What are the Relationships Between Land Fund Managers, Local Governments and Planning Authorities?

There are formal and informal ways by which investor-funded developers achieve land-use changes. But community relationships, and flexibility, matter as well.

From an investor’s perspective, property fund managers are the professionals with the skill set necessary to grow assets that are put into property development. They ideally make the calls that are needed to buy land at a low price and resell it at a much higher price – the higher the better.

This is about more than clever and strategic physical development. There are key negotiating skills required of the people who guide these alternative investments through the process, starting with negotiation of the initial purchase price on the land. But of equal value is the negotiation and management of the planning permission function.

Local planning authorities (LPAs) are critical to the land-value appreciation formula. Most work objectively, trying to satisfy the needs of their constituents with appropriate and manageable growth programmes. But their decisions are not made in a vacuum – there are several means by which they determine whether or not to approve a land use change:

• Formal - It is incumbent on local planning authorities to have a set development plan in place, with which use changes should be in compliance. This requirement is emphasized by the National Planning Policy Framework, which published new requirements in 2012. There, the NPPF stipulated that LPAs establish a development plan to promote a net growth in housing in a relatively short timeframe. This requirement was put forth to enrol local municipalities in the cause to increase the stock of homes, a critical national need.

• Informal - Unfortunately, only about half of towns and cities in England and Wales have developed their NPPF-mandated plans as of mid-2014. Among those that do not, the process necessarily defaults to what developers propose to the authorities. Those authorities can reject proposals for any number of reasons, however it stands to reason that they would be predisposed to a positive review of such proposals because of the critical housing situation. Here is where property fund managers need to be artful and convincing at communicating the benefits of the particular development they propose.

• Community engagement - The Town and Country Planning Association advises that community participation be at the core of planning outcomes. Certainly, when there is a well-organised opposition group that opposes development the community can be vocal and powerful. But experienced land fund professionals should be able to identify shared goals – and make adaptations and adjustments to development plans – that create alliances within those communities that can at least bring balance to the discussion.

As agents of government, planning authorities strive to find consensus while honouring differing opinions. In a similar vein, investment groups work to identify commonality such that development can ultimately move forward.

Individuals who consider land as an investment should themselves find an independent financial advisor to look at two factors. One is the prospect of the real estate investment itself, and the other is determining how real estate and other forms of real assets factor into the investor’s unique wealth portfolio. The relative mid-term returns of land use-based investments (18-60 months, typically) are part of that consideration.