Netherlands
Land value capture in the Netherlands
Developer obligations and strategic land management are systematically used in the country (Table 2.39). Municipalities always charge developer obligations, since they are part of the regular planning procedure. Strategic land management is a prominent feature of the country’s active land policy. Due to disputes over the calculation method, the infrastructure levy is rarely implemented. Urban land readjustment is yet to be implemented. There is no legal provision for charges for development rights.
Enabling framework
The Netherlands is a unitary state with three levels of government: the national level, 12 provinces and 380 municipalities (OECD, 2017, p. 154[2]). The national government creates the legal framework of spatial planning and land value capture. According to the principle of “cost recovery”, property owners must compensate public investments that benefit them. Municipalities are responsible for land use policy and for designing and implementing land value capture instruments.
The Environment and Planning Act enacted in 2016 brought substantial changes to developer obligations and land readjustment. Implementation, however, is expected for the second half of 2022. Other important national laws are the Law for Municipalities (1992) and the Decree on the budget and accountability of the provinces and municipalities (2003).
Developer obligations
Developer obligations, which are part of regular planning practice in the country, seek to compensate impacts new development or development at higher density have on local infrastructure. Around 95% of developer obligations are based on voluntary agreements whereby developers provide land, public spaces, roads and parking space (exploitatiebijdrage). Municipalities have substantial discretion to define the amount and form of contribution. If no agreement is made, municipalities can impose a fee to be paid in cash (exploitatieplan). Municipalities always implement developer obligations and collect the revenues.
The fee is calculated based on the costs of the public infrastructure, the land value and the market value of investment. The contribution must cover all on-site infrastructure costs and proportionally all directly-connected off-site infrastructure costs. Non-directly-connected off-site infrastructure costs such as ring roads or recreational areas may be included too. Municipalities can set their own criteria to calculate the fee (Environment and Planning Act of 2016). In any case, the charge must be paid before or at the time the development receives approval. Smaller developments may be exempt from payment.
If the obligation consists of the provision of social housing units, the units must be built on-site. Developers provide the land, and a housing association builds the units. In fact, all affordable housing in the country is built and owned by housing associations. Beneficiaries are households with income below a level defined and adjusted yearly by the national government. Housing associations typically keep the majority of their housing stock affordable for a long time. However, a small part of the affordable units are sold annually to the users of these units. Alternatively, developers may satisfy the requirement by in cash compensation, if the municipality agrees.
The recent Environment and Planning Act (2016) instituted a differentiation between “integrated projects” and “organic projects”. Integrated projects require a voluntary agreement to be reached in relation to developer obligations before a planning permission is granted. Organic projects are a vision for future development published by municipalities and are not legally binding. In organic projects, developer obligations can be established at a later stage of project development, which is an innovation.
The main challenge to implementation is the cost-benefit relation. The revenues collected and the public improvements provided do not always justify the costs of charging for development approvals. Developers consider the charges to be financially unviable and have resisted attempts to increase them.
Strategic land management
Strategic land management plays a crucial role in spatial planning, housing policy and land value capture. As part of a forward-looking land policy, local governments acquire and retain land in advance of needs for the purposes of urban development and renewal, land consolidation, control of urban growth patterns and spatial planning and capture of capital gains. The government does not hold a significant amount of land but manages this asset strategically.
Local governments typically acquire vacant, abandoned or unproductive land. They purchase land at either market price or reduced price. In the case of a purchase of land owned by a private developer the government grants the ‘developing landowners’ a development right in subsequent development. Either way, land acquisition is financed via debt financing, such as bonds.
Local governments rezone and develop the acquired land. They carry out basic physical preparation and servicing and build public spaces, roads and parking, and sometimes public utilities. Since the 1990s, there has been a trend of forming joint ventures, which are a form of private-public partnership, to conduct these projects. Before then, local governments usually conducted the projects alone.
Local governments recover investments through the sale or lease of the developed plots. They are forbidden by law to sell land below market value. Land is sold at a predetermined price to preferred buyers or in public tenders. Tender criteria may include qualitative aspects of the development plan, with the aim of orienting preferred land uses, such as residential or commercial, depending on the area.
Local governments make moderate use of public land leasing. They do so to generate public revenues, provide land for real estate development and facilitate development with a public purpose.
The ground rent is calculated as a percentage of the land value and paid in installments or in a lump-sum, in which case discounts are granted. Leaseholders can transfer the lease or sublease the land to a third party.
In practice, only the four largest cities – Amsterdam, Rotterdam, The Hague and Utrecht – make use of public land lease. Recently, these cities modified lease contracts, by turning them into “perpetual leases” of 50 or 100 years. Leaseholders considered the readjustment fees to be expensive, which generated public discussion.
The main challenges to implementation are the little amount of land available to lease and the high costs of strategic land management operations, in comparison to the economic benefits accrued.
Infrastructure levy
Local governments can charge property owners part of the costs of public infrastructure works, as long as the public infrastructure directly services the property and increases its value. Although the instrument has been in place for most of the 20th century, local governments rarely implement it.
The levy is calculated according to the costs of infrastructure provision. It does not relate to the capacity to pay of property owners. No discounts or exemptions to payment are admitted.
Local governments can only charge the levy for the costs of new infrastructure provision. In practice, they have difficulty distinguishing between costs of infrastructure provision and costs of maintenance.
The main implementation challenge is the risk of the levy being overruled by courts. Landowners often challenge the calculation method in the courts, which have ruled that the charge was unfair on several occasions. In this case, municipalities have to bear all infrastructure costs. As a consequence, they have become averse to the risks of adopting the instrument.
Land readjustment
Private landowners can promote urban land readjustment for the purposes of urban expansion, urban development and renewal, brownfield regeneration and post-disaster reconstruction. Agricultural land readjustment has existed in the country for more than 100 years, but urban land readjustment is new, having been introduced in 2016 (Environment and Planning Act). Implementation can start after ordinances detailing the procedures and operations are enacted.
Land readjustment is defined as an "agreement of three or more owners to merge certain properties owned by them, to readjust these properties in a certain way, and to divide it among each other based on a notarial deed." (Environment and Planning Act, 2016).
Participating landowners must agree on plot reallocation. If the reallocated plots are not equally distributed, one landowner will have to pay cash compensation to another. Public entities will not receive the revenues from cash compensation for readjusted lots.
All costs of public improvement must be recovered from the project. A share of land will be reserved for public improvements, such as public space, roads, parking, public utilities and facilities and social housing.
There are no challenges as of yet, but some resistance by landowners is expected, not only for being a new type of arrangement but also because profit margins are unknown. Moreover, if the government needs to be involved to carry out expropriations, the process may become costly and lengthy.
References
[3] OECD (2022), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 13 January 2022).
[8] OECD (2021), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 25 November 2021).
[2] OECD (2017), Land-use Planning Systems in the OECD: Country Fact Sheets, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/9789264268579-en.
[1] OECD/UCLG (2019), 2019 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles, OECD/UCLG.