1 Gains From Building Land
5.10 Any attempt at estimating the size and distribution of gains is necessarily crude and must be accepted as such. A number of problems are discussed in Appendix 7. The Committee believes that it is possible only to arrive at broad orders of magnitude which, however, provide useful insight into this contentious issue. The discussions concentrates on the financial gain accruing to private interests and makes allowance for value in use only to the extent of using double* the market value of agricultural land. Also the discussion refers to land used for building in 1983 not land transactions in that year, the total volume of which is unknown.
Section 5.1.1 Housing Land
Private Single Houses
5.11 The main difficulties are in establishing an average price per site, allowing for the number of houses built by original landowners or their kin for personal use and allowing for sites supplied by local authorities. On the basis of various assumptions the financial gain could range from £25m to £45m, (see Appendix 7 for the basis on which this and any other estimates in this chapter are made).
5.12 It is likely that the bulk of transactions do not incur any liability for tax because of personal exemption and relief applying to transactions under £15,000.
Private Estate Housing
5.13 There are even greater estimation problems here because of the presence of intermediaries and the complications of building costs. This creates the additional difficulty of dealing with developers’ profits (including builders) part of which can legitimately be treated as an input to land development and part as windfall gain. Estimation is also much more susceptible to market conditions; at times windfall gains to intermediaries may be high, at other times virtually non existent.
5.14 On various assumptions the range of financial gains in this case could be between £14m and £40m. Virtually all of this gain would incur liability for taxation since there would be few transactions in single or small numbers of sites. The financial gain (net of tax actually paid) accrues to builders, developers and original landowners depending on the time of purchase and type of transaction involved.
Local Authority Housing
5.15 According to information provided by the Department of the Environment, an average of 4 per cent of the all-in costs of local authority housing is attributable to undeveloped land costs. The Committee understands that this estimate was made some time ago and is not clear as to whether it has been updated. The estimate suggests a figure of the order of £5m accruing to original landowners. In most years since 1980 local authorities have spent between £3.5m and £4.5m on housing land (acquired by agreement). As with estate housing, most of this would be liable to taxation.
5.16 Clearly, most local authorities are using land purchased a good number of years ago and the bulk of the increase in land values is being captured by them and applied to their housing programmes. The number of sites held by local authorities for housing purposes fell from almost 80,000 in 1977 to about 59,000 at the end of 1984.
5.17 Apartments probably use about 50 acres of land per annum, at current output levels. It appears that land prices per unit are in the range of £5,000 to £10,000. This is usually urban land. On various assumptions windfall gain could be about £4m. to £5m.
Section 5.1.2 Industrial and Other Land
5.18 Information on this sector is weakest. With regard to industrial land, it appears that the bulk of usage comes via the IDA who operate in a manner similar to local authorities with public housing. The average price per acre paid by the IDA for all land in 1984 was £11,800* but the figure varies considerably from year to year. The average price includes both serviced and unserviced land and would probably include some development costs. Roughly speaking, the annual amount of windfall gain accruing in relation to industrial land may be between £7m and £15m.
5.19 Most of that sum would be liable to tax. Given that the final value per acre of developed industrial land is much higher, it seems that a substantial part of the increase in value of land used for industry accrues to the IDA for the furtherance of its industrial development policies.
5.20 There is no useful information available to assess the level of windfall gain in relation to other land (for commercial, etc. purposes).
Section 5.1.3 Overall Distribution of Gains
5.21 The difficulties of estimating windfall gain are evident. The estimates of financial gain made above (with a crude allowance for value in use) range, in rounded figures, from £50m to over £100m. Urban land used for commercial and industrial purposes is not included. It is clear, however, that the bulk of financial gain, possibly up to two thirds, accrues to original landowners (mostly farmers). This includes virtually all sales of sites for single houses and some proportion of the finance for transactions in industrial, local authority and estate housing land. Also the bulk of this gain (somewhat more than half) is unlikely to incur tax liability. Whether or not it can all be described as windfall gain is open to question.
5.22 The balance, which may be between £15m and £40m, accrues to the industry (developers and builders), outside property interests and speculators. All of this should be liable for tax (capital gains, corporation profits or income tax).
Section 5.2 Taxation and Other Returns to the State
5.23 The State shares in the windfall gains from building land in a number of ways. Through the advance acquisition by local authorities and industrial promotion agencies, it taps in directly to the increase in value though there is no indication as to the size of this type of benefit. It is clearly important, however, to the financial cost of such programmes.
Tax on the Disposals of Development Land
5.24 Information provided to the Committee from the Revenue Commissioners indicates that the capital gains tax payable in respect of development land during the calender year of 1983 is expected to amount to £5m. With regard to this estimate it was stated that certain profits which are derived from the sale of land are chargeable to income tax or corporation tax. Profits which are so chargeable are not, of course, chargeable to capital gains tax. The kind of land in question would be as follows:-
•land sold by a person carrying on the trade of building, or the trade of dealing in or developing property and which is trading stock of that person;
•land acquired with the sole or main object of realising a gain on disposal and
•land developed by a company with the sole or main object of realising a gain on disposal.
Sales or appropriations of development land which formed part of the land-banks of development companies would be within the corporation tax code (and outside the scope of capital gains tax).
5.25 The Committee is informed that no statistics are available as to the amount of income tax or corporation tax arising from such sales of development land. The net profits from the sales in question would be included in accounts of the vendors concerned and it would not be possible to quantify, with any degree of exactitude, the relevant tax in such cases. However, it has been suggested to the Committee that the amount of the relevant tax is well in excess of the amount of capital gains tax and may amount to as much as £15m for the year 1983.
5.26 This information is clearly inadequate for making any assessment of the effectiveness of taxation for recouping gains for dealings in land. The Revenue Commissioners were asked by the Committee if any more precise information could be extracted but it was stated that this was not possible. The Committee finds it unsatisfactory that the type of information necessary for assessing such an important policy area is not available.
Section 5.3 Compensation
5.27 From the information available, it appears that very little is paid out in compensation by local authorities when planning permission is refused. Up to March 1981, Dublin Corporation, for example, had paid only £135,000 in compensation to landowners since the introduction of the 1963 Planning Act. The total amount paid in compensation in the country as a whole, in 1982, was £22,000. No compensation was paid in 1983.
5.28 In general it appears that planning authorities seek to avoid refusals likely to incur compensation liability. Their problems with compensation are discussed later.
Section 5.4 Conclusions to Chapter 5
5.29 Taking into account the practical and conceptual problems discussed above, the main points to be noted are:-
•Windfall gain is the difference between the price at which land would have been supplied in existing use (excluding any investment expectations) and the price obtained after a change in the development potential of land. Windfall gain can be taxed or acquired by the State in some other manner without affecting the supply or price of land.
•Transactions in publicly serviced land over the past ten to fifteen years usually involved windfall gain to the landowner. Windfall gain probably arises in some, but not all, single site transactions in privately serviced land.
•Crude estimates of financial gain from transactions in building land range from £50m to over £100m. Whether this is all windfall gain is open to question.
•Up to two thirds of the financial gain probably accures to original landowners (usually in farming). More than half of this is unlikely to incur tax liability.
•The balance, which is liable for tax, * accrues to builders, developers, other property interests and speculators.
•Windfall gain also arises through compensation where planning permission is refused. Amounts paid in compensation are small.
•The State, through advance land acquisition by local authorities and industrial promotion agencies, itself shares in the increase in value of development land.
•Information on tax revenues from dealings in land is inadequate and does not provide a sound basis for assessing the effectiveness of tax measures.
AN ASSESSMENT OF PROBLEM AREAS
The Operation of the Land Market
6.1 To assess the operation of the land market, it is necessary to be clear about the role which the market is expected to play. It was stated earlier that a totally free market in land is undesirable. Land use involves wider social costs and benefits and long term implications; the market cannot adequately handle these and it must operate within parameters and constraints on land use which are laid down in the Local Authority Development Planning System. In this chapter the Committee considers how well the land market performs within the existing framework of Planning Acts, property rights and other influences on its operation. This draws together points made in Part 2 to establish the Report’s main conclusions.
6.2 Markets operate through a price mechanism and price behaviour is, therefore, a prime indicator of how well a market is performing. It is of particular interest to establish how prices are determined and whether they adjust smoothly. The following points are important in assessing the land market:-
•are those who influence price from the demand side final users so that through their influence, prices accurately reflect final value in use.
•are there restrictions of an artificial nature on supply (separate from adequate provision of services) which give undue market influence to individuals or groups.
•do prices adjust quickly and flexibly to ensure that development land is brought into use.
In brief, the central question is whether land values, as reflected in the price mechanism, accurately reflect development potential or whether they are subject to persistent distortion from other influences.
6.3 In line with earlier discussion, the Committee proceeds below by examining a number of submarkets in building land since it is clear that there are important differences between them.
Section 6.1 The Market in Sites for Private Single Houses
6.4 This to some extent is the most straightforward subsector of the land market. There are usually no intermediaries involved and the transaction takes place between the original land owner and the final end user, the household. The value of the site depends on its potential as a location for housing and on the pressure of demand in the area. In general, from Chapter 3, it appears that there is a fairly ready supply of sites available although local areas will vary depending on topographical conditions and the attitude of the planning authorities towards the granting of planning permission.
6.5 Three features of the private single housing and land markets are worthy of note:-
•the “typical” price of an undeveloped house site in this market sector is probably higher than the price in urban centres. (Sites are larger and the price paid, if expressed in per acre terms, is likely to be considerable lower; this is a separate issue.)
•private single houses typically have better accommodation standards than private estate houses. In 1983 average floor areas were 125 and 97 square metres respectively. They also have more bedrooms and in some instances use better quality materials.
•There is some evidence that building costs outside main urban areas, and particularly for single houses, are much lower than costs in urban areas. (In some cases, own labour is used for building private single houses.)
6.6 No information is available on the income level of occupants of private single houses. Given that they are the predominant house type other than in larger urban areas, it is unlikely that incomes are higher than the average for other private households. If this is so then the three points noted above may be taken as an illustration of features of land and house price determination discussed in Appendix 6. Those households which are in a position to do so in general choose the maximum standards and mix of accommodation, location, etc. affordable by their income and in line with their own housing priorities. New private single households are in a position to do better than those in larger urban centres and their choices are reflected in single site prices and housing standards.
6.7 A further illustration of price determination was given in the replies to the questionnaire circulated by the Department of the Environment. A number said that availability of secondhand houses at competitive prices was diverting the demand from private single sites and site prices had declined in consequence.
6.8 The Committee concludes, therefore, that the price paid for private single house sites reflects the value of the site to the final user and is generally a good indicator of land values. This subsector of the building land market operates well.
6.9 Because of competition between prospective purchasers, the price paid for sites may be substantially in excess of the supply price, i.e. the price which would have to be paid to induce the landowner to sell. Therefore, windfall gains accrue to some landowners, particularly those in prime locations. The existence of windfall gains does not necessarily indicate that land prices are in any way distorted or that there is a case for price control on single site transactions (which would simply transfer the value from the farmer to the houseowner). Much the same type of situation can occur in the secondhand housing market from time to time.
6.10 The Committee emphasises that its conclusions on the market for privately serviced housing land are not to be taken as representing a point of view on the desirability or otherwise of private single houses. That is a matter of planning policy which is outside the Committee’s orders of reference.
Section 6.2 The Market in Publicly Serviced Housing Land
6.11 This is a much more complex market sector. Building activity is undertaken by the speculative estate housebuilder who is trying to anticipate the final demand from households. There are also other intermediaries involved in the market such as property companies who may be land developers or may be solely engaged in speculative land transactions. In addition, the local authorities are directly involved through development plans and in providing main services.
6.12 Unlike the private single sector where building activity and land ownership are widely dispersed, most estate housing take place in the environs of larger urban centres. The Committee notes the possibility that individual or small numbers of firms might acquire undue market influence. In the submissions to the Committee and other material, there is no evidence that land supply or prices have been subject to control in this way; indeed, such information as is available suggests the contrary. Nevertheless, the Committee considers it important to have definitive information in this area; this is not available at present.
6.13 Taken overall, the Committee concludes that there are a number of significant imperfections in the market for publicly serviced land which have to do with its relationship with the planning system, land availability and price distortions. Apart from these, this market subsector operates reasonably well.
6.14 This conclusion is based on the discussion in Part 2 and on the assessment in Appendix 6 of the relationship between land and house prices. In general prices for publicly serviced housing land have reflected demand pressure and over the medium term have reflected the development potential of the land. The period under review was characterised by rapid growth in housing output and it would be surprising if strains and inadequacies in the market were not evident under such heavy pressure. Over the period reviewed in this Report, new house prices have not been made up solely of input costs. * All of the submissions and other evidence to the Committee agree that there has been a relatively high residual value to development land which accrues as windfall gain to the original landowner or to intermediaries. The level of this residual value has been due primarily to the high level of housing demand.
6.15 The underlying supply situation, in terms of land provided with main services, is good but there are problems in some areas with the financing of road networks and with the way in which part of main servicing provision is being shifted to the industry. Both problems have to do with resources available to local authorities. This is discussed in Chapter 7. The other main problems with the publicly serviced building land market are discussed below.
6.16 The availability of land for development after it has been serviced is important for efficient resource use and orderly development. There are problems here both before and after the land has been acquired by the industry.
6.17 The earlier problems arise where the original landowner is unwilling to sell. This problem has been referred to in a number of the replies from planning authorities. In this case, the desire on the part of the landowner may simply be to remain in farming, there need be no speculative or expectations motive attached. In effect, the value in use of the land to the individual concerned is higher than the going price for development land. The result is that land which is zoned and serviced is not available for development with adverse consequences from the community’s point of view for the pattern of urban development and for land and resource use (expenditure incurred on provision of services). For example, one authority said that “since the Council is aware of land unlikely to be released for development, it has been forced to zone for residential development amounts of land far in excess of those anticipated as being required within the plan period”. Another said that a “greater number of private dwellings had been erected outside the urban boundary” than would have occurred had the land been available.
6.18 This means that the market price mechanism cannot ensure, in some cases, that land becomes available in an orderly fashion. There are a number of suggested approaches to dealing with this problem which include:-
•introduction of holding costs on undeveloped land
6.19 The introduction of holding costs is based on the idea of encouraging the release of serviced land by imposition of a tax or charge either when land is zoned or provided with services. The Committee does not favour this approach in the case of publicly serviced land. Firstly, the problem is particular to individual plots of land rather than of a general nature. Introduction of a general “services tax” in addition to existing development levies and contributions would be undesirable whilst an individually applied tax is likely to be unconstitutional because of its discriminatory nature. Secondly, the basic problem arises because the existing use value of the land, to the landowner, exceeds its market value. To be effective in encouraging the release of land a “services tax” would also have to be variable to meet the circumstances of each case (i.e. the difference between use and exchange values); this would be impractical.
6.20 One of the arguments suggested for a Land Authority is that it could act to ensure availability of land. (There are a number of stronger arguments for a land authority which are discussed later. (See paragraphs 7.58 to 7.62 inclusive and 7.66). The basis of a land authority’s operation is that it can acquire and dispose of land by agreement at a price related to its development potential. The problem in this case, however, appears to be that the land is not available at a ‘marketable’ price; it does not seem, therefore, that a land authority would have an effective role. It is possible that some of these parcels might be available in a single transaction but that small local builders are not geared for complete purchase. If this were the case some form of public purchasing policy for release in smaller lots at market prices would be appropriate.
6.21 The Committee concludes, therefore, that Compulsory Purchase is the most effective method of dealing with problems of land availability of this type. This presupposes an effective CPO procedure which is considered in detail in Chapter 7.
6.22 The later problems of land availability in this sector of the land market arise after it has been acquired by the industry. Speculative housebuilders and developers acquire land and pay the difference between the expected selling price of the houses (or developed sites) in the market sector aimed at, and all of the costs likely to be incurred in bringing completed houses to the market with allowance for risk and profit.
6.23 If the builder/developer is wrong in either of these areas then this land will not be available for building, even though it has planning permission, unless they decide to sell the land at a loss or go bankrupt. In a situation of reasonably stable housing demand and predictable costs, few problems would arise. Unfortunately both of these are almost typically absent in the housing market. Over the past ten to fifteen years, the level and mix of new housing demand has varied markedly; more recently the increases in development levies and other costs associated with planning permission have changed the expected cost structure and made it more unpredictable.
6.24 Individual builders, therefore, operate in a situation of considerable uncertainty both in relation to the market and the operation of the planning and development control system. At present these problems seem to be particularly severe. Some have paid too high a price for building land and others are holding back from building until there is an improvement in the market sector aimed at.
6.25 Much the same would apply to other intermediaries in the land market. The end result is problems with the availability of serviced land, even though sufficient land in aggregate has been serviced, and failure of land prices to adjust smoothly. The price mechanism indeed may be extremely inflexible. The supply of moderately priced new houses appropriate to potential demand is likely to be restricted.
6.26 The individual speculative housebuilder is the key to the operation of the new private estate housing market and policy should be geared towards ensuring that they operate most effectively. The problems addressed above arise under three main headings:-
•Market Behaviour (in the housing market)
•The Builder’s and the Industry’s expectations
•The influence of the Planning System
which are amenable in varying degrees to public policy initiatives.
6.27 Market Behaviour. The problem with the market is volatility. Whilst recommendations in relation to the housing market are outside the Committee’s orders of reference, it is probable that the scope for control of the market is quite limited. Indeed, there is a tendency to exaggerate the degree of policy influence on overall housing market behaviour which clearly in the seventies was dominated by other influences. The total housing market includes transactions in new and secondhand houses. New housebuilding is not an independent activity; it is a process of adjustment in the balance between the existing stock and total housing requirements.
6.28 Builders’ Expectations. The basis on which builders’ expectations are formed (in relation to the market) is extremely weak. There is almost total absence of market research and a lack of medium term assessment to fill the gap between longer term estimates of housing requirements (determined by demographic and income trends) and the very short term approach of the Review and Outlook 10 prepared by the Department of the Environment. The medium term (2—4 years) is by far the more important guide for builders’ decisions. In their approach to housing, the Industry and the State have not made sufficient distinction between need, the prime policy interest of the State, and demand, the dominant influence on the market. Confusion of these separate areas has resulted in lack of attention to market assessment. Both parties should put much greater effort into improving information to guide the decisions of individual builders. Whilst there should be no illusions about the difficulties of doing so, the weakness of present efforts leaves great scope for improvement.
6.29 The Influence of Planning and Development Control. The planning system has exacerbated present difficulties through increasing uncertainty about the content of planning permissions, sudden changes in levies and the impact of both on development costs. The Committee agrees with the principle of development levies and with the general role they are expected to play but would be very critical about the manner of their revision and extension which appears to have been undertaken with no reference to other aspects of the land market or estate housing situation. These and other points are developed further in Chapter 7.
6.30 On a number of occasions, building land prices have been seriously distorted, i.e. prices did not reflect the development potential of the land. (Similar problems occurred in the agricultural land market in the seventies.) These distortions are partly due to the market itself and can only be counteracted, to a degree, by improved market information. It is unlikely that these imperfections could be fully eliminated because of the highly competitive nature of the market and the sizeable changes which can occur in the land demand for construction.
6.31 However, in times of price inflation non-building interests bercome involved for commercial or speculative reasons, and exacerbate price distortions. A number of approaches could be considered for dealing with this problem:-
•Legislative measures, to restrict transactions in development land to legitimate building interests.
•Fiscal measures, to make land dealings unattractive to non-building interests. This could involve introduction of a higher rate of taxation for specified transactions in development land, e.g. where no substantial development works were carried out prior to resale.
6.32 There would clearly be major practical difficulties in either approach. The Committee does not propose to engage in detailed examination of these options and their implications (such as who should exercise any legislative powers considered). This would be a major undertaking and in the short term a recurrence of price distortions of this type is unlikely. The Committee believes that such an examination should be initiated by the Minister for the Environment with a view towards introducing measures to reduce or eliminate price distortions from this source.
Section 6.3 The Market for Urban Land
6.33 The market for urban land, other than for some undeveloped infill sites such as are used for apartments, appears to pose a separate set of problems. Land in this case becomes available through redevelopment but very long time periods may arise in site assembly due to problems such as the risk of defective title and the need to acquire a large number of properties.
6.34 There appear to be other problems also. Land with the highest market value is usually to be found in the urban centre but this does not mean that all urban land necessarily has high valued development potential. Some property owners may have unrealistic expectations as to the value of their properties. For this, and a number of other reasons, urban land may not be brought into its appropriate development use. If property is on the market for an excessively long time, there is prima facie evidence that it is overpriced. The NESC Report11 on urbanisation has referred to this problem and it is worth quoting from the report at length.
“Given a free market and the continuing outflow of population and industry, a decline in land values would be expected in areas of low demand within the inner city unless offset by its changing economic structure and the influx of other growth industries. These changes have occurred with the increase in white-collar employment and the concentration of office development in the inner area but this concentration is largely confined to ‘prestige’ areas. The 1974 Corporation Land Use Survey suggests that two thirds of the increase in office floor space between 1966 and 1974 occured in the inner city South while North of the Liffey, the inner city contained less than 29 per cent of total office space. At the same time, the existence for prolonged periods of a large number of unused or underused vacant or derelict sites suggests that demand is low in relation to supply or that price is an inefficient index of the relationship between supply and demand. In turn, it may be said that land in parts of the inner city is seriously overpriced in relation to any foreseeable demand.
“It has been suggested that the differential in price between inner and peripheral areas and the long term sterilisation of vacant and derelict land in the UK is largely the outcome of land valuation practice which lays heavy emphasis on the existing use rights (including development rights for which planning permission exists) rather than on the realities of existing prospects and costs of developing it. The problem of high land values in areas of low demand is in part attributable to the fact that land retains a presumptive right to its previous use or that there is an expectation that planning permission will be forthcoming for a higher use. There is also the possibility that, where there are few sales, the method of comparable sales leads to an imposed bias. In a period of economic growth, because of the proximity of high and low demand areas in the inner city, prospects of spillovers enhance expectations. Low holding costs and anticipation of planning permission provide the incentive to hold land in anticipation of large capital gains. Local authority actions contribute to high values in that the absence of a development or sales policy for derelict sites acts to restrict supply and induce blight. Similarly, planning policies which favour comprehensive redevelopment may act to slow small scale investment and redevelopment.”
6.35 The Committee believes that the analysis by the NESC is well founded but would add to it a point made in submissions concerning the role of property as a credit base for industry and commerce in general, which the Committee feels is also a factor in the sterilisation of some urban land.
6.36 In the analysis of price behaviour in Chapter 4 and the discussion above on publicly serviced land, attention has been drawn to influences from outside the industry on the demand side which become active during periods of upswing and distort price on expectations of future asset value rather than end use. In general, this role of land, whether as credit base for industry or source of investment gains, has had undesirable effects on supply and price. The markets for urban land, in particular, and publicly serviced land to some degree are unduly affected by asset value to the point of contributing to market failure in the former case and short term price distortion in the latter.
6.37 The partial failure of the land market in urban areas is not the only reason for dereliction or underutilisation. Local Authorities, Government departments and semi-State bodies are large holders of urban land. Typically, these authorities do not perceive costs of holding land and add thereby to the inflexibility of the market. In the absence of detailed information on land holders, it is difficult to establish the relative importance of the different influences. However, the Committee understands that in Dublin, the bulk of vacant, underused and derelict sites are in the hands of public authorities.
6.38 The holding of land by public bodies and by the private sector for asset purposes (based on expectations of high valued use potential for the land which added together are ill-founded) and the other reasons discussed above, combine to restrict the supply and encourage overpricing of urban land. The cost of urban land is consequently too high in relation to the risks and high costs of redevelopment involving site assembly and in relation to the total potential for high valued end use. These factors are, therefore, major causes of urban decay.
6.39 In addition, reference must be made to the role of the planning and development control system itself as contributor to these problems. The more obvious cases arise in relation to comprehensive long term development proposals which are (and will remain) constrained by inadequate resources but in the interim create the problem of “planning blight”. It is arguable also that the approach to granting of planning permissions has tended to confirm expectations of continuing high valued use. On a number of occasions in the past, the volume of outstanding permissions granted for office development has been substantially in excess of likely demand for many years to come. However, it is understood that the provisions for “withering” of planning permissions in the 1976 and 1982 Acts* is changing this situation as the time periods become effective.
Section 6.4 The Market for Industrial Land and Land for Public Utilities
6.40 These two areas have been combined because similar problems have been referred to in each of them. Although the IDA appears to operate successfully for the bulk of industrial land, they have referred to problems in relation to price negotiation. Much the same problem has been raised in submissions by a number of other public agencies.
6.41 The precise nature of the problems involved is unclear and information is not available on land prices paid by these agencies (other than the IDA) as a basis for forming conclusions. In the case of the IDA, the average prices quoted do not appear to be out of line with prices generally.
6.42 In part, the problems referred to may result from the fact that there are individual large agencies involved, possibly constrained with respect to location, thus giving a degree of monopoly power to the seller. However, some submissions have referred to competition for land between State agencies which would make their activities part of the problem.
6.43 A variety of suggestions have been made including exemption from capital gains tax (or a lower rate) on sales to public bodies, provisions of sites at cost by local authorities and advance consultation with public bodies in development plan preparations.
6.44 In general, the Committee does not see a role for recommendations with regard to public agencies separate from the overall thrust of this report. In particular the Committee would not favour differential treatment in respect of capital gains tax.
Section 6.5 Conclusions and Recommendations on the Building Land Market
6.45 The market in building land is an important part of the overall system for ensuring the best use of land. The Committee’s approach to the market is to consider how well it fulfills this role. The Committee has adopted as the main benchmark for this assessment, the requirement that land prices should reflect the development potential of land (within the guidelines and constraints imposed by the planning system). The allocative role of the market is treated as a separate issue from the question of who benefits from increases in land values; except where the benefits cause distortions in price behaviour.
6.46 If a market is to have a role in guiding land use then it should do so effectively. The Committee has concluded that the market in privately serviced land works well. There are a number of imperfections in the market for publicly serviced land but overall it operates reasonably well. These subsectors together account for over 90 per cent of annual usage of building land. The Committee concluded that there is partial failure in the remaining sector; the market for urban land.
6.47 At present the planning system* looks after broad issues of land use and provision of main services. Land availability, transactions and development are by and large left to the market. There is no policy area specifically concerned with the operation of the land market, which is largely left to its own devices (though individual issues are addressed from time to time). This is undesirable because of the important role played by the market and the problems and imperfections which arise in its operation.
6.48 The Committee recommends development of a policy with the primary objective of ensuring the effective operation of the land market. This policy should incorporate the formulation and introduction of measures to guide, regulate and supplement market behaviour, taking account of the more detailed recommendations below and in Chapter 7. (A number of recommendations, e.g. development levies, which also have to do with guiding or regulating the market are considered in Chapter 7 because they overlap the planning and market systems.)
6.49 The Committee concluded above that the existing level of market research and information is extremely weak and that there is substantial room for improvement. To assist builders and developers and others in assessing activity the Committee recommends:-
•that larger local authorities be required to publish an annual Development Report. This report should include inter alia a review of:-
—the position on serviced building land
—land transactions and prices
—building intentions, as indicated in planning permissions
—the position on unexercised planning permissions.
•that details of all transactions in building land be notifiable to local authorities (this should be an obligation on those engaged in the transaction), to ensure that this information is available for the Development Report.
•that planning permissions include a proposed development timescale. This is intented to assist in the preparation of the Development Report, in particular to indicate the supply position of the industry. It is not intended as a matter which should influence the granting of permission.
6.50 In this context the Committee notes a recommendation of the Sectoral Consultative Committee on the Construction Industry12 that “an improved basis for forecasting construction output should be developed” which, if achieved, would also assist in guiding the land market.
6.51 A basic requirement for effective market operation is the absence of market power in the hands of a small number of firms or individuals. In addition, the Committee concluded that the asset attractions of land to non-building interests has had undesirable effects on supply and price. The Committee recommends:-
•that local authorities introduce procedures for identifying the ownership of development land (this would be assisted by the notification of transactions recommended above). This information should be monitored and if there is any evidence of undue market influence, appropriate countermeasures should be devised in the interests of the common good.
•that the Minister for the Environment initiate an examination of legislative and fiscal measures (paragraph 6.31) with a view to excluding or discouraging involvement by non-building interests in the land market.
6.52 In some cases, the land market cannot ensure availability of land, both publicly serviced and urban land, at prices related to its development potential. Fiscal or legislative approaches designed to guide or regulate the market are likely to be ineffective in dealing with these problems. It was concluded above that compulsory purchase is the appropriate mechanism for dealing with some problems of land availability. This has to be considered in the context of the planning system which is addressed in the next Chapter. The Committee would draw particular attention to the implications of price distortion or market failure. Market price is fundamental to the operation of both compulsory purchase and compensation procedures. If the land market or sub-markets are not operating effectively, then the basis on which these procedures stand is invalid.
6.53 There is a separate issue of urban land held by public authorities or agencies which may contribute to dereliction and decay. The Committee recommends:-
•that the Government initiate a review of urban land holdings by public authorities and agencies, to establish the scale of this problem and with a view towards ensuring release and development of land where appropriate.
The Local Authority Framework
7.1 The role of local authorities with regard to building land derives from the need to ensure that wider social costs and benefits and long term needs are taken into account in land use. In addition, since they provide main services for publicly serviced land, they must determine or anticipate where development will occur.
7.2 The overall framework through which the local authority responsibilities are discharged is the development planning and control system. This has three main functions:-
•Designating land use to get the best return for society from its limited land resource. This involves decisions on overall land use patterns and detailed considerations of density, layout and design of individual buildings including aesthetic considerations. These functions are discharged through zoning in development plans and through the granting or refusing of planning permissions. Decisions on individual applications for planning permissions are based on the development plan and on the planning authorities’ assessment of the proper planning and development of their area.
•Ensuring adequate supply of land for development. This function is mainly discharged through zoning, provision of services and granting of development permission which together enable a supply of building land to become available. Actual availability will normally depend on the land being placed on the market. In some cases, compulsory purchase is used to ensure availability, mainly for development by local authorities.
•Encouraging desired development. The designation of any parcel of land for use solely or primarily for particular purposes in a development plan and the provision of services do not in themselves ensure it will come on the market to permit such development to proceed. Section 77 of the 1963 Planning Act gives the local authorities power to “develop or secure the development of land”. The scope also exists in compulsory purchase and through policies in development plans favouring desired forms of development.
7.3 The Committee set out in Chapters 1 and 2 its main concerns under its orders of reference. The basic issues are the supply and cost of building land. Whilst these have to be considered in relation to the operation of the planning acts, it is clearly not the intention that the Committee should engage in full scale review of the planning system. The Committee also discussed a number of reasons why different approaches are necessary in considering “supply and cost” in the context of the market and of the planning system. Planning policy and its implementation is a wide and complex area. Some matters raised in submissions have much more to do with policy than with the supply and cost of building land.
7.4 The various issues arising in this Chapter are considered under the following headings:-
•Implementing development plans,
•The effects of the planning system on supply and cost,
•The interface between the roles of planning and the market.
Section 7.1 Implementing Development Plans
7.5 Local authorities have considerable difficulty in implementing development plans resulting in out of phase development, sprawl, encroachment of development into amenity areas and problems of transitional decay. Whether or not these problems are due to the overall framework within which local authorities operate, i.e. the Planning Acts, is outside the Committee’s orders of reference. It is noted, however, that some planning authorities appear to be able to operate reasonably smoothly whilst others experience severe problems. Differences in the development pressures being experienced are partly the reason and it may be that the problems which exist have less to do with the general framework within which planning operates than with issues particular to individual authorities. Difficulties may also be due to availability of personnel and appropriate skills.
7.6 The problems experienced by local authorities are, in part, directly connected with the supply and cost of building land. These problems fall under two main headings:-
•Costs of implementing plans, including compensation, land acquisition (by agreement or CPO) and provision of services. The implementation in full of development plans would require a significant increase in the financial resources available to local authorities or measures to reduce the costs incurred by them. If planning is to be effective, these problems, which are at the root of the uncertainty in the system, will have to be removed.
•Procedural or legislative problems in implementation, including the complexity and timescale of compulsory purchase, pressures for premature or excessive zoning of land and the right of connection by private landowners to public main services.
Section 7.1.1 The Cost Problems of Plan Implementation
7.7 The Kenny Report’s approach (which is examined in Appendix 8) to dealing with some of these problems was based on compulsory purchase and reduction in costs of land acquisition (i.e. acquisition at existing use value plus 25 per cent plus removal costs).
•Compulsory purchase. Any approach to dealing with planning problems must ensure that authorities have effective, speedy and efficient compulsory purchase powers. Reform and streamlining of the CPO procedures is therefore essential. This is further considered later in the Report.
•Cost of Acquisition. Apart from the Committee’s views on the scope and appropriateness of the Kenny proposals, the Committee is advised that they would be unconstitutional because they involve designating land which could be acquired by the local authority at less that its market value. The constitutional problems arise from the discriminatory nature and the departure from market value in the proposals.
7.8 On the basis of its overall analysis of building land problems, and the Committee’s observations in Appendix 8, the Committee does not favour implementation of the Kenny Report. Apart from the need for Constitutional amendment, its approach was too narrowly based (many issues connected with the supply and cost of land do not come within its scope) and its conclusions are, in some cases, at variance with its analysis. The Committee does not favour proceeding with the Local Government (Building Land) Bill, 1982, for similar reasons.
7.9 The Committee’s approach is based on the view that there are alternative ways of dealing with land problems which would be effective, more wide ranging than Kenny and constitutional. The main principles underlying this approach are:-
•There must be no discrimination in the sense of unequal treatment before the law. However, whilst public policy may not deprive property owners of their entitlements, it is under no obligation to confer entitlements (particularly where these frustrate policy objectives).
•The interpretation of the principle of market value as the basis of compensation/CPO must be modified in the interests of the common good (as distinct from the interests of local authorities).
•There is scope for local authorities to recover certain costs connected with provision of services. In addition, consideration can be given to ways in which the net cost of land to local authorities might be reduced.
Compensation, Equitable Treatment and Public Policy
7.10 Land in the environs of urban areas has value as building land because people are prepared to buy houses or other buildings provided on it and because it can be serviced. At present, any land with access to services can be deemed to have building potential irrespective of whether it is zoned for building, amenity or whatever. If the authorities wish to acquire land for amenity purposes or refuse planning permission, they have to pay a price or compensation related to the development potential of the land. The cost of doing so frustrates the authorities’ green belt and open space objectives.
7.11 The establishment of an equitable and efficient compensation system was one of the four main objectives which the 1963 Planning Act set out to achieve. However, claims for compensation are threatening the achievement of the zoning objectives in development plans. The magnitude of certain claims for compensation by landowners has coerced some authorities into granting permissions against their better judgement, or into some sort of compromise arrangements with developers. It is not possible to show the number of cases in which such pressure has been exerted. However, an indication of the size of the problem is the small amount of money actually paid out in compensation. Up to March 1981, for example, Dublin Corporation paid only £135,000 in compensation to landowners, since the introduction of the 1963 Act.
7.12 The State, through its subsidies to housing and industry, has a major weapon which could influence the location of building demand. If these subsidies were not made available for land zoned for amenity purposes (or agriculture) this land would no longer have development potential or development value. In the case of housing, for example, purchasers would not be prepared to buy, and builders would not risk, speculative estate development on such land. This would be a policy decision by the State, not an interference in property rights. This approach could have a major impact on the liability for compensation payment by local authorities. It would greatly strengthen the ability of planning authorities to achieve amenity, green belt and retention (in existing use) objectives.
7.13 The Committee concludes that there is scope within public policy for supporting the decisions of local authorities as to the proper planning and development of their areas. The rationale for this approach is to co-ordinate some aspects of different public policy areas, housing, industrial and land, so that they complement rather than counteract each other. The Committee sought and obtained Counsel’s Opinion on the legal implications of this approach as follows: “the entitlement to a subsidy or grant is an entitlement which arises purely as a result of Statute. It cannot be said that one of the incidents of the ownership of land, which would amount to a Constitutional entitlement, would be a Statutory right to the payment of a subsidy. This would be to raise the status of a Statutory right to that of a Constitutional entitlement. This could only arise if the Statutory right was a mere articulation by Statute of a Constitutional entitlement, or the State carrying out an obligation imposed upon it under the Constitution. The provision of a subsidy or a grant could not be regarded as being one or other of those matters. A limitation on a Statutory entitlement to the payment of a subsidy could not amount to an interference with a Constitutional right since there does not appear to be any Constitutional right to a Statutory entitlement of this type ...... There is no obligation on the State to confer entitlements to particular grants or subsidies but it may, in regulating the economy, legitimately decide to do so. It may equally legitimately decide not to do so.”
The Market Value Principle in Compensation and Compulsory Purchase
7.14 The amount of compensation due to the landowner, where planning permission is refused (on compensatory grounds) or where land is compulsorily acquired, is assessed on 16 rules. These, and their general background, are set out in Appendix 9. Whilst the principal statutory authority for the compulsory acquisition of land is to be found in the Housing Acts, the modern statutory basis of compensation is to be found in the Acquisition of Land (Assessment of Compensation) Act, 1919, and the Local Government (Planning and Development) Act, 1963. Rules 1 to 6 in Appendix 9 date from 1919 and Rules 7 to 16 from 1963. There are some additional requirements which arise from the 1966 Housing Act.
7.15 The rationale underlying the Statutory provisions is that the owner of the land which is compulsorily acquired should get precisely what it was worth to him or her in money terms immediately before the acquisition. The same is true in cases of compensation where planning permission is refused (provided an entitlement to compensation exists).
7.16 Rule 2 of the rules prescribed by the Act of 1919 is the cardinal one. It is as follows:-
“The value of the land shall, subject as is hereinafter provided, be taken to be the amount which the land as sold in the open market by a willing seller might be expected to realise: provided always that the arbitrator shall be entitled to consider all returns and assessments of capital value for taxation made or acquiesced in by the claimant.”
In the absence of agreement between the acquiring authority and the landowner the measure of compensation is fixed by an arbitrator. Normally, evidence is adduced before the arbitrator of prices paid for comparable property in the neighbourhood of the land which is sought to be acquired. In addition, expert opinion is adduced based on such comparable sales as to the market value of the property.
7.17 The additional rules inserted after the six in the 1919 Act, for the most part set out matters which are either to be regarded or disregarded in assessing compensation. Whilst these rules affect the amount of compensation they do not disturb the market value principle in Rule 2. The market value principle, therefore, has not been the subject of consideration by public policy as regards its applicability to a modern economy. This is distinct from its interpretation in law; developments in the latter area are dealt with in Appendix 9.
7.18 It would seem reasonable to take the view that the market value principle applies not because of some absolute right of private property but because it is considered to be reasonable and equitable. If so, it must be based on the presumption that markets operate effectively to the benefit of the community. An effective market in development land, as discussed in this Report, is one in which the price reflects the value of land for building purposes and guides land use accordingly. Given the analysis in earlier chapters, the Committee believes that the market value principle is open to substantial criticism in cases of market failure or price distortion (irrespective of how distortions arise.)
7.19 Firstly, in cases of market failure or price distortion, there is either no basis for assessing market value or the basis is unacceptable because of its implications for the effective operation of the land market. It should not be a feature of an equitable compensation system that it can contribute to distortion of land values.
7.20 Secondly, in the case of market failure (notably with urban land where there may be substantial amounts of derelict or vacant land and land held on ill-founded expectations of its development potential), there is an inconsistency between the market value which may be attributed to an individual parcel of land taken on its own and the aggregate valuation of all parcels taken together. Any individual parcel of urban land might be used for office development; all parcels together could not because there would be simply no demand for that quantity of office space. The present method of assessing compensation for refusal of permission or CPO does not take account of this inconsistency.
7.21 The Committee concludes that the application of an undefined market value principle as the basis for assessment of compensation, as set out in Rule 2, is unsatisfactory and contrary to the common good. The principle should be modified with a view to ensuring:-
•that valuation of land would reflect its development potential
—on the basis that development would be completed within a reasonable timescale
—taking account of the market demand for such development
—taking account of the potential supply of similar development from other sources (existing planning permissions or unutilised land).
•that any market prices used for comparability purposes in arriving at a valuation are discounted where there is evidence of distortion in the general trend of land prices. The objective is to eliminate the effect which ill-founded expectations on the part of the landowner, or any purchaser, might have on land prices.
7.22 The question arises as to whether modification of Rule 2 on the lines set out above would infringe constitutional entitlements. The Committee obtained Counsel’s Opinion on this question also; it is set out in full in Appendix 9. Counsel concluded that “the State can modify the application of the market value principle contained in Rule 2 in the interests of the common good and of what may be considered fair and reasonable on the grounds specified.”
7.23 The Committee considered if the arbitrators should be required to set out the reasoning behind their decisions. This is likely to be undesirable in that it could give rise to delay and litigation on matters of opinion. It may be desirable, however, to have the full award broken down into the main subheadings, in particular identifying the development value attributed and amounts for disturbance, severance, etc. where these arise.
7.24 The preceeding recommendations dealt with market failure and public bodies that own land. In addition it may be necessary to consider some sort of annual holding tax like site value rating in order that some of the problems with privately owned inner city land could be dealt with.
The Net Cost of Land to Local Authorities
7.25 If a local authority acquires land at present, there is a return to the State from the capital gains, corporation profits and income taxes. This return does not accrue to local authorities and the cost of land to them (from an accounting point of view) is whatever amount they have had to pay. If all revenues from land transactions were allocated to local authorities, their expenditures on land would be partly offset by such returns.
7.26 Since local authorities discharge major responsibilities in relation to land use, under the Planning Acts, it is desirable that they be encouraged to follow through on their land use decisions. A reduction in the net cost of land to them, by means of the above, would change the basis on which land purchase is viewed and assist authorities who have to make large purchases. It is not clear, however, what the overall impact would be on local authority finances. Since this would involve diversion of resources from the exchequer, it may be compensated for by a reduction in exchequer allocations to local authorities. In addition, apart from capital gains tax receipts, there are practical difficulties in identifying returns to corporation profits or income tax from land transactions. The general financing of local authorities is outside the Committee’s remit. The Committee believes however, that the option of using tax revenues from land transactions to promote development land policies should be examined in this context.
Levies and Contributions
7.27 Local authorities incur heavy costs in providing water, sewerage and roads services. Development levies and contributions are a method of charging for these services to recover costs incurred by the authorities. The Committee accepts the principle of development levies, but arising from earlier discussion (and the orders of reference), there are a number of important issues related to their implementation. These are:-
•impact on the cost of housing and other forms of development
•method of assessment and implementation
7.28 The impact on final costs can only be resolved by reference to specific market circumstances. There is no general answer to this question. New house prices are determined by supply and demand in the housing market as a whole not just by the costs (including normal profit) of building houses. If the all-in costs of housebuilding are lower than the general level of prices, builders will make larger profits. If prices are lower, builders will make a loss or cease building. (There is a direct comparison here with recent experience in the commercial office market where oversupply of space has resulted in prices below the costs of new building.)
7.29 As stated earlier, there has generally been a level of windfall gain in transactions in publicly serviced building land. There is also no evidence of monopoly type influence on land availability. Windfall gain, therefore, is a result of the general demand and supply situation, it has not caused prices in the building or land markets to be at the levels prevailing.
7.30 The final price of new houses, in the period considered, has usually included an element of windfall gain to land. Windfall gain is a residual, not a cost. Over the same period, some costs incurred in providing housing were not included in the final price, i.e. the full costs to local authorities of providing services. Therefore, although the potential for windfall gain has been due to overall demand and supply, their size or level has been due in part to the non-inclusion of full servicing costs. In these circumstances, development levies (properly implemented, see below) will impact on the residual not on the final price or standard of accomodation, provided that the levies are not higher than the level of windfall gain.
7.31 The impact of levies and contributions, however, also depends on the method of assessment and implementation. It is essential that builders know in advance the level of levies and contributions which will be incurred in development so that this can be taken into account in land purchase decisions. This is clearly not the case at present since the standard levies have been changed without advance notice and contributions are decided at planning permission stage. The Committee are particularly concerned at the degree of uncertainty, variability and the degree of arbitrariness which seems to apply at present. Cost changes encountered after the land transaction will not impact on windfall gain unless this has already been captured by the builder/developer in the price paid for land.
Charges for Services
7.32 Although a planning authority can charge developers a contribution toward the costs incurred in servicing land, such contributions cannot take into account expenditure incurred by the authority more than seven years before the grant of permission. This results in an uneven distribution of the benefits and costs of local authority operations, with developers in older infill sites rarely paying any comparable levy to that applicable in newly serviced areas. It also means that the cost of capital infrastructural developments such as treatment works cannot be spread equitably over all users. The Committee believes that this seven year limitation should be removed.
7.33 Finally, there is the question of the method of assessing the appropriate level of levies and contributions. The Committee has no information on how this is done at present and has been unable to obtain any indication of a “typical” cost of providing main services with the present level of levies and contributions. The Committee’s acceptance of the principle of levies is qualified to the extent that levies should not be used as a tax on development which would be the case if they exceed servicing costs. Local authorities should be required to set out the basis of levies and contributions. This should include a breakdown of the costs incurred into those arising from new development, increased usage from existing buildings, etc. It may be desirable to have general guidelines issued setting out a common overall approach to be followed.
7.34 The Committee concludes that development levies are an appropriate method of recouping costs of providing main services, their level should be known to the industry well in advance and should not amount to a tax on development. The appropriate level of levies is a matter for consideration in the context of housing and other policy areas, for example, to consider whether house purchasers should be subsidised in this way or some other manner.
Section 7.1.2 Procedural and Legislative Problems
7.35 Compulsory acquisition has a major role in ensuring availability of land and assisting the implementation of development plans. It has been used largely for land required by local authorities themselves but they have in fact wide scope in relation to the purposes for which land may be acquired compulsorily. In addition to use by the local authority, land may be acquired to secure or facilitate private development or to provide sites or suitable areas for private development. Compulsory purchase orders confirmed in recent years averaged about 700 acres per annum and ranged from 400 to 1,200 acres in individual years. The committee discussed above some aspects of the role of CPO in ensuring availability of land to the market (this is discussed later also) and the basis on which compensation in CPO cases is assessed.
7.36 The CPO procedure, however, is not geared as an effective mechanism for its wide role in relation to building land. It is heavily constrained by procedures and enactments. The present compulsory purchase system is based on a variety of enactments dating from 1845 and has been described as “a jungle of Acts extending over a century”. The Housing Act, 1966, brought about a considerable simplification of the procedural and other provisions by introducing a single procedure, by way of compulsory purchase order, for the compulsory acquisition of land in both urban and rural areas and for any local authority purpose, in place of the separate provisions which had previously been specified in a variety of enactments. But the 1966 Act left largely untouched a whole series of enactments dating from the 1845 — 1919 period and it is not, therefore, a complete statement of the law. Some of the basic procedural provisions are still to be found only in the 1845 Act. The complexity of the code seems to be unnecessary and a simplification of the procedures would help to streamline the processing of compulsory purchase orders.
7.37 Compulsory purchase procedures are cumbersome and slow. An order may take between five and eight years to complete and the process is very open to delay by legal proceedings. An improvement in the time factor is clearly desirable given that up to eight years may elapse between the commencement of the land referencing process and the actual confirmation of the order. Delays of one kind or another are involved at a number of stages and a close examination of the system as a whole is desirable in order that areas where improvement is possible can be identified.
7.38 The Committee acknowledges that not all of the delays, however, can be attributed to the process itself and that any changes will have to take account of the requirements of the Constitution, which guarantees the property rights of citizens. The Committee believes, nevertheless, that attention should be directed towards measures which would allow the local authority earlier access to the land whilst ensuring equitable treatment of the property owners.
7.39 A number of features of the code lend themselves to examination and possible improvment:-
•Specific time limits on the various stages of making a CPO could be looked at. For example; the period within which a local authority may serve notice to treat which at present is up to three years should be reduced.
•The statutory authority allowing a local authority to enter on or gain possession of land can often cause delays and consideration could be given to tightening up the law to enable a local authority to enter on land to do surveys, etc. and to gain possession of land with the minimum amount of delay.
•General consolidation of the law is needed. As already stated, the law with regard to compulsory purchase is scattered throughout enactments dating back to the first half of the nineteenth century. Different procedures apply to the compulsory purchase of land for different purposes. A general consolidation of all the law in this area with amendments to provide one procedure, insofar as this is possible, for the compulsory purchase of land for all purposes, would improve the situation.
Connection to Services
7.40 Under the Public Health Act, 1878, owners and occupiers of land are entitled to connect their drains to existing sewers and the local authority is obliged to provide sewers. The local authority is also obliged to provide a suitable water supply. A number of submissions have drawn attention to the implications of these statutory rights for the proper planning and development of an area. The problem was underlined in a recent High Court decision (upheld by the supreme Court) in the case of Shortt .V. Dublin County Council. Dublin County Council argued that the capacity of the sewer passing Ms Shortt’s land was pre-empted for use in development of other lands and that they could not plan for their area if they were to allow others to connect to that sewer. The High Court decision confirmed the right of connection.
7.41 The existence of rights of connection to services, independent of the intentions of the development plan, may act as a serious constraint on the implementation of the plans. The Committee concludes that the relevant Acts should be amended to restrict the right of connection only to development that has been granted planning permission.
7.42 The Shortt case also involved issues of compensation, which have been discussed earlier.
Section 7.2 The Effects of the Planning System on Supply and Cost
7.43 Virtually any action of the planning and development control system will affect the supply, availability or cost of building land to some degree. This is inescapable. What matters is whether the system, as a whole, is operating effectively. A number of submissions have complained of complexity, frustration and uncertainty in the operation of the system. The planning system through development control is, in a sense, part of a wider set of building controls. The combined effect of these is to create a complex and fragmented set of requirements which are intimidating and time consuming for individual builders/developers.
7.44 The practice in some local authorities does not appear to be geared towards handling development proposals in a unified and speedy manner. For example, one third of development plans are over five years old and require to be revised. This can create problems for development in rapidly growing areas because planning permission is more difficult to obtain when the greater part of zoned building land is already committed to specific proposals.
Planning Permissions and Appeals
7.45 Criticisms of the planning permission and appeal system frequently voiced by the building industry include the following:
•Growing complexity of permissions (given by some authorities). Conditions which are considered to be excessive are imposed and requirements are included which are not relevant to the planning acts because they are provided for under other legislation. Builders contend that these requirements and conditions are having an increasingly restraining impact on the willingness of financial institutions to support projects due to concern about commercial viability.
•Minor alterations to development proposals, which are necessitated by market forces, require planning permission which can take as long to issue as the original decision and is (like the original permission) subject to appeal by third party objectors.
•Requests for additional information which arrive at the end of the statutory two month period for the consideration of the planning application are frequently of such an insignificant nature that they appear to be merely a device to extend the time period.
•The time taken to issue appeal decisions and the uncertainty about when a decision will be issued create additional costs for developers and make financial planning of any proposed development very difficult.
7.46 With regard to planning appeals, the 1983 Planning Act provided for the reconsitution of An Bord Pleanala and also for changes designed to speed up the operation of the appeals system. There is now legislative provision to deal quickly with frivolous or unwarranted appeals. Recently the Board has filled four additional inspector posts and is in negotiation with the Department of the Environment in the matter of its administrative staffing numbers. The number of appeals on hand has reduced from a peak of 3,959 in May 1983 to 1,687 at end 1984. In 1984, the number of appeals received by the Board was 2,665 compared with a peak of 4,740 in 1982.
Development Criteria Adopted
7.47 Development criteria are adopted by planning authorities to ensure that desired standards are achieved. They cover a wide range including the type and mix of development, densities, road standards, issues of layout and design and such requirements as a specified residential content in office development. They give rise to frequent conflict between authorities and the speculative builder or developer (in particular) because of the consequences for the marketability of proposed development. Density standards, for example, can in effect pre-empt certain types of housing development which may be more in accord with market or purchasers’ requirements.
7.48 There are real difficulties here in balancing the shorter term market emphasis with the longer term perspective of planning and in matching the need for control with that for flexibility to encourage new initiatives and approaches. Many authorities have adopted a greater degree of flexibility in development standards but some still appear to be unduly rigid in their approach.
Differences in Development Criteria
7.49 The fact that each authority is relatively free to adopt its own land use criteria can create inconsistencies in approach where development areas are cut by boundaries of planning authorities. It appears to be a problem in more rapidly growing conurbations, in particular the counties bordering the greater Dublin area.
7.50 The Minister for the Environment has the power to direct that the development plans of authorities be co-ordinated but this power has not been exercised to any great extent. In any event, the issue has less to do with co-ordination of approach than with ensuring that decisions are made with effect for the total development area concerned. Regional Development Organisations attempt to achieve this but have not the formal powers to do so.
7.51 It has been submitted to the Committee that differences in criteria exist not only between authorities but within authorities in relation to issues of local layout and design and requirements for taking estates in charge.
7.52 All of the criticisms outlined above, which were made in submissions or arise in other material, have to do with the structure and operation of the planning system. The Committee is not in a position to evaluate how serious the criticisms are but they appear to have some justification in view of the observations noted earlier by An Bord Pleanala on conditions attaching to planning permissions and the “Advice and Guidelines”13 issued by the Department of the Environment in 1982 which inter alia requested local authorities to:-
•Provide specific advice at planning submission stage to guide applicants
•Grant permission with conditions where possible rather than refuse permission
•Use discretionary powers to invite submissions
•State clearly the reasons for refusal
Section 7.3 The Interface Between Planning and the Market
7.53 Throughout this report two systems concerned with the use of building land have been under consideration - the planning system and the market. Some of the problems discussed arise because of tensions or conflicts between these two areas, inadequacies in the operation of each and breakdown of roles where they interface.
7.54 There are a range of conflicts between technical, political and market assessments of what development is desirable and sustainable reflecting divergencies in approach and method on the part of planning authorities (the elected representatives), planning officials and market intermediaries (builders and property developers).
Some conflict is, of course, unavoidable but there are a number of consequences of particular importance to this report which include:-
•some breakdown of the development chain with regard to availability of land and ineffective response to market failure,
•out of phase development, transitional decay, underutilisation of public investment and diversion of development,
•inadequate regard on the part of the planning system for the market implications, cost impact and consequences for development of development criteria, conditions attaching to planning permissions and development levies.
7.55 It appears that the role of the market in achieving development objectives and the most effective relationship between the planning system and the market have not been thought through. The Committee notes in particular the absence of any policy specifically directed at assessing how the best use of land in the community interest is to be achieved. The Committee’s approach does not imply any predisposition towards the market. Markets are useful only insofar as they work well and this cannot be taken for granted. A number of important imperfections in the operation of the market have been identified and measures suggested to counteract these. The Committee has also examined a number of major areas where the market inhibits the effective implementation of planning and has developed proposals which would strengthen the planning function.
7.56 Many questions have also been raised about the approach to planning. The type of planning typically practiced in this country is referred to as blueprint planning which has evolved from the skills of the planner, architect, engineer or surveyor. Problems were viewed largely in their physical context and proposed solutions were similarly physical involving land use maps, zoning, density controls, building regulations and planning standards.
7.57 In recent years, it has become increasingly apparent that complex problems of urban structure and organisation cannot be examined and solutions cannot be found purely in physical terms. Continued reference to economic and social considerations is necessary. The NESC report on urbanisation made continual reference to these difficulties. Blueprint planning is not particularly suited to a largely market economy since it pre-supposes the existence of controls and means of implementation which may simply not exist. It can lock the system into major land use decisions in situations of uncertainty as to future developments and the ability to deliver. Changes in the former and failure in the latter can have fundamental repercussions and perhaps are at the root of many of the difficulties frequently adverted to in relation to the effectiveness of planning. Problems such as transitional decay, out of phase development, poor use of resources and what the NESC referred to as, “an image of new suburbia as disorganised, chaotic and, in the popular mind, unplanned”.
7.58 It has also been submitted to the Committee that single use zoning and density controls contribute to the creation of stereotyped land values. Single use zoning, it is argued, has contributed to the destruction of inherited patterns of mixed use and urban infrastructure and virtually prohibits evolution of balance and response to community need in the disposition of urban facilities and uses.
7.59 There are clearly a number of areas where the effectiveness of the present approach to planning is open to debate. This engages questions of policy, method and organisation. One area which is related to this Committee’s orders of reference is the problem of land availability; the market is weak or ineffective in dealing with certain aspects of this problem.
7.60 This issue is raised in a number of submissions. It is argued that the planning system operates on the assumption that land, identified in zoning procedures as being suitable for development, will come forward when public services are provided. No attempt is made to ensure that such land will in fact come forward at a satisfactory pace to meet demand. Land may not be offered for many years after it has become ripe for development.
7.61 Local authorities have wide powers to acquire land. The Committee is advised that whilst there is no specific power of compulsory purchase conferred by the Planning Acts, there are extremely wide powers available under the Local Government (Ireland) Act, 1898 and the Local Government Act, 1960. It may be desirable, however, to have these powers specifically included under the Planning Acts, so as to avoid any ambiguity.
7.62 In any event, local authorities have made spectacularly poor use of this power to act as development corporations which was envisaged by Section 77 of the 1963 Planning Act. Doubt as to their legal underpinnings may have been a factor but it is probable that it is also due to financial and organisational causes, which mean that they are ill-equipped to deal in the commercial world of land acquisition and decision making. The sanction necessary to obtain loan facilities is rarely available sufficiently quickly to permit competition with private interests in the matter of land acquisition whilst the organisational structure of planning authorities militates against swift reaction to the market and successful commercial development by planning authorities, either acting as sole developer or as partner with commercial interests.
7.63 It has been suggested that there is a case for a Land Authority to operate at the interface between the planning and market systems. It is envisaged that such an authority would be better placed to deal effectively with problems arising in this area. The Committee accepts many of the problems which have been identified though, as discussed earlier, the issue of land availability has much wider causes than unwillingness of the original landowner to bring land forward for development. The Committee is not in a position to engage in the detailed organisational assessment which would establish the reasons for failure of Section 77 of the 1963 Act or the appropriate organisational response to dealing with this failure. It is a matter, however, which should be addressed separately and urgently to establish the most effective policy response.
Section 7.4 Conclusions and Recommendations on the Local Authority Framework
7.64 There are a number of areas where local authorities encounter constraints on plan implementation. Changes and modifications are needed in existing policies, procedures and powers to ease or overcome these difficulties. The Committee recommends:-
•that subsidies or incentives for housing and industrial development be restricted to development which is in accord with the planning policies of local authorities, as indicated in zoning or granting of planning permissions.
•that the market value principle in Rule 2 of the compensation and compulsory purchase code be modified to provide:-
—that any development value attributed to land must be established by reference to specified development, which would be completed within a reasonable timescale and for which a market demand has been established taking account of alternative sources of supply for similar development.
—that other transaction prices adduced for comparability purposes be admissible only where they are shown to be related to similar development and provided that there is no evidence that such prices are distorted.
•that arbitrators awards be broken down into the main headings of the award.
•that the CPO procedure be streamlined by a general consolidation of the law, reduction in the period for serving notice to treat and other modifications to time limits as may be appropriate and by measures to enable local authorities to enter or gain possession of land with the minimum delay.
•that the powers of compulsory purchase be specifically related to the Planning Acts.
•that the right of connection to public main services be restricted to development which is in accord with the proper planning and development of the area. Local authorities should be specifically empowered to reserve capacity as they consider desirable.
7.65 Local authorities incur heavy costs in providing services and discharging other responsibilities in relation to building land. Heavy demands on services are likely to continue. The Committee recommends:-
•that high levels of investment in services be maintained. Particular attention needs to be devoted to ensuring adequate finance for investment in related road networks.
•that the feasibility be examined of allocating all tax revenues from transactions in building land to local authorities for use in land acquisition and development.
7.66 Development levies are an appropriate method of recovering costs of providing services but the Committee is very critical of the manner of their implementation. The appropriate level of levies is a matter for consideration by the Government and local authorities taking account of other policy objectives. The Committee recommends:-
•that local authorities be required to publish the basis of assessing levies and contributions. The Minister for the Environment should ensure that consistent and appropriate procedures are followed in establishing levies.
•that changes in levies be notified well in advance of implementation.
•that levies should not amount to a tax on development.
•that standard levies be utilised as much as possible (though they may differ by area). Variable conditions attaching to planning permissions, which affect development costs, should only arise in exceptional circumstances.
•that the seven year limitation on admissible costs for the purposes of assessing levies and contributions, be removed.
7.67 A range of problems arise at the interface between the planning and market systems. In some cases these can have a significant impact on the cost or viability of proposed development. The problems differ in origin, ranging from natural conflict between requirements as perceived by each system, weakness of structure and organisation, an approach to planning which is not geared towards implementation via the market and an emphasis on control over initiative. There are particular weaknesses in the development chain with regard to land availability. The Committee recommends:-
•That the Minister for the Environment in the context of the aforementioned problems with land availability undertake an examination to ascertain whether organisational changes within the planning system or an independent body, such as a land authority, would provide the most effective policy response.
•that the development criteria adopted by planning authorities be mutually consistent where the authorities’ areas are part of a wider development region.
•that the use of compulsory purchase procedures to assist in site assembly by private or partnership development be encouraged.
•that the advice and guidelines issued by the Minister for the Environment be adopted by local authorities.
•that local authorities ensure that all of their activities connected with development are fully in line with the development plan.
The Question of Equity
8.1 The question of equity is concerned with the distribution of benefits from increases in land values. There are two types of financial return in transactions in building land. Firstly, there is windfall gain which is a return to ownership of property in excess of the owners valuation*, i.e. the price which would have been necessary to transfer land from its existing use. Secondly, there is the total financial value of a transaction, which may or may not include an element of windfall gain but which in any event involves realising the market value of a property.
8.2 It may be noted that both types of financial return may occur in any property transaction, particularly in the case of existing buildings, in times of high demand and price escalation. Owners of buildings, including private house owners, may also acquire windfall gain which could have major consequences for the distribution of wealth within the community. This area has been the subject of much less public debate than the case of building land, possibly because it is felt that the returns to building land are much more concentrated. This is true of publicly serviced and urban land but would not generally be true for privately serviced land.
8.3 The primary concern of the Committee is with the question of windfall gain in building land transactions. In addressing this the Committee notes that the question of equity is often connected with proposals for reducing land prices. These are largely separate issues. Measures for dealing with land prices are necessary where prices do not reflect the development potential of land. If prices reflect development potential then an artificial reduction will transfer wealth to the purchaser; there is no general case for benefitting sections of the community in this way.
8.4 The Committee suggests that community action in relation to the distribution of gain should be based on three principles:-
•the right to recover its own contribution.
•the need to eliminate distortions and pressures, arising from windfall gain, which are contrary to optimum development.
•the need to ensure public acceptance that the distribution of realised gains is fair and reasonable. This should take account of the fact that the overall operation of the planning system influences which landowners will benefit from development, and should recognise that windfall gain is concentrated in some cases.
The Committee believes, in consequence, that a substantial part of the increase in land values should be acquired by the community subject to minimising any consequential effects on supply, availability and price.
8.5 The information available to assess the size and distribution of windfall gain and the effectiveness of existing measures for recouping gain was examined in Chapter 5. The difficulties are considerable; there is no sound basis for definitive conclusions. Only broad orders of magnitude are possible on size and distribution of gains and the information on returns to taxation is tenuous.
8.6 The level and distribution of gain varies with the type of property and the nature of the development. The most straightforward case is a transaction between an original landowner of agricultural land and the purchaser of a site for a private single house. More complex problems arise when any intermediary is present (whether developer, builder, local authority, State agency or speculator). There may be a number of transaction stages, potential gains vary with market circumstances, and may be dissipated in holding, transaction and other costs.
8.7 Although it does not create the demand which underlies the increase in land values, the planning and development control system has a substantial influence on the distribution of gains. Through zoning and the provision of services, it provides the basis for development potential and determines, to some extent, the spatial pattern of increasing values (thereby benefitting certain landowners and not others). Also, if inadequate land is zoned and serviced, there may be a rapid escalation in the value of existing serviced land. In the case of privately serviced land, the planning system has less influence on development potential or on the distribution of benefits, particularly in the case of ribbon or dispersed development.
8.8 Some of the recommendations made in Chapters 6 and 7 would significantly change the existing level and distribution of windfall gain. The recommendations on compensation, costs of compulsory purchase, development levies and the possibility of higher rates of tax on transactions by non-building interests, have particular application to issues arising under the first two headings in paragraph 8.4. The combined impact of these recommendations would substantially counteract adverse affects from windfall gain on the planning and market systems and substantially ease the resource costs on local authorities.
8.9 The recommendations dealing with competitiveness in the land market (by establishing the ownership of building land) are important for ensuring that there are no ‘monopoly’ restrictions on land availability. These, combined with adequate investment in services and aggressive use of streamlined and modified CPO procedures, are the most effective means of ensuring that there are no consequential adverse effects on the supply and price of land or on development costs.
8.10 In addition, a policy of advance acquisition, as demonstrated in the local authority and IDA programmes, is in itself an effective means of capturing increases in land values by the State.
8.11 The remaining issue for consideration, therefore, arises from the third general principle in paragraph 8.4; that the distribution of realised gains must be fair and reasonable. A number of points are relevant to defining the appropriate approach:-
•The figures provided for returns from capital, corporation and income taxes are on a very weak footing. However if they were verified they would stand reasonable comparison with the broad estimates of gain in Chapter 5. The effectiveness of present taxation measures is a major source of contention in the approach to dealing with windfall gain. As shown in Chapter 5, the basis exists for much more conclusive assessment of this question and it is most unsatisfactory that it has not, so far, been developed.
•The taxes discussed above are not the only source of State revenue from land transactions and development. Returns to the State are generated by a wide range of general and specific taxes, duties and charges for services. These are reviewed in Appendix 6. The Committee has already discussed charges for services (development levies, etc.) and notes that general taxes apply to the economy as a whole and do not imply differential treatment of land and building activity relative to other sectors, except for manufacturing which is subject to a lower rate of profits tax. Insofar as windfall gain is concerned the Committee notes that stamp duty applies to all transactions in land (including single site transactions which do not normally incur liability for other taxes). In view of the potential for windfall gain, the liability for stamp duty should be incurred by the vendor rather than the purchaser. The potential for windfall gain varies with market circumstances as is clearly demonstrated by the recent history of price fluctuations in building land. In addition, crude estimates of windfall gain which are based solely on prices paid in acquiring and disposing of land may be very misleading since they do not take account of the substantial impact of holding costs. Given the variability of windfall gain, a taxation approach (rather than a fixed levy) is the more appropriate method of recoupment.
8.12 With regard to taxation, the present capital gains tax applies a lower rate of 40 per cent where land is compulsorily acquired. The lower rate is charged in recognition of the compulsory nature of the transaction and to take account of the landowners desire not to dispose of the land. However, the lower rate is undesirable in that it creates an incentive to the owner to opt for CPO rather than sale of land on the market. The Committee feels that the CPO and compensation code provides ample scope for consideration of all elements of value due to the landowner; the lower rate can in this context be considered additional and in view of its other undesirable effects, it should be abolished.
8.13 The Committe concludes that in the light of the range of measures in this report which will affect the returns to land, tax measures are the appropriate method for recovering other windfall gain. The information necessary to provide a proper assessment of the tax system should be substantially improved.
Conclusions and Recommendations on the Question of Equity
8.14 There is a wide range of measures available to the State to ensure that costs incurred by local authorities are recovered, that undersirable effects of windfall gain on the market and on the implementation of planning are minimised and that the overall treatment of returns from land are fair and reasonable. Taxation measures (capital gains, corporation and income) are the appropriate method for general treatment of windfall gain but there is a need for improved information and examination to establish their full effectiveness. The Committee recommends:-
•that an examination be undertaken of the liabilities incurred, and tax receipts from, transactions in building land to establish a basis for evaluating effectiveness of taxes.
•that the lower rate of capital gains tax applying to compulsory acquisitions of land be abolished.
•that stamp duty be made a liability of the vendor rather than the purchaser.
(Signed) Robert Molloy T.D.
Chairman of the Joint Committee
5 June, 1985
1 Report of the Committee on the Price of Building Land. (Prl. 3632.)
* Throughout this Report the terms “land” and “building land” are used interchangeably except where specific distinction is needed. Both include open space, land for amenity purposes, etc. in urban areas.
* These figures are purely illustrative.
2 The Human Settlements Situation and Related Trends and Policies. Department of the Environment, 1983.
3 Urbanisation: Problems of Growth and Decay in Dublin, NESC, Report No. 55, 1981.
* A derived demand arises where the commodity in question is required for the production of some other end product, in this case — houses, offices, schools, etc.
4 Private Housebuilding in Ireland. An Foras Forbartha, 1984.
* A breakdown into private estate and private single houses is not yet available for 1984.
5 The Construction Industry. Report of the Sectoral Consultative Committee on the Construction Industry, 1984. (Available from An Foras Forbartha).
* For convenience of presentation, Dublin County, Dublin County Borough, Dun Laoghaire and Bray are combined under the single heading of the “Dublin Area”.
6 Local and National Needs — Financial Implications and Control Procedures. John O’Connor, IEI Seminar, Value for Money in Infrastructural Development, June 1984.
7 Policy and Planning Framework for Roads. Department of the Environment, 1985.
* These estimates must be considered approximate because of the range of densities involved and particularly the large number of apartments (1,300) included in the new building figures for these areas.
8 Private Housebuilding in Ireland. An Foras Forbartha, 1984.
* On land zoned for private estate housing, usually with access to main services but not developed.
9 Some Aspects of New House Prices in Ireland. An Foras Forbartha, 1984.
* 1984 figures not available. Latest figure (1982) is £52.5m.
1Includes legal, design and sales.
2Including general overhead. This can vary also depending on site conditions; for the purposes of the examples it is not changed.
*In this case an intermediary is any person or firm who comes between the original owner and final user and whose actions are guided by assumptions about end user requirements or considerations unrelated to building use.
*In this discussion the Committee is excluding the role which expectations of future capital gain may play.
*This is an arbitrary figure. It is necessary to use some such allowance to take account of the fact that most agricultural land is not on the market at prevailing prices for agricultural land.
*IDA purchases in 1984 were only in the East Region.
*This is not to suggest that the tax is paid.
* Excluding returns to land above its supply price in agricultural use.
10 Building Industry in Ireland, Review and Outlook. Department of the Environment, Annually.
11 Urbanisation: Problems of Growth and Decay in Dublin. NESC, Report No. 55, 1981.
* Local Government (Planning and Development) Acts, 1976 and 1982.
* As broadly defined in this report.
12 The Construction Industry. Report of the Sectoral Consultative Committee on the Construction Industry, 1984. (Available from An Foras Forbartha.)
13 Development Control — Advice and Guidelines. Department of the Environment, 1982.
* Again excluding expectations of value related to development potential.