Air Rights – a New Way for Developers to Make Money
Property investors who want to make money out of nothing need to explore how air rights impact the value of land and properties. Air rights have always been there, but it’s only recently that the extra space has added value to homes.
Air rights add a new dimension to extending land or property, and investors who don’t understand how they work could be missing a costly trick.
Air rights and property development
Air rights are not something for nothing – if property investors invoke their rights, the taxman will want a slice of the pie. HM Revenue & Customs will tax the value of air rights added to a property under capital gains tax rules. CGT is applied to any building on a plot of land, any object fixed to the land, like a wind turbine, mineral rights and any air space above the land.
Your air rights
Air rights are the building space extending upwards from the land you own – including any upwards extension to any building that’s already there. The Civil Aviation Act limits air rights. Investors cannot build so high that a property interferes with the free passage of aircraft, and local planners may place restrictions on a development’s height, covering issues like how a building impacts the skyline and the right to light of neighbours.
Rulings are rare and can vary between council planners depending on local factors with a rule of thumb is air rights generally extend between 500 feet and 1,000 feet above a plot of land.
The importance of air rights
The price of a plot of land or a building doesn’t typically include air rights, but valuers increasingly have them.
Say an investor buys a plot of land at auction with a two-storey house. Many investors would look at the plot and see a chance to add value by extending the house outwards or into the loft, but other more canny buyers might see a flat-roofed property could push upwards a floor or two to push the value even higher.
With the latest government announcement to allow developers to add two storeys to a home under permitted development rights, this becomes even more of a possibility.
Some architects argue that air rights are a long-overlooked solution to housing demand. Robert Wilson, architectural director at Granit, explains development sites are increasingly hard to find in urban areas; building upwards allows people to live in city centres near offices, shops and entertainment while releasing the pressure to develop green belt areas.
He also points out that land-rich but capital-poor property investors can exploit an untapped source of income. He cites the example of a client wanting to convert two one-bed apartments to two duplex apartments by going upwards from the roof.
Another of the firm’s clients is adding six penthouse flats to the top of a mansion block by exploiting air rights. Air rights can also become vital with properties going under the hammer. It’s feasible that the air rights and PDR will allow distorted development values, with homes with the potential for building up and outgoing cheaply to canny buyers at property auctions.
Air rights v right to light
Right to light stops neighbours from developing their land in a way that obstructs each other’s windows. Surveyors carry out some complicated math to determine how much light someone should enjoy, and if a building interrupts that light, the wronged party can seek compensation. Air rights can easily interfere with the right to light, and any development close to another building can infringe the path of light, so developers must make sure any air rights stay within the correct parameters.
Find out more about right to light
New PDR for flats explained
Housing Secretary Robert Jenrick has revealed new permitted development rights (PDR) for the owners of blocks of flats. Owners can now add two-storey extensions to detached blocks of flats already three or more floors high.
The PDR comes with conditions:
- The flats must have been built between July 1, 1948 and March 5, 2018
- The block must be purpose-built as flats
- Any new floors must have the same floor-to-ceiling height as the existing floors and can measure no more than three metres.
New PDR for homes Explained.
Following his PDR proposals for flats, Jenrick also announced plans to rejig PDR for homes and commercial buildings from September 2020. Owners, including landlords, can add two floors to a home without planning permission, bearing in mind the impact on neighbours and how the extension looks. He also laid draft legislation before Parliament that will open the way for commercial property owners to demolish and rebuild homes with fast-track planning permission.
PDR and air rights
The new PDR rules make exploiting their air rights to build higher or convert commercial property to homes much more straightforward. For instance, landlords can explore adding rooms in houses with multiple occupations to generate more rent and increase the property's value. Commercial landlords will also have an easier path to repurposing their properties as housing.
Air rights FAQ
Air rights may have been around for years. Still, they are a new financial opportunity for developers, landlords and other property investors seeking to monetise their land and buildings in urban neighbourhoods. They can represent a real opportunity to double land and property value in built-up areas. If you are unsure of your air rights, here are some answers to the most asked questions about making the most of them.
Do all land and buildings come with air rights?
Yes, although local planning restrictions may limit how high development can go.
Do air rights apply to all properties?
Yes, air rights apply to bare land and buildings on that land with some exceptions, like pubs, village shops and libraries. The idea of the new PDR is to enhance a neighbourhood without ripping out the heart of a community.
How is the value of air rights worked out?
There’s no going rate or price per cubic metre; the value of air rights depends on the merits of each building or development.
Can I keep my land and building but sell the air rights?
In principle, this is OK. For example, the owner of plush prime real estate may want to make sure views over your land are retained for tenants, which could make your air rights more valuable.
How are air rights claimed?
You took over the air rights to the property you owned when the purchase was completed unless the deeds show that they had already passed to someone else.
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Planning approval is essentially about controlling the use of land and is required to alter, extend or change the use of existing properties, or to make changes to a listed building or to a property in a conservation area