Planning gain supplement is attacked as ‘unworkable’, while PPS3 revives controversy over council powers

The government has walked into a storm of protests from the industry over housebuilding plans outlined in this week’s pre-Budget report.

Chancellor Gordon Brown has proposed a string of measures in response to last year’s Barker review of housing supply to raise the volume of new housing from 150,000 homes a year to 200,000. These include the new planning gain supplement, changes to the way local councils plan new housing and attempts to further encourage building on brownfield land.

Yet the industry has warned that the government’s housing supply reforms are not far-reaching enough to deliver the extra homes and has attacked measures such as the PGS, which will tax the rise in land value after a site wins planning permission, as unworkable.

The PGS will be out to consultation for three months, and Brown has said that it would not be brought in until 2008 at the earliest. Yet observers fear that it will actually cause housebuilding to slow down because landowners will hang on to land that would be taxed and wait for a change of policy or government.

Alan Cherry, chairman of Countryside Properties, said plans to tax the uplift in land value would be counterproductive as it would apparently be paid to central government and those who pay would have no say in how it was spent.

He said: “When it comes to housing in the UK, the government is standing at a crossroads. On this issue of development tax, they have turned the wrong way. Any form of development tax will have a negative impact. It will not improve the supply of housing at a time when we should be doing so.”

Jasper Masters, a director at property firm CB Richard Ellis, agreed that the PGS could stifle development. He said: “Development margins in the industry are generally getting tighter while land values and construction cost inflation are continuing to rise. This means that certain pockets of developable land, which would already be marginal, may not be brought forward, going against the grain of government policy.”

The concern came as PPS3, the planning policy statement released this week that has replaced PPG3, sparked industry anger by reviving moves to allow councils to dictate the balance of dwellings in schemes, including the type of affordable housing that developers provide.

Keith Hill, former planning minister, withdrew similar proposals in the run-up to the general election after a letter-writing campaign by the chief executives of the UK’s leading housebuilders. Hill’s proposals were described by one housebuilding source at the time as a “nationalisation” of the industry.

Barry Stephens, National Federation of Builders chief executive, said: “Attempting to regulate the private sector in this way will fatally slow down delivery of houses and will reduce the willingness of the private sector to invest – particularly if they are directed to build the wrong sort of houses for the market.”

PPS3 also increases the minimum density of housing developments in city centre, urban and suburban areas, above the 30 dwellings per ha figure contained in PPG3. In predominantly residential suburban areas, new schemes will have to be built at a range of 35-55 dwellings per ha, and in inner city areas developers will be expected to supply 40-75 dwellings per ha.

The statement also withdraws proposals, mooted by ministers during the summer, that local authorities should be forced to release extra land when the house prices become unaffordable for people on below-average incomes.

It does say, however, that authorities will be prevented from phasing the release of development land, except in areas of acute market weakness.

Ministers have also moved forward with Kate Barker’s recommendation that councils should be obliged to keep a five-year land supply on tap. The planning statement says that authorities will have to be more effective in delivering brownfield sites for development.

Roger Humber, former House Builders Federation chief executive, said the package would further frustrate efforts to increase supply.

He said: “It makes the delivery of additional land even more unlikely. These proposals will increase the flight of capital from the industry, dismaying small and medium-sized housebuilders and consolidating more of the industry into those small number of hands that are capable of paying the price of remaining in the game.”

brown’s pre-budget report

  • Planning gain supplement will not be levied until 2008 and will be set at a lower rate on brownfield sites
  • Councils to stipulate the size and type of homes that developers build
  • Councils to ensure a five-year supply of housing sites and identify enough land for another 10 years
  • Councils prevented from phasing the release of sites in their five-year development pipeline, except in areas of housing market failure
  • £40m fund to support infrastructure provision in housing growth areas
  • Density rules for different areas, including up to 75 units per ha in city centres
  • Increase in social housing investment in 2007 Comprehensive Spending Review