It has been announced that the Welsh Government is proposing to introduce a vacant land tax on developable land that has not been progressed, in an attempt to prevent (alleged) ‘land-banking’ and incentivise development to be delivered within expected timescales. The motivation behind this tax is the housing shortage in Wales and the need to remove barriers to growth. There is a perception, rightly or wrongly, that landowners and developers hoard land while it increases in value before building.
Instead of strengthening Planning Policy Wales (Edition 10, current consultation), the Welsh Government is proposing to impose a vacant land tax to stop this practice, despite the development industry consistently stressing that it does not hold back on developing land for financial reasons. In an attempt to prevent ‘land banking’ in England the current consultation on the Draft National Planning Policy Framework seeks to ensure that housing development is implemented in a timely manner through the imposition of conditions (timescales shorter than the relevant default period) and by closely monitoring progress in building out sites which have permission.
In a Statement to the Senedd, the Cabinet Secretary for Finance Mark Drakeford AM, when referring to the vacant land tax, stated:
“… the taxes that we are talking about will have an impact on behaviour rather than on revenue raising… what they say in Ireland is that they don’t expect to generate a great deal of revenue, but they do wish to change the behaviour of people who are just sitting on land and not using the land for important purposes.” (13 February 2018)
This suggests the tax is seen as a means of combatting the perceived practice of ‘land-banking’ and is likely to be considered a success by the Government even if it does not raise any significant revenue. This should mean that there will be exemptions – for example, delays due to the economic situation, planning consent/discharge of conditions, waiting for utility connections, lack of suitable infrastructure, available workforce and unforeseen costs which create viability issues. It is critical that the new levy is not applied in such circumstances.
Vacant Land Tax Levy in the Republic of Ireland
The proposed tax for Wales has been inspired by a similar system in the Republic of Ireland, where planning authorities have been required since 1 January 2017 to establish and maintain a register known as the Vacant Sites Register. Land in excess of 0.05 hectares, which is identified for residential or regeneration purposes and has been vacant for the previous 12 months must be considered for inclusion on the register.
Since January 2018, vacant sites on the register are subject to an annual levy of 3% of market value of the site, with the rate rising to 7% in 2019. In terms of registering a vacant site, written notice is given to the owner, who then has 28 days in which to object and a further 28 days to appeal if the site remains on the register. Any unpaid vacant site levy becomes a charge on the property and remains a charge until it is paid in full.
If Mr Drakeford’s plans come to fruition, the vacant land tax would apply to land where planning permission has been granted or where land is allocated for development within a Local Development Plan (LDP), but where construction has not been commenced.
We await detailed proposals from the Welsh Government (in particular concerning the exemptions which should apply) and while in theory a Vacant Land Tax is intended to increase house building, it may have the opposite effect and make Wales less attractive to housebuilders and undermine the Welsh Government’s housing ambitions. It could result in fewer speculative proposals at the LDP preparation stage, with the onus placed on LPAs to approach landowners and proactively identify land it wishes to see developed, and increase pressure on LPAs to fund land remediation, services and infrastructure. Clearly, the devil is in the detail and it will be interesting to find out how perceived ‘land banking’ will be distinguished from stalled development and whether the proposal will ensure that Local Authorities and the Welsh Government also release publicly owned development land in a timely way. The Welsh Government simply has to recognise that taxing a development site will not suddenly make an unviable development become viable. The viability issue in Wales is a complex one that cannot be solved by a ‘stick’ – much more of a ‘carrot’ is required.
We would far rather see the Welsh Government focus on funding, resourcing, upskilling and improving planning services in local authorities, as well as helping to provide crucial infrastructure required for development sites than commit resources on formulating legislation, creating registers and monitoring ‘land-banking’ that is a perceived problem rather than a reality.
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