Windfall Tax For Owners For Planning Permission

Kate Barker has asked the Government to look again at the prospect of sharing in the windfall gains which accrue to landowners as a result of development decisions.

In her final report on Housing Supply, Kate Barker has asked the Government to look again at the prospect of sharing in the windfall gains which accrue to landowners as a result of development decisions.

This is one of a number of recommendations she has made under the heading of Contributing to Development.

It is evident that she has become convinced that access to land a key element in unlocking the potential of the house-building industry.

As she told the Chancellor of the Exchequer and the Deputy Prime Minister in presenting the report, for many people housing has become increasingly unaffordable, but the aspiration for home ownership is as strong as ever.

"Yet the reality is that for many this aspiration will remain unfulfilled unless the trend in real house prices is reduced.

This brings potential for an ever widening social and economic divide between those able to access market housing and those kept out.

Rising numbers in temporary accommodation is evidence of the polarisation which exists today." On the question of housing economics, Kate Barker considers tax policies as part of a package of reforms.

"Combined with policies to promote the supply of land, planning permissions and affordable housing, the result should be an increase in the amount of new housing overall, compared to a situation with no tax.

Indeed, many of these policies might not be possible without additional revenue to recycle.

"If Government is to reform the planning system to bring forward more land for development, it will increase the potential for unearned windfall development gains that can be made by landowners (including developers) from selling land for residential use.

Consequently, there is a strong case for Government to consider the use of tax measures to allow the community to share in the increase in development gains its actions will create." How then would Kate Barker propose to go about this task of deriving extra revenue from housing development without at the same time raising the cost of housing? She says that importantly, the ability of land to be used for housing supply is ultimately a function of the planning system, which explicitly aims to select only that land most suitable for residential development.

"It could be considered unfair to tax the value of land in order to create an incentive for residential development, but then to deny the possibility for such use, either permanently or for a number of years, through a restrictive planning system." Would such taxation be levied as a proportion of the land's existing use value, or at the residential value it is assumed to attain following successful navigation of the planning system? This, she believes, demonstrates the important fact that the planning system itself determines the value of land.

"On the one hand, taxing the land at current value would provide little incentive to sell, since the tax liability would likely be small; however taxing land at its assumed residential value would generate substantially larger liabilities, but no guarantee as to when - or indeed if - the land would eventually attain planning permission, again raising a concern about the fairness of the tax.

"Significantly, landowners who sell their land for residential use are typically the recipients of large windfall development gains.

Therefore, using a land value tax to further incentivise landowners to sell their land for residential use, and further encourage developers to build on it, may have little effect given the structure of cost and benefits that would exist anyway." Regular valuations needed for accurate assessments.

Kate Barker also points out that such a tax would require a national value register to be created.

"Given the volatility of land prices over recent years, regular valuations would be needed in order to tax accurately the underlying value of land assets." Such proposals lead to all sorts of questions.

Would it be more appropriate to levy tax on land already considered suitable and desirable for development, such as land allocated for development in the local plan, or land that has achieved some form of planning permission? She agrees that in such cases the tax would reflect the social value placed on the development and would add to the incentives for landowners to bring the land forward for development.

"However, once again land value taxes levied on land allocated for development in a local authority development plan, or subject to planning permission, raise issues of fairness.

The local authority decides which pieces of land are allocated for development and therefore which are liable for tax, and subsequently uses the sequential test to decide which pieces of land should be brought into the system first.

Once land had formally entered the planning system, the local authority would also be able to influence the rate of progress of the application as it moves through the various stages of the planning process.

"Landowners responding rationally to the tax, and attempting to facilitate building on their land to meet their tax liability, may therefore find that their application is delayed for a number of reasons beyond their control." Incentives to develop brownfield land.

One possible area where taxation of this kind might be useful, she says, relates to brownfield land allocated for development.

Most land would not need incentivising in this way, given the potential gains available to landowners anyway.

But as she noted in her interim report, brownfield land would be more likely to require expenditure on remediation and decontamination.

Depending on the cost of such work, this could in her view make it more profitable to leave the land vacant.

"Government already has a number of policies designed to encourage the redevelopment of currently unused brownfield land, including the contaminated land tax credit and grant scheme, and the tasking of renegeration agencies such as English Partnerships with purchasing and assembling brownfield land." She recommends that government should consider the extension of the contaminated land tax credit and grant scheme to land that has lain derelict for a certain period of time.

This should be done on the basis that extra public money levered into the market through such a scheme would encourage genuine new investment.

On the specific issue of the Exchequer tapping in to the gains that arise when permission is given for a beneficial change of use, Kate Barker believes that the Government should consider the granting of planning permission as a suitable point in the development chain in which to levy a charge based on local land prices that aims to capture part of the windfall development gain.

"Given the structure of the land and housing market, such a move would allow the cost of the contribution to fall largely on the landowner and avoid impacting on house prices.".

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