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

The new Dutch Land development Act as a tool for value capturing
Using this tax, the owner of land that profits from the realisation of public facilities, has to
pay a tax, which is based on the costs of the realisation of the facilities (including the costs of
the land). Before a municipality can use this tax, the municipality has to state that the taxation
instrument will be used (Bekostigingsbesluit); this statement has to be published before the
realisation measures are started. The system is complex, and has some important limitations:
• All land that profits has to be taken into account in this taxation. As a consequence of
this, also the owners of land outside the development area have to pay for the public
facilities, if the land they own profits from the measures.
• The division of costs to be recovered should only be based on the amount of profit the
parcels involved gain by realization of the public works. The surface of the parcels can
be taken into account; however not for example the types of houses to be realized
(because there is no relation with the profit) and not the initial value of the land (De
Wolff, 2001).
• The levying of this tax is difficult, and a mistake in the procedure can have major
consequences, namely the judge can declare the tax non-binding (as q consequence of
which the government has to pay all the costs itself).
Because of the limitations, the instrument is hardly ever used for cost recovery in urban
extension areas.
Criticism of the current system
Since 1990, the current system has been debated in the Netherlands. Because of the growing
interest of private developers in buying land, the risk of so called free riders (developers who
participate in the development, but do not pay (an equal) share in the development costs) has
grown. Therefore, the association of municipalities and also the association of the bigger
private developing companies pleaded for adapting the legislation. The main idea was to
change the cost recovery system of the Land development byelaw so that it could be enforced.
However, the first attempt to introduce a new land development tax was seriously criticized
by the Council of State (who advises the Dutch government and parliament on legislation and
governance).
In the 2001, value capturing became again an issue when Central Government issued a
Memorandum of Central Government on Land Policy (Ministerie van VROM, 2001). The
memorandum suggested that research into some kind of “open space tax” was desirable. In a
research project different options were presented (Korthals Altes, forthcoming). However, the
(new) government decided negatively.
Besides this “open space tax”, the memorandum again addressed the issue to improve the
instruments for cost recovery, introducing a land development permit. Since then, the
preliminary work on a new Act started, which has resulted in a proposal which has recently
been approved by Dutch Parliament: the Land development Act.
The proposed land development Act
In the Netherlands, in 2008 a new Spatial Planning Act will come into force (Wet ruimtelijke
ordening). As a part of this new act, the legal instruments for cost recovery will be changed.
This part has been discussed separately in Parliament, and is also called the Land
development Act (Grondexploitatiewet).
The new system will change the current system fundamentally, al least on paper. With respect
to the content of the system, two main adaptations will be made: (1) the possibilities for
agreements dealing with cost recovery or value capturing are enlarged and (2) the possibilities
for enforcing a contribution from a private developer are enlarged.
Workshop: Legal Aspects of Housing, Land and Planning
Author: Herman de Wolff
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