Stewart Jackson MP: Is it time for a land tax in the Budget on builders who won't build?

Stewart Jackson is the Member of Parliament for Peterborough and was Shadow Regeneration Minister 2008-10. Follow Stewart on Twitter.  

Superficially, it is good news that figures released this week show that the number of planning approvals for new homes granted in the final quarter of last year was 62% higher than the year before, according to the Home Builders Federation's latest Housing Pipeline report.

In the three month period to December 2012, local authorities granted approvals for 45,041 new homes in England, 33% up on the previous quarter and the highest quarterly number since Quarter 1 in  2008. However, the Home Builders Federation says that the number is still short of the 60,000 required each quarter but the increase is significant as it points to potential improvement in the planning system since the introduction of the National Planning Policy Framework in March 2012, which I strongly supported.

The Localism Act 2011 has had a positive impact on the housing market supply side: Clearly, the liberalisation of the planning regime, via policies such as the abolition of regional spatial strategies and regional planning targets, encouraging developers to renegotiate Section 106 planning gain obligations, neighbourhood development plans and the New Homes Bonus have all made a positive contribution. The mortgage market seems also to be more responsive, with new products for intermediate as well as outright sale and the number of weekly reservations under the government’s NewBuy scheme doubling to 130 so far this year.

The Home Builders Federation policy conference has called in its Budget submission for robust monitoring of Local Plans; an extension to mortgage schemes such as NewBuy; government reduction in red tape; and an increase in business finance for SMEs.

Perhaps, however, it’s time to look at the difficult and seemingly intractable issue of developers’ land banking. Large residential housing developers tend to blame “instability” and “uncertainty” in the planning system (as well of course of the difficulty in acquiring finance investment and a paucity of affordable and flexible mortgage products) as a reason why they’re sitting on thousands of acres of undeveloped land, with many thousands of homes unbuilt, despite having received planning permission. In this, they do have a point.

Other issues arise: Problems with brownfield remediation, local authorities’ bureaucracy, overly prescriptive European Union procurement rules and of course, greater crested newts!

Unimplemented planning applications present a significant problem in terms of housing market dysfunction, not least because one only has to peruse the financial pages of a good newspaper to observe that many developers are now in healthy profit, with rising share prices and dividends and are cash rich. They have land and money to invest and local communities and government need homes – but the building industry is simply not responding to the challenge of delivering new homes which is integral to economic recovery.

In 2011/12, there were 118,190 housing completions, compared to over 170,000 in 2007/8 – a decrease of 31% from admittedly an unsustainable highpoint before the financial crisis and recession. A survey in September last year by the Local Government Association revealed a building backlog of almost 400,000 new homes which have planning permission but are unimplemented (as at December 2011), a backlog which would take three and a half years to clear. The average time taken by a developer to progress to completion having obtained planning permission has increased from 20 months in 2007/8 to 25 months in 2011/12.

It’s also noteworthy that the Labour Party runs the bulk of local authorities where this backlog is most acute – whilst simultaneously attacking the Coalition Government’s record on house building and homelessness. So Birmingham City Council had (in the middle of last year) 5281 housing units in unimplemented planning applications, Manchester City Council 7175, Leeds City Council 8081, Telford and Wrekin Borough Council 3221, Greenwich Borough Council 5125 Hackney Borough Council 7744 and Tower Hamlets Borough Council 12525.

So in a period of fiscal consolidation, where the government needs to maximise tax revenue and also has house building as an economic and financial imperative, is it time to tax this wasted capital asset? My colleague Anne Main MP and I have pondered was to whether a land tax on unimplemented planning application sites might act as a catalyst for speeding up development and bringing in an income stream into the bargain as well as discouraging land banking for speculative purposes? How might this work?

A new tax might commence a year after the granting of full detailed (but not outline) planning permission. It would be a graduated tax with higher rates the longer the land is undeveloped. The tax burden would be based on the developed value of the land rather than the units for which planning permission is given as this would avoid issues arising over the valuation of each unit say, for example, distortions might be caused by a larger number of flats and starter homes relative to executive and prestige homes. The tax assessment would be made at the time the full planning permission was granted.

The proceeds from this land tax could be remitted to the local authority, to offset officer time in (say) the preparation of a supplementary planning document or various pre assessment documents, with an element perhaps ring fenced to assist with developing brown field derelict land in the council area? I accept that the building industry is very cyclical and subject to economic turbulence and clearly, any new tax would need to be reviewed on a regular basis. That said, it’s maybe time to see if we can apply a market mechanism via fiscal incentives to tackle the broken housing market model and get building the homes our constituents desperately need. It is food for thought for the Chancellor as he prepares next week’s Budget.