Nadhim Zahawi MP: It's time to "encourage" building on derelict and vacant land

Nadhim Zahawi MP is Conservative MP for Stratford on Avon. Follow Nadhim on Twitter.

We all know that there's a significant shortage of housing in this country, a problem that, if current evidence is anything to go by, is only going to get worse in the future.

The latest figures from the Cambridge Centre of Housing and Planning Research show that we should be building 270,000 new homes a year to meet demand, yet housing starts in England in 2011-12 were just 105,090. Perhaps more worryingly, planning approvals for the year ending June 2012 were for just 50,233 dwellings.

But over and above the fact that it's a good idea for everyone to have somewhere to live, house building is also good for the economy. The latest figures available from the ONS Blue Book showed that in 2010 each new private sector dwelling built added £129,197 to GDP.

Much of the blame for the lack of housing starts and planning approvals is placed at the door of a lack of available land. This has in turn led to calls for increased building on greenfield and even greenbelt sites, something that is vigorously opposed by many Conservative supporters.

Yet the National Land Use Database shows that there is sufficient previously developed land for 1.49 million dwellings, 660,210 of which would be on land that is currently vacant or derelict. In a speech last year planning Minister Nick Boles dismissed this land supply as insufficient, but I think this is something he needs to look at in more detail.

Firstly, derelict and vacant land is not a finite resource, it is constantly refreshed. In fact modelling I've carried out shows that over the next 5 years we can expect to see sufficient new derelict and vacant land for a further 681,229 dwellings on top of the space for 660,210 that exists today.

Secondly, we have a large reserve of land (enough for 2.5 years worth of our housing needs) that is not being brought forward for development as quickly as it could be, most likely because of land banking, a lack of willingness by land owners or issues with contamination.

So how can we encourage land owners to bring land forward quicker? Technically, there is already an incentive in the tax system. Remediation relief provides a 100% plus a further 50% tax relief on eligible expenditure to bring brownfield sites back into use. But clearly this isn't working.

We have a carrot but no stick. I therefore believe the Chancellor should bring forward proposals in the budget for a derelict and vacant land levy set at two levels. A lower level (say £75,000 per year per hectare) for land without planning permission to encourage land owners to apply for planning permission and a higher level (say £125,000 per hectare per year) for land with planning permission to encourage land bankers to get on and build.

The idea behind the levy is to encourage behavioural change, so any land on which planning permission is being sought, planning permission was granted up to 12 months ago, or on which building has started would not be charged.

In order to ensure that this is not simply a tax grab by the Treasury, such a levy would be administered and collected by the Local Enterprise Partnerships and used by them for local economic development work and remediation grants. It is in effect a compensation to the local area for the lack of economic growth as a result of those unbuilt homes.

When talking to the construction industry about this proposal it was clear that one of the blocks on bringing derelict land forward is the problem of contamination from previous industrial uses. Yet for many schemes it isn't just the pure costs, it's also the blocks all too often put in the way by the Environment Agency when remediation plans have to be approved. That's why alongside a levy I would like to see a new fast-track 6 month approval process for such plans. In order to concentrate minds I suggest that in the event that the Environment Agency missed that target then it would be them, not the land owner, who had to pay the levy.

The impact of this levy depends entirely on the level of behaviour change, something that is notoriously difficult to estimate. However my modelling has shown that if the levy began in 2014 and if as a result, planning permissions on derelict and vacant land increased by 50%, and scheme starts within 12 months increased by just ten percentage points then by 2017 we would be building 98,600 more houses a year. If the number of planning permissions doubled then we'd be building an extra 141,800 homes a year. Not only that, but we'd also be funding Local Enterprise Partnerships and local economic development to the rate of £500m a year at no extra cost to the Treasury.