The Minister for Housing, Local Government and Heritage published an updated General Scheme for the Land Value Sharing and Urban Development Zones Bill on 14 April 2023. This proposed legislation provides for a new Land Value Sharing (LVS) contribution of 30% on the difference between existing use value and the market value on land zoned for residential development (and, in time, land zoned for industrial and commercial development).

Previous iteration of the General Scheme

The General Scheme of the Land Value Sharing and Urban Development Zones Bill was first published in December 2021. The initial General Scheme referred specifically to ‘newly-zoned land’ and Urban Development Zones and sought to capture the LVS contribution at the end of the development process in connection with the grant of planning permission. The proposed contribution of 30% was on the increase in the value of land which has been zoned residential or mixed-use including residential.

The Explanatory Memorandum to the updated General Scheme provided some policy background as to the initial measures and the proposed changes thereto. The aim of LVS is to ensure that local authorities and communities benefit from a fairer share in land value increases arising from State decisions relating to the zoning of land. The increased revenue to local authorities will be available to provide infrastructure to support housing and other development and increase housing supply as a result.

Furthermore, it is noted in the Explanatory Memorandum that LVS aims to reduce “land speculation” and so reduce land price inflation.

It is proposed that the LVS will apply in addition to existing Part V obligations and development levies (e.g. section 48 and section 49 levies), such that the overall share of the State may be upwards of 50% of the uplift in value.
The updated General Scheme was approved by Cabinet following engagement with the Attorney General’s office and the Valuation Office, as well as an economic appraisal of the proposed measures undertaken by Indecon International Research Economists.

What is being proposed in the Updated General Scheme?

The key elements of the updated General Scheme are as follows:

Scope of the LVS Contribution

• The updated General Scheme will apply to Residential Zoned Land, commercial or industrial use land, and mixed use including residential or commercial. Housing for All originally stated that the LVS would only apply to newly zoned land. However, this is no longer the case. It is now proposed that the LVS will apply to existing and newly zoned land. This is a very significant change, and all owners of zoned land (as well as prospective purchasers) will need to consider the impact of this contribution on their development costs. This will also be a significant consideration when negotiating the price of land going forward.

Operation of the LVS Contribution

• The LVS contribution will be a condition of a grant of planning permission (unless it has been paid in advance). Development cannot commence until the contribution is paid. The contribution may (at the discretion of the local authority) be paid in kind by land contribution or the development of infrastructure where an agreement is made with the relevant planning authority.
• Transitional arrangements have also been introduced such that the charge will apply to:
  • Lands (excluding those zoned Commercial or Industrial) which fall within the scope of LVS and which have been acquired post 21 December 2021, with respect to planning applications lodged from 1 December 2024.
  • Lands (excluding those zoned Commercial or Industrial) which fall within the scope of LVS and which have been acquired before 21 December 2021, with respect to planning applications lodged from 1 December 2025.
  • Planning applications to develop lands zoned Commercial or Industrial will fall within scope from March 2026 and applications lodged from December 2026 will be subject to the LVS regime.
• The transitional measures provide a “target” date to have planning applications submitted such that they are “in the system” and, if planning permission is then granted, the LVS contribution will not apply. It should be noted that planning permission would need to be granted to actually benefit from the transitional measures.

• The LVS contribution will be a statutory charge on the land until it is paid.

Calculation of the LVS Contribution

• The calculation of the obligation is based on the uplift between the existing use value (EUV) of the land and the market value (MV) of the land at the point of the most recent zoning and is calculated as follows:
  • MV – EUV
  • MV = The Market Value of the land at the valuation date i.e. the price for which the land should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion (ignoring any value attributable to an existing planning permission),
  • EUV = The Existing Use Value of the land at the valuation date, i.e., the value of the land on the valuation date on the basis that it would have been unlawful to carry out any development on that land other than exempted development. This will typically be agricultural value for greenfield sites.
• In contrast to the initial draft of the General Scheme, the LVS uplift relates solely to the decision to zone the land as opposed to the final value which accrues with the grant of planning permission.

• Landowners should note that the uplift is not based on the difference between the price paid for a site and the market value post-zoning. The existing use value will apply as the base in all cases. This may be of particular concern to owners of already zoned land as it is unlikely this new contribution will have been factored into the original purchase price.

• As noted above, it is the most recent zoning that is relevant (including the date of designation as an urban development zone/strategic development zone). As such, even where land was zoned, for example, under a previous development plan (e.g. 2016), it is the market value as at the date of the latest development plan zoning (e.g. 2022) that will be relevant for the LVS.

• The LVS mechanism proposes to capture 30% of the uplift as mentioned above. However, the proposals also include a mechanism whereby the Minister may, with the approval of the Houses of the Oireachtas, amend the rate having regard to a range of rates being not lower than 20% and not higher than 30% of the uplift as calculated above.

Let’s take the example of 20 acres of land zoned for residential development, with agricultural/existing use value of €20,000 per acre and market/zoned value (ignoring any planning permission on site) of €500,000 per acre:

This will be a significant cost of development. The impact of this is magnified when you factor in other taxes such as stamp duty, RZLT, income tax/corporation tax and VAT and also development levies and Part V requirements.

Self-Assessment Process

• Planning authorities will be required to publish a map showing the lands in scope for LVS (being all lands zoned for residential and mixed-use including residential) in March 2024. Owners of ‘substantially undeveloped’ land falling into scope for LVS will be required to submit self- assessments of the EUV and MV calculations with respect of lands within their ownership by 1 July 2024, for entry by the planning authority onto a Land Value Sharing Register. Substantially undeveloped lands will typically be lands included on the RZLT map of the relevant local authority.

• Owners of other lands in scope have the option to submit self-assessed valuations to the planning authority for entry onto the register and make an early payment of the LVS

• contribution in order to discharge their obligation at any early stage.

• The LVS process is based on a self-assessment methodology, with landowners required to submit valuations to the planning authority. However, the planning authorities may undertake an assessment of the self-assessed valuations at any time and may amend the valuation accordingly.

• Otherwise, the self-assessment is only required when a planning application is submitted. The local authority can postpone any decision until a self-assessment is completed and as stated above can effectively override a self-assessment with its own valuation, but the landowner can then appeal this assessment to the Valuations Tribunal.
  

Ringfencing of the LVS funds

• The requirement for funds collected to be localised and used for infrastructure in the vicinity of the land within the scope of the charge has been dropped from the current version of the General Scheme.

Exemptions/Exclusions

The updated General Scheme includes exclusions for:

• Social and/or affordable housing or cost rental developments where such houses are to be made available for letting or sale (unless only part of the development relates to the provision of such housing in which case a land value sharing contribution shall be payable in respect of the remainder of the development);

• The conversion of an existing building or the reconstruction of a building to create one or more dwellings, provided that 50% or more of the existing external fabric of the building is retained;

• Planning applications relating to the development of 4 or fewer houses, and

• Planning applications relating to the commercial or industrial development where the net additional floor space is 500sqm or less.

While not forming part of the updated General Scheme, the accompanying Explanatory Memorandum also makes reference to the need for exemptions to facilitate small-scale development for housing on land of 0.1 hectares or less.

Provision has also been made to prevent the “splitting” of planning applications specifically to claim the above exemptions and avoid the contribution.

Our view

There is a significant risk that the General Scheme as currently proposed will result in an increase in the cost of the delivery of new homes and a reduction in supply e.g. when taken in the round the total cost of taxes/levies/Part V requirements may be significantly higher than that in place currently.

In addition to the overall impact on costs, the retrospective inclusion of previously zoned land is likely to be the most contentious change provided for in the updated General Scheme. Landowners who have developed business plans and obtained funding in the world prior to the updated General Scheme face difficult conversations as to how the additional 30% cost should be funded and what this means for prices charged to end users.

The proposed changes also add to the air of uncertainty in the market e.g. market participants may decide to pause on new acquisitions until more is known on how the final Bill will operate. This is at a time when uncertainty is already prevalent in the market e.g. participants will be trying to factor in the upcoming first valuation date for the Residential Zoned Land Tax and the ongoing submission/appeals process in connection with same. A core foundation of our FDI proposition for many years is certainty of regime. The implementation the LVS in its current form risks undermining our attractiveness to foreign capital providers (who play a key role in the market).

A further consideration which is topical is how the funds collected from the LVS will be divided up. While the initial General Scheme’s commitment to the localising of the funds collected to the vicinity of the land being charged may have indirectly contributed to the progression of developments by local landowners, the removal of this proposal raises questions around whether LVS contributions locally would accelerate the development of local infrastructure or whether the funds would be used elsewhere such that the development timeline for local infrastructure remains unchanged.

While in principle, there are clear arguments for why a form of LVS contribution has merit, retrospectively changing the rules for those who already have acquired land is a precedent which is potentially damaging to Ireland Inc.

We would hope that prior to finalising the legislation, a mechanism can be found to allow the LVS to operate as a prospective rather than retrospective measure to ensure that those participating in the market have the opportunity to factor in the cost of the LVS prior to any land acquisitions.

Finally, the transitional measures proposed do not take into account landowners who effectively cannot apply for (or get) planning permission due to factors outside of their control (e.g. development plan or local area plan provide for development on a phased basis only, such that a landowner cannot get planning permission until other land/infrastructure is developed). We would suggest this position is considered in detail prior to finalisation.

What next?

The updated General Scheme is due for pre-legislative scrutiny before the Joint Committee on Housing, Local Government and Heritage.

Ultimately, it is expected that the proposed LVS legislation will consolidate with the new Planning and Development Bill which has recently passed through pre-legislative scrutiny and is at a more advanced stage in the legislative process.