The new Dutch Land development Act as a tool for value capturing

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The new Dutch Land development Act as a tool for value capturing ENHR 2007 International Conference ‘Sustainable Urban Areas’ The new Dutch Land development Act as a tool for value capturing Herman deWolff OTB Research Institute for Housing, Urban and Mobility Studies Delft University of Technology, H.W.deWolff@tudelft.nl Phone +31-15-2783668 / Fax +31-15-278 2745 Keywords: value capturing; land development; cost recovery In several European countries in recent years house prices have risen sharply. On the land market, this has lead to an increase of the plus value, the gap between the agricultural value of land and the value of land to be urbanised. Because of this increase, in several countries the possibilities to profit from this plus value have (again) become an issue for the government. Also in the Netherlands, the plus value has been debated as a result of the Memorandum of central government on Land Policy (Nota Grondbeleid), which has been published in 2001. However, the government decided on an approach in which capturing the plus value will not be followed. A new legal system, the so–called Land development Act (Grondexploitatiewet), an amendment of the (new) Spatial Planning Act (Wet ruimtelijke ordening), will come into force in 2008. This Act will strengthen the position of the government in land development. As far as the plus value is concerned, the proposed Act chooses a strategy based on cost recovery: the government is able to force the developer to pay for certain costs and (public) facilities. In the paper, the main characteristics of this new Act are presented. The paper argues that, although the new system is formally based on the principle of cost recovery, the system also has some similarities with a system in which the central approach is based on capturing (part of) the plus value. Introduction Rise of house prices In several European countries in recent years house prices have risen sharply. For example, in the Netherlands, the development of the real price of existing one-family dwellings in the period 1995 – 2003 was +67% (National Board of Housing, Building and Planning, Sweden et al, 2005). Also in for example the UK (+110%), Spain (+78%), France (+26%), Belgium (+21%) the development of house prices was relatively high. If newly built houses are subject to the same market regime and are competitive with the existing housing stock, this rise of house prices will in general be also applicable on newly built houses. Several explanations are offered for these changes in house prices. (Boelhouwer et al., 2004) introduce, based on a literature study, arguments from the Neo-classical Price Theory, speculative or psychological effects, economic developments, demographic factors and Workshop: Legal Aspects of Housing, Land and Planning Author: Herman de Wolff 1
The new Dutch Land development Act as a tool for value capturing institutional policies. According to this research, the increase in constructions costs is only one of many possible explanations of the development in house prices. In (National Board of Housing, Building and Planning, Sweden et al, 2005) some quantitative evidence of this statement can be found: the rise in construction costs in for example the Netherlands is only +20% in the period 1995-2003. Plus value For newly built houses, this often means that – with the rise of the house prices - the residual value of the land that is developed also rises. This can be explained by the scarcity of building land: because only a limited amount of building land is available, the developer is prepared to pay more for the land than the agricultural value. The amount of money he is prepared to pay, is based on the expected profit of the development, taking into account the risk of the development. In such a case, the gap between the agricultural value of land and the value of land to be urbanised (the residual value of the land) has increased, in case other development costs do not rise disproportionately. This gap is a reality, if a planning system enables the government to regulate the conversion from agricultural to building land. However, the determination of this gap can be rather complex, and depends amongst others on the planning system and planning practice of the country involved. In many countries, despite the fact that the planning rules in for example the urban fringe forbid the change of land use, still the prices of agricultural land will rise because of the expected change of the use possibilities of the land, as for example (Plantinga et al., 2002) show for the US agricultural land market. The gap between the agricultural value of the land and the value of the land to be urbanised, in this article is defined as the plus value. Besides the agricultural landowner, the different parties involved in the development process are candidate to have a share in these plus value. (De Greef, 1997) distinguishes between three types of market segments within the development market: the housing market, the building market and the land market. The parties that play a role in these three market segments might profit from the plus value. For example, if the selling price of a new built house is below the real market value, the new owner-occupier will profit from a part of the plus value. Or, if the selling price of the house is higher than the costs for constructing the house and the costs for buying a (serviced) building lot, the private developer or the building company will profit. And, if the selling price of a serviced plot is higher than the agricultural value of the land plus the cost for servicing the plot (taking into account the land which can not be sold because it is necessary for public services), the original landowner or the land developer will profit from a part of the plus value. Content of the article Also the government can be one of the parties that profits from this plus value. This article focuses on a new strategy for (partly) capturing the plus value of the land in the Netherlands, based on a proposed change of the legal system, the so–called Land development Act (Grondexploitatiewet), an amendment of the (new) Spatial Planning Act (Wet ruimtelijke ordening), which will come into force in 2008. In this article, first some attention is given to value capturing in a wider perspective. After this, the main characteristics of the land development context in the Netherlands are introduced and a brief overview of the present legal system regarding land development is given. Next, the paper focuses on the new Act and the main characteristics of this Act. After Workshop: Legal Aspects of Housing, Land and Planning Author: Herman de Wolff 2
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