Only one winner if land tax enforced

While the Government is facing cross party opposition to its planned Home Information Packs (HIPs), to be introduced next June in an effort to improve the homebuying process, new proposals for a land tax are also generating criticism from industry professionals. A leading Norfolk development consultant explains why to property writer JENNY GILHEANY.

Norwich-based chartered surveyor Alan Cole, a land development specialist with decades of experience in the new homes sector, is concerned that government plans to tax property development will stifle the supply of land for building.

In line with his professional body, The Royal Institution of Chartered Surveyors, and the British Property Federation, he does not think the proposed Planning Gain Supplement (PGS) will work. “The introduction of this tax will, in my belief, slow down the supply of land for building and thereby decrease the number of new houses coming forward for sale.”

The intention behind PGS is that revenue from uplift in land value will be collected by the state and used to pay for infrastructure and housing where it is most needed.

According to RICS, the reality of these plans is that landowners will hold back the sale of land with development potential in the belief that the next government will overturn the tax. Institution chief executive Louis Armstrong says: “PGS is a disincentive to bringing land forward for development and the timing could not be worse.

“The affordability crisis facing many people today can only be improved by increasing the supply of housing.

“With the best intentions, the government is setting out to increase the flow of land available for development but, because of a fundamental misunderstanding of how the development process operates, its proposals are likely to achieve the opposite result.”

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Alan Cole, through previous East Anglian posts as senior partner of the Edwin Watson Partnership and, later, sales and marketing director of Hopkins Homes, has worked diligently with planners and developers to achieve thousands of new homes throughout Norfolk and Suffolk, for both social and private ownership.

At the start of this year he joined the international consultancy Savills in Norwich as land development director to carry on with valuable long-term planning. But he does not find PGS helpful.

“This tax, which is due to be introduced in 2008, is to be paid by the developer at the start of the project, on a self-assessment basis, pending agreement with the appropriate government agency.

“The developer will reflect the likely tax to be paid in his offer price to the landowner, and since this will mean a lower offer than would have been paid for a site pre-PGS, some landowners will undoubtedly hold back their land in the hope that the next Government will repeal this tax.

“The tax is designed to be paid to central government, which says it will use it to pay for infrastructure and affordable housing where it is most needed. However, developers already have to pay substantial sums to local authorities on a large number of sites, under what is known as a Section 106 agreement, entered into when planning permission is granted.

“These sums are used to provide local education facilities, highway improvements, playground and open spaces and land for social housing.”

Alan Cole sees the land tax as an obstacle, at a time when Britain is building fewer houses annually than 30 years ago.

“A major disadvantage for developers is that this tax is due to be paid at the start of a development, unlike existing arrangements under Section 106 agreements, where sums are spread out and paid throughout the life of the development, thereby allowing better cash flow for the developer.”