Planning permission can significantly increase the value of land, but there is no fixed percentage or multiplier that applies to every site. The amount of value created depends on what can be built, the likely value of the completed development, development costs, planning obligations, site constraints, market conditions and the level of risk involved.
How Much Does Planning Permission Add to Land Value?
There is no standard amount that planning permission adds to land value. In some cases, planning permission can create a substantial increase in value, while in others the uplift may be much smaller.
The key question is not simply whether planning permission has been granted. It is what the permission allows to be built and whether that development is commercially viable.
Factors such as the number and type of properties, local property values, development costs, access, infrastructure, planning obligations and abnormal costs can all have a major effect on the resulting land value.
Why Does Planning Permission Increase Land Value?
Land is generally worth more when there is greater certainty about what can be developed on it.
A piece of land without planning permission may have potential, but there can be considerable uncertainty around whether development will actually be permitted, what form it might take and how long the process could take.
Planning permission can reduce some of that uncertainty by establishing an approved development scheme.
For example, there is a significant difference between:
- land with no identified development opportunity;
- land with credible potential for development;
- land with planning permission in principle or outline permission; and
- land with an implementable planning permission for a viable development.
However, planning permission does not automatically create a particular amount of value. The economics of the approved scheme still need to work.
How Is Land With Planning Permission Actually Valued?
Development land is often considered using a residual valuation approach.
In simple terms, the starting point is the potential value of the completed development. The costs of creating that development and an appropriate return for the developer are then taken into account to establish what may be available for the land.
A Simplified Example
Value of completed development
minus development and associated costs
minus appropriate developer return
= residual amount available for the land
This is a simplified explanation rather than a formal valuation. Actual development appraisals can involve many additional assumptions and variables.
Government viability guidance considers factors including gross development value, build costs, abnormal costs, infrastructure, planning obligations, finance, professional costs, land value and developer return when assessing development viability.
This is why two sites with the same amount of land can have very different development values.
What Determines the Value of Land With Planning Permission?
The value created by planning permission depends on the underlying development opportunity. Important factors include:
1. What Can Actually Be Built?
A planning permission for one house will obviously create a different development proposition from permission for twenty homes.
The type, size and number of properties permitted can have a major effect on the potential value of the site.
2. Local Property Values
The value of the completed development is influenced by the local property market.
A permission for high-value houses in a strong local market may produce a very different land value from a similar permission in an area where achievable sales values are lower.
3. Development Costs
The cost of delivering the development has to be taken into account.
This can include construction, professional fees, finance, infrastructure, highways works, utilities and other costs associated with bringing the scheme forward.
4. Planning Obligations and Other Requirements
Planning obligations and other policy requirements can affect the economics of a development.
Depending on the scheme and location, these may include matters such as affordable housing, Section 106 obligations, Community Infrastructure Levy where applicable and biodiversity requirements.
5. Access and Infrastructure
A planning permission does not necessarily mean that a site is straightforward to develop.
Access arrangements, highways requirements, drainage, utilities and other infrastructure can materially affect the cost and feasibility of a scheme.
6. Abnormal Site Costs
Ground conditions, contamination, flood risk, retaining structures, difficult access or other site-specific issues can introduce additional costs.
These costs can reduce the amount a purchaser or developer is able to pay for the land.
7. Market Conditions
Development land values are not static.
Changes in house prices, build costs, interest rates, demand and developer appetite can all affect the amount a developer is prepared to pay.
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Is Land With Planning Permission Always Worth More?
Not necessarily by the amount a landowner might expect.
Planning permission generally provides greater certainty, but the value of that permission depends on whether the permitted scheme is commercially viable.
For example, a site could have planning permission but still face:
- high infrastructure costs;
- expensive highways requirements;
- significant planning obligations;
- abnormal construction costs;
- weak local sales values; or
- conditions that make implementation more complicated or expensive.
In those circumstances, the planning permission may still add value, but the increase may be considerably less than a simple comparison of land before and after planning permission would suggest.
Does Full Planning Permission Add More Value Than Outline Permission?
Full planning permission can provide a greater degree of certainty because the development scheme has generally been considered in more detail.
Outline permission can also create significant value, particularly where there is a clear and commercially attractive development opportunity, but some matters may remain to be resolved.
The difference in value therefore depends on the circumstances of the individual site rather than a universal percentage uplift.
Planning Permission Is Not the Only Consideration
When assessing land value, it is important to look beyond the existence of the planning consent and understand exactly what has been approved, what conditions remain, what it will cost to deliver and what the completed development is realistically worth.
Can Planning Permission Increase the Value of Agricultural Land?
It can, particularly where planning permission establishes a viable development opportunity that is significantly more valuable than the land’s existing use.
However, agricultural land should not automatically be assumed to have residential development value simply because it is close to existing houses or a settlement.
Planning policy, settlement location, access, landscape, ecology, infrastructure, flood risk and many other factors can influence whether development is realistically achievable.
Where a landowner believes their agricultural land may have development potential, it can therefore be useful to assess the site before deciding whether to sell it in its existing form or explore a planning-led strategy.
Should You Get Planning Permission Before Selling Your Land?
There is no single answer that applies to every landowner.
Some landowners may prefer to sell their land without taking on the time, cost and uncertainty associated with pursuing planning permission.
Others may decide that exploring planning potential first could produce a stronger commercial outcome.
There are also strategies where a landowner works with a developer or land promoter to pursue planning before the land is ultimately sold.
The appropriate route depends on the site, the landowner’s objectives, the planning prospects and the potential economics of the development.
Before making a decision, it is worth understanding what development potential your land may have and what options are realistically available.
Frequently Asked Questions
How much does planning permission add to land value?
There is no fixed percentage or multiplier. Planning permission can create a substantial increase in land value, but the amount depends on the approved development, local property values, development costs, planning obligations, site constraints and market conditions.
Does planning permission always increase land value?
Planning permission can increase value by providing greater certainty about what can be developed, but the financial benefit depends on whether the permitted scheme is commercially viable. High development costs or significant planning obligations can reduce the resulting land value.
Is land with planning permission worth more than agricultural land?
It can be, where the planning permission creates a viable development opportunity that is substantially more valuable than the existing agricultural use. However, there is no automatic uplift because each site and planning permission is different.
Does outline planning permission increase land value?
Outline planning permission can increase land value by providing greater certainty that development may be achievable. The amount of value created depends on the scope of the permission, the matters still to be resolved and the economics of the potential development.
Does full planning permission add more value than outline permission?
Full planning permission can provide greater certainty about the approved scheme, but the difference in value depends on the individual site. The important consideration is what can actually be delivered and what it will cost.
Can planning permission decrease the value of land?
Planning permission itself is not normally viewed simply as a reduction in value, but an approved scheme can reveal costs, obligations or development constraints that affect the economics of the site. A permission therefore needs to be assessed on its actual terms rather than assumed to have a particular value uplift.
How is development land valued?
Development land is commonly assessed by considering the potential value of the completed development and deducting the costs and appropriate developer return required to deliver it. This is often referred to as a residual valuation approach.
Should I get planning permission before selling my land?
It depends on the site and your objectives. Obtaining planning permission may increase value, but pursuing planning also involves time, cost and risk. Some landowners may therefore consider selling, planning promotion or another strategy depending on the circumstances.
Have a Question About Your Land?
If you are unsure what the information in this guide means for your particular site, or simply have a question about your land or planning position, contact Revive Estates Group for assistance.