Increases in Value from Rezoned Land to be Shared with State

In a potentially contentious move, the Irish government is set to take up to 50 percent of land value increases after said land has been rezoned. The proposal will be included in the Housing for All plan. As highlighted by the Irish Times earlier this week, the plans are a radical departure from the existing legislation.

The new plans have been put forward by the Minister for Housing, Darragh O’Brien, and are set to be formally unveiled over the coming weeks. The proposed measures come as the government replaces its Rebuilding Ireland strategy to address the property crisis with the new Housing for All plan, which has been designated as being of the “highest priority” for the cabinet after the COVID-19 pandemic.
The new plans seek to ensure that it is not just developers and property owners who benefit from publicly authorized zoning changes. Instead, in order to receive planning permission, any increases in value that come as a result of such rezoning must be shared with the State.

For some, the government’s plans are reminiscent of the 1973 report issued by Mr. Justice John Kenny. Similar to current plans, the earlier Kenny report proposed government intervention when it came to property pricing, including a proposal for the government to derive “community benefit” from land value increases, but that proposal found little traction and was ultimately sidelined. Nearly 50 years later, the idea has found new life, now described as ‘Land Value Sharing’. The full details of the plan will be found in the Housing for All Plan, which is expected by Autumn 2021 after a delayed launch. However, before the legislation can be implemented, it will be subject to approval by the Attorney General, Paul Gallagher.

Housing for All Plan

The aim of the Housing for All plan is to counteract the growing concern over soaring housing prices and chronic lack of supply. The hope is that through increased rezoning, the delivery of new homes will ramp up to meet demand, and prices will correct themselves over time, with a goal of 2030 currently penciled in.

Underpinning the new housing plan is the idea that landowners and developers ought not to benefit exclusively from rezoning. Tackling this “profiteering”  is seen as the most politically-palatable way of addressing existing dysfunctions in the property market. This includes the speculative holding of land, in expectation of future development interest at an increased value. The new measures hope to ensure the public reap some of these benefits, with one of the Irish Times’ government sources claiming:

“It means that private benefit will be shared with the State to pay for public goods such as infrastructure and social and affordable housing.” [Interestingly, this is also what development contributions levied by local authorities are supposed to pay for…]

In making the legislative move, the government is expected to face backlash from landowners who will feel their constitutional property rights are being infringed. While this particular area has proved to be an issue for successive governments and policymakers for decades, the changes are expected to get the nod from the Attorney General, who described the Land Value Sharing proposals as constitutionally sound once underpinned with legislation.

With such large values involved, it seems unlikely landowners and developers will accept these changes without challenge.

Changes Expected Early 2022

Preliminary drafts of the proposed new laws are expected to be published in the Autumn, with the matter likely to be debated in September when the Dáil resumes. If successful, implementation is possible from early 2022. Also likely to be debated is the issue of when value increases are to be tracked. The existing plan is to track value from rezoning to the granting of planning permission, with value increases directed to “community gain”. The plans aim to cover all mixed-use zoning, including residential development.

In addition to the Land Value Sharing plans, the new strategy will prevent the long-term holding of zoned land and the perpetual reselling of it. Under the Strategic Housing Development, or SHD, regime, developers do not need to apply to local authorities for planning permission. However, with the SHD process due to be scrapped by February 2022, landowners will once again have to get planning permission from local authorities on their developments in a move that hopes to increase the relevance of new projects to communities. The changes also introduce a “use it or lose it” measure to prevent the speculative hoarding of zoned land, incentivising the industry to build now rather than later.

While developers do already make valuable contributions to the maintenance of roads and lighting under the existing levies, for the Housing Minister and his department, there is scope for far greater contributions, including doubling the provision of social and affordable housing by the private sector. We have yet to see significant pushback from the industry.