Property and Land: Windfall tax on land gains to help with housebuilding drive

Sweeping reforms of planning laws and a windfall tax on property developments to raise up to £3bn were unveiled yesterday as part of a drive to increase the number of homes built in Britain.

Gordon Brown said the supply of new homes was not keeping up with the growing population, forcing up house prices and putting the property ladder out of reach for an increasing number. The Government says if it fails to increase the number of new homes, within 20 years less than a third of 30-year olds will be able to afford to buy their own home.

In order to increase the number of new houses built each year from 150,000 to 200,000, the Government is planning to reform the planning system so that more brownfield land is released for housing needs. It is also planning to allow fast-tracked planning applications to speed up the development process.

One of the most controversial plans put forward yesterday, though, was for a tax on land that has won planning permission.

Site valuations soar once planning permission has been granted, sometimes by as much as 10-fold, and the Government yesterday said it would tax developers on that gain in value.

The proceeds would then be channelled back in to communities to provide the local infrastructure, such as transport links and schools, which the new housing developments need. The tax will be "largely a local measure, its proceeds recycled to the local level for local priorities and for the vital strategic infrastructure needed for new development," the Treasury said.

Property developers, however, warned the Government not to set the tax rate too high, or landowners would sit on their sites and leave them undeveloped. Michael Caden, of the accountancy firm, BDO Stoy Hayward, said, "The rate the levy is set should not be placed so high as to disincentivise developers and a consistent, simple formula to calculate the increase due for granted planning permission will be needed. Otherwise, the cost and administrative burden will hamper the release of much needed land."

The Government has begun a consultation process on the land tax, called a "planning gain supplement" and it will not be introduced until 2008. That may kick-start a rush of developments in the next three years. Mr Caden said, "As the levy is two years away, there may be resulting early pressure to get developments off the ground before the new regime. Planning authorities should prepare for a surge in applications."

The Government also committed to increase spending on social housing, building 10,000 new homes a year by 2007 - a 50 per cent increase on current rates. But housing campaigners said this was not enough. Adam Sampson of the charity, Shelter, said "The Chancellor has today shown the Government recognises the scale of the housing crisis and is prepared to take on concerns over environmental impact and infrastructure funding. Howeve,r despite record numbers of homeless households trapped in temporary accommodation and chronic overcrowding, the Government has still not specified what proportion of the new homes announced will be allocated as social rented housing for those in the greatest need ." He says the country needs an additional 20,000 new social homes per year.

The plans were also met with fury from environmental campaigners, who said the Government was heading for environmental disaster.

Friends of the Earth said the new planning guidelines would allow a massive increase in house-building in area such as the South-east, which it says are already suffering from over-development. "Much-heralded plans to reduce the impact that new houses have on the environment are likely to be completely ineffectual," the group said, saying the voluntary code put forward by the Government for sustainable building would most likely be ignored.

The Government was accused of not doing enough to push development of brownfield sites. Jim Buckle, of the property website, propertyfinder.com, said, "Some 35 per cent of new homes are still being built on greenfield sites, according to Government data. There is still plenty of recyclable land in Britain's urban areas."