Ever Heard of Development Land TAX?

1st June 2004

T. Wyn Jones

In April 2003 the Chancellor of the Exchequer and Deputy Prime Minister set up a review which was carried out by Ms Kate Barker, a member of the Bank of England’s Monetary Policy Committee.

The review published some months back titled “Delivering Stability – Securing our Future Housing Needs” found that in 2001 approximately 175,000 houses were built in the UK the lowest level since the second world war with the number of houses built in the last decade being 12.5% lower than that of the previous decade.

In addition, over the last thirty years UK house prices increased by 2.4% a year in real terms (compared to Germany and France 0% & 0.8% respectively) with latest evidence suggesting a massive increase. This weak supply in housing was found to be a major contributing factor in properties becoming increasingly unaffordable. For example in 2002 only 30% of new households in England could afford to buy a house compared to 46% in the 1980s.

The report also set out a series of policy recommendations to address the lack of supply and responsiveness of housing in the UK, one of which will send shudders down the backs of land owners, I quote: -

“Landowners and developers typically make windfall gains as a result of residential planning permission being granted, especially where this is on green-field sites. These windfall or development gains result from the increase in land values, as land for housing can be worth up to 300 times more than agricultural land. It is right that the community shares in this increase in value, which could provide funding for other policies important to increasing housing, supply. Reforms in this area would also bring certainty and simplicity to the system, compared to the present situation whereby contributions are made through complex and protracted Section 106 negotiations”

In response to both this and other recommendations & consultations indications are that the government is considering a “Development Land Tax” which could become payable on granting planning permission. That is an additional tax to the current Capital Gains Tax that becomes payable when such land is sold.

However, as is always the case there may be a flip side. If the “Development Land Tax” is implemented the respective landowners may resist the temptation to obtain planning permission. This in turn would lead to a further decrease in the supply of building land resulting in an increase in house prices – precisely the opposite to the desired end result of this policy.

There is no doubt that something has to be done to aid the property market and provide affordable housing both in the urban and rural sector but there has to be careful consideration prior to the implementation of any policy as there is a danger that the Government may make matters even worse and kill the goose that lays the golden egg.

For further information on Property Matters Wyn can be contacted on Tel 07702 722905 or by e-mail on wyn@mccartneys.co.uk