Land tax 'could backfire

Plans to tax developers for the increased value of land could hinder the effort to build more new homes, the housebuilding industry warned today.

Speaking ahead of today's pre-budget report, Home Builders Federation chairman Stewart Baseley said that, if Labour goes ahead with a proposed planning gain supplement (PGS) tax - in which local authorities can charge a levy on the increased value of land after they grant permission to build - then landowners will sit on useable land until a change of government.

In his pre-budget report, chancellor Gordon Brown is expected to announce a shakeup of the country's housing market, designed to encourage more housebuilding and help key workers and first-time buyers on to the property ladder, in response to last year's housing supply review by economist Kate Barker.

He is expected to accept most of the Barker recommendations - including changes in the country's decades-old planning system, an expansion of shared-equity housing schemes, and a consultation on the PGS.

The government is also planning to force housebuilders to reveal how much undeveloped land they have.

Mr Baseley welcomed plans to boost housing development, which he said should take place on both brownfield and greenfield sites to meet demand where necessary.

Mr Baseley said the building industry were hoping to hear details of a streamlined planning process and the removal of regulatory red tape to allow private sector developers to build more homes.

But he warned that previous attempts to tax landowners for the increase value of land had failed to improve supply and could backfire on the government.

"If the chancellor goes down this road, it is vital he gets all-party support for what he is doing," he said. "The reality is if the opposition promises to repeal that, then landownership will simply wait for a change of government to avoid the tax."

He added: "The question we will be asking is whether the tax on land will increase supply."

The Conservatives have already signalled their opposition to the planning tax measures, claiming the government wants to use it as another way to boost its coffers rather than handing it over to local government to benefit the wider community.

There have been a million new homeowners since 1997, and the government hopes to encourage another million people to buy their own property within the next five years. Its target is for 75% of people to own their own home, up from just under 70% now.

Housing charities meanwhile expect the government to back calls for a significant boost in the supply of social housing. The Barker review recommended that at least 17,000 units of social housing should be built each year over the next decade.

Adam Samson, chief executive of the housing charity Shelter, said the Barker report represented the "first and possibly the last opportunity for a generation" to do something about the "appalling" backlog of investment in social housing.

"We have record numbers of people who are homeless, we have record numbers of overcrowding", Mr Samson said. "For those that are never going to be able to buy their own homes, the situation is worst. [Gordon Brown] has to increase investment in social housing, council housing and housing association properties."

Mr Brown today accompanied the prime minister to a housing project in east London this morning to meet young families in shared-equity accommodation, where he announced an expansion of the scheme beyond key workers - and which will involve mortgage lenders like the Halifax and Nationwide, who had reportedly been reluctant to get involved.

Shared-equity schemes involve a key worker such as nurse buying half a property, usually from a housing association, and paying rent on the other half, owned by the government, with a view to buying it when they can afford to.

Later this afternoon, Mr Brown is expected to announce that small investors will soon be able to put money into property through so-called real estate investment trusts (Reits), to encourage housebuilders to use the land they have accumulated to build more houses on, knowing there is an extra source of demand for them.