The Treasury-sponsored review is being carried out by Kate Barker, a member of the Bank of England's Monetary Policy Committee. She is considering replacing section 106 agreements between housebuilders and councils, which usually take a long time to negotiate, with a simple development tax.
The UK housing market is currently undersupplied by around 75,000 homes a year. Much of the blame for this has been put on section 106 agreements. These force developers to build affordable housing or infrastructure in return for planning approval.
The development tax could be introduced in areas where profit from development is deemed to be high, such as London. It would be collected by the state and given to councils for social projects.
This type of tax has always cost more than it is worth
Alan Cherry, Countryside
Barker may stop short of asking for the abolition of section 106 agreements. She could combine them with the tax on the understanding that they focus solely on the social impact of a scheme, rather than being used to improve infrastructure and social housing across a borough.
A Whitehall source said: "Kate is looking very seriously at simplifying section 106, as well as getting hold of some of a scheme's land value [through the tax]. This has lots of difficulties – each time a tax has been implemented the industry has successfully fought it off."
Alan Cherry, chairman of Countryside Properties, said the plan was doomed. He said: "A form of tax is good in theory, but has proved impractical in the past. This has been tried three times since 1947, and it's always cost more than it is worth."
Another leading housebuilder went further: "There is a serious lack of understanding in government. If the tax is introduced in addition to section 106, how many marginal schemes are going to fall away?"
The housebuilder added that the planning system should be left untouched for 10 years, as constant government reform was worse than the status quo.