Impact of the new Infrastructure Levy on Garden Villages

Autumn 2021

The Government’s intention is to replace the Community Infrastructure Levy (CIL) and the current system of planning obligations with a value-based flat rate charge with the aim of raising more revenue than under the current system of developer contributions. The reasoning is that capturing a greater share of the uplift in land value will enable the provision of more of the infrastructure that existing and new communities require plus a higher level of affordable housing.

Having also been promoted as a solution to the delays brought by prolonged Section 106 negotiations and the failings of the Community Infrastructure Levy (CIL), the new levy could end up being the proverbial sledgehammer to crack a nut and lead to unintended consequences – as is so often the case with planning reform. This may prove to be particularly acute in the context of large-scale housing developments and, of course, garden villages and their intensive infrastructure needs fall very much into this category.

The Ministry of Housing, Communities and Local Government is due to respond formally to the Infrastructure Levy consultation process before the end of the year. However, shortly before he was removed from his post, the ministry’s former Secretary of State, Robert Jenrick, had already hinted that, instead of a fixed nationally rate for the levy, local authorities may be allowed to set their own rates.

If authorities will be able to set their own rate that, in itself, will take time and consideration at the outset and that could lead to delays. One of the problems with the roll-out of the CIL was that its adoption and implementation was geographically very patchy. It was not uncommon for one authority to have introduced it while its neighbour had not. This led to uncertainty and planning’s own version of a ‘postcode lottery’. Accordingly, the MHCLG must take steps to ensure that this does not happen again – although quite how it will achieve that is not clear at this time.

So, if there were any doubt, viability and the perception of development value will be central to the conversation with local authorities about the Infrastructure Levy. While it was perhaps always this way - whether it was CIL or Section 106 agreements - the sequencing of how infrastructure would be activated under the new system is perhaps more troubling.

The delivery of infrastructure is what unlocks the process of delivering garden villages. A commitment to infrastructure is vital in terms of funding. You can’t build out tranches of a garden village project without significant elements of the infrastructure in place and the decision to invest in land – which will typically be drawn down in phases over a number of years. And, of course, the infrastructure required by garden villages is naturally more extensive and complex than that which is required by more modest, standalone schemes - so the conversation with landowners around value and viability becomes pivotal. Accordingly, it is our role as legal advisers to developers to be attuned to these commercial aspects of schemes as well as the nuances of planning law and regulation.

What remains unclear is how the delivery of development will be regulated relative to the payment of the new levy and the availability of the enabling infrastructure. We are accustomed to the restrictions imposed by Section 106 planning obligations (for example, occupancy thresholds) which serve as the development management tool to ensure mitigation is secured in a timely manner. If those Section 106 restrictions are removed, could we ironically risk over-loading planning permissions with ‘Grampian-style’ conditions linked to delivery of that infrastructure? This would be contrary to the Government’s efforts to reduce and rationalise the use of planning conditions.

Of greater concern to house-builders in this scenario may be the proposition that housing sales are then beholden to the pace at which local authorities are able to fund, decide to undertake and ultimately complete the necessary infrastructure projects – so they may be left exposed to land and development costs without any certainty as to when units can be released for sale. This creates obvious viability implications and would make investment in garden village–scale development a far riskier proposition.

From a political perspective, it’s easy to see the attraction of the levy’s ‘optics’. It’s intended to give local authorities more autonomy over revenue collection and the provision of affordable housing whilst also portraying central Government as ensuring that property developers don’t ‘get away’ with anything.

For developers looking to progress major garden villages, the jury is still out as to whether the regulations for the new levy are going to be flexible enough to deliver infrastructure on the scale – and with the timeliness - required. However, it seems inevitable that the new levy will find its way onto the statute books so the challenge for housebuilders – and advisers like ourselves who specialise in the sector – is to navigate a way through its strictures.