How to solve the Planning Dilemma.

In Ireland we have a healthy democracy and any attempt to curtail property rights are usually tested in the courts. The Government is fully aware of this and very cautious in introducing any legislative changes which would impact on property rights. Unfortunately we end up with stalemate and the same problems we are dealing with today will arise in the future!

During the Celtic Tiger we all remember the chaotic scenes in local council chambers as development plans were announced and a lucky landowner won the lotto! Unfortunately we now know that in some instances the planning process was influenced corruptly. The landowner usually sold quickly to a developer who probably broke up the site and sold parcels to a number of builders. 

The builders as the last link in the chain with all the responsibility were stretched financially and needed to sell the final product at maximum prices to make a profit. When the music stopped the market collapsed and we have ended up with ghost estates and many incomplete estates lacking infrastructure or promised amenities. 

There is very little point in telephoning the original landowner asking for some of the capital gain to finish the estate! He or she is long gone and not responsible for the developer or builder’s failure to complete the housing estate. The system failed but there are are no legislative proposals in train to change the current planning systems. Obviously the market is depressed today so the issue does not arise but what happens in ten years. Will we create the same debacle all over again?  

Fundamental Issue.

The capital gain from the change of use from agricultural land to development land does not recognize the capital cost of transforming the land. Most countries have mechanisms in place to stop a landowner gaining disproportionately from planning decisions.

Solution.

The council must estimate the infrastructure cost of any change of planning which confers the benefit of development rights on a parcel of land. The planning permission is announced with the infrastructure cost specified. If the landowner decides to sell the land then part of the sale proceeds are placed in Irish Government Stock to ultimately pay for the development costs.   If the land-owner decides to tackle developing the land themselves then there is no windfall profit and the infrastructure costs will arise in the normal course of development.

This takes nothing away from the cultural attachment that we have to land ownership. The bond only arises if the land is sold and then it reflects the cost of turning raw land into a serviced site.  In the case of a brown-field site it will reflect the lower cost of turning the current use of the site into a serviced site.

If the land is sold or part sold then the development bond is withheld from the proceeds and kept in trust for the ultimate development of the site. The market will pay the going rate for development land but the cost of the infrastructure will be there for the last person in the chain who actually has to build something.

This solution allows the individual landowner to keep or sell his property. When it is sold for development the cost of the infrastructure is spelt out, put aside and ensures that the development can be carried out in the future. The final builder can draw down the money from the sale of the bonds with completion statements signed by a qualified professional.