Government land tax 'to squeeze small developers'

Posted: 20 Sep 2006 10:59:54 GMT

A new land tax being introduced by the government could squeeze small developers out of the market, a new report claims.

A new land tax being introduced by the government could squeeze small developers out of the market, a new report claims.

The Royal Institution of Chartered Surveyors (RICS) suggests that the proposed Planning-gain Supplement (PGS) could drive smaller developers out of the market and result in the government failing to meet its annual target of 200,000 new homes in the UK.

Research by Knight Frank for RICS found that many small developers will be left with little operating profit margin, forcing them to opt for more profitable ventures or leave the residential market completely.

The report warns that the legislation and its effects will make it harder for first-time buyers and families to purchase new properties, as demand continues to outstrip supply in the residential market.

RICS Head of Policy, Brian Berry, said: "This is a prime example of the government shooting itself in the foot. The research clearly demonstrates that PGS fails to achieve the government's stated objective to raise additional money for infrastructure. The mechanics are flawed and need to be reworked."

The PGS is expected to place a higher tax burden on smaller developers, create funding shortfalls, increase the complexity of the system, and reduce levels of proposed housing development, affecting overall housing affordability for first-time buyers.

House building in England has risen by 23.3 per cent from a record low in 2001, driven by higher production rates by smaller builders. However, building levels in the UK need to increase significantly to meet the target in the Barker Review of Housing Supply of around 200,000 per annum and reduce house price inflation.

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