Since the 1990s, there has been an increasing reliance on using new private developments to fund affordable housing and infrastructure needs in England. However, these market-influenced ‘developer contributions’ can cause economic and social inequalities between areas experiencing differing levels of demand.
Research to better understand the state-civil-market relationships in the real estate development process has led to reform of key policy areas relating to these financial and in-kind investments that accompany real estate development in England
Historically, parks, trains and schools - known as public goods - were often funded directly by UK central Government. However, since the 1990s there has been an increasing reliance on using new private developments to fund affordable housing and infrastructure needs. England has a system of nationalised development rights, so when private developments are proposed, a local authority is able to set conditions for the granting of planning permission.
Currently, developer contributions are paid through the planning system which generates them very unevenly. The system follows and, therefore, reinforces market trends. High values in growing markets result in demand for new real estate that correspondingly translates into planning applications and developer contributions that fund infrastructure and public goods, which, in turn, stimulates the market further. In low-demand areas the opposite is true. Where these cycles persist over a sufficiently long period, the cumulative year-on-year effects are significant.
The effect of the reforms introduced following our first study of developer contributions for the UK Government in 2016/17 resulted in an additional £1 billion of investment in 2018/19. Also, the aggregate sum raised through developer contributions in England in 2018/19 of £7 billion was invested more evenly across the country.Professor Alex Lord
A research team led by Professor Alexander Lord and Dr Richard Dunning from the Planning Research Institute made use of behavioural economics and game theory to better understand the relationships that come together in the real estate development process. They investigated the economics of how the uplift in land value associated with the granting of planning consent can be recovered by local government and other bodies to support developer contributions in public goods such as affordable housing, transport and schools.
The research showed that national planning policy on developer contributions can produce spatially unequal outcomes that are not solely explained by market circumstances but may also result from the negotiating practices of planning professionals. Consequently, national policy should ideally allow for locally-specific approaches to obtaining developer contributions to account for spatial, market and behavioural variations.
To respond to this public policy issue, a combination of further conceptual and empirical work created significant advances in the underlying theory and concepts to the point where empirical application became viable. A suite of projects followed these academic advances as the worlds of policy and practice came to value the behavioural insights approach to planning and real estate economics that had been pioneered by the University of Liverpool team.
The work led by Professor Lord and Dr Dunning had a significant influence on policymakers in the UK Government, including two pieces of work commissioned by the Department for Levelling Up, Housing and Communities. Their research went on to influence three specific reforms to legislation, policy and practice on developer contributions:
- The removal of restrictions on the pooling of developer contributions from multiple sites
- The roll-out of the Community Infrastructure Levy (CIL) into new geographies
- Supporting greater local flexibility in the exaction and expenditure of developer contributions.
A second study demonstrated the effects of these policy changes instigated on the basis of the findings of the first project: developer contributions had grown from £6 billion in 2016/17 to £7 billion in 2018/19 and were more evenly distributed across England.
Working in partnership
Through engaging directly with local stakeholders, this research is also stimulating physical and economic regeneration in some of Liverpool City Region’s most deprived communities.
Behavioural insights work resulted in a commission by a not-for-profit housing association, Cobalt Housing, to produce an extensive study of housing markets in the North Liverpool wards of Croxteth, Norris Green and Fazakerley. This work has been instrumental in informing Cobalt’s growth strategy in these three deprived wards where they plan to build 1,000 new homes - explicitly to meet the needs of those experiencing deprivation in older age.
In August 2021, the Government released the Planning for the Future white paper which included a proposal for the further reform of the system by which developer contributions are exacted. The research team led by Professor Lord and Dr Dunning continues to engage with the Department for Levelling Up, Housing and Communities to support the development of this important policy area.