Some words from Einstein…

“It takes a touch of genius and a lot of courage to move in the opposite direction”.

To reduce tax in a way that will encourage growth takes the touch of genius but also takes courage when public finances are scarce. Let us look at house building. The Prime Minister has acknowledged that housebuilding is a wonderful accelerator of the economy. So why not reduce tax to stimulate supply?

We can agree that housing development should ideally be undertaken in built up areas where there is greater demand, more facilities, more availability of services and better public transport. Density of development can be greater too. In built up areas many potential sites are small. Often with obsolete and derelict residential buildings. Policies designed to promote development of these sites would increase the development of new homes in built up areas.

The issue is that sites for housing in built up areas often involve demolition of an existing building in order to develop at a higher density. Such sites carry a high Existing Use Value (EUV), and while they may be ideal for development of housing, the developer’s ‘bid’ for the site has to entice a sale. The imposition of the SDLT surcharge and Community Infrastructure Levy make it difficult for the Development ‘bid’ to exceed EUV.

Yet we now see that the Government has raised rates of SDLT on the purchase of residential sites by development companies. The revised measure raises the SDLT surcharge from 3% to 5% above the standard residential SDLT rates.

The following table outlines the current and proposed SDLT rates:

If developers are going to have to pay SDLT at this level we will not see the housebuilding on small sites in built up areas.

The better policy might have been to eliminate SDLT surcharge on the acquisition of small sites. This would be a supply side stimulant allowing developers a better chance to increase their ‘bids’ for small residential sites above EUV in built up areas.

Let us hope that the Government will reveal its genius and show the courage to give us the opportunity to build more new homes in our built up areas.

Denis Minns is a Chartered Surveyor and author of Projects in Property: The Business of Residential Property Development