The value of brownfield land in the Midlands is set to tumble in less than two years - after the Government renewed its commitment to introducing a development land tax in 2008 to raise at least £1 billion - according to a local residential developer.
Matt Gallagher, land director at Birmingham-based award winning housebuilder, Cala Homes (Midlands), says that research carried out by his company has shown that brownfield sites which receive planning permission for housing after the introduction of the land development tax could actually be worth less with the planning permission than at present.
"As part of its so-called planning gain supplement, the Government is proposing to take what it calls a 'fair' proportion of the uplift in value when a development site receives planning permission. The best guess at present is that this will be at least 20 per cent," he said.
"The problem is that this will not take into account the often very high costs required to clean up brownfield sites to make them fit for development, and the Government has stated time and again that it does not favour a lower tax rate for brownfield land.
"By the time these costs have been removed from the purchase price, the land could be worth less than it was before it got planning permission," added Mr Gallagher, who is based in Cala's Birmingham offices.
"We estimate that it could take brownfield land prices up to ten years to catch up with their pre-planning gain supplement levels."
According to Mr Gallagher, the Government is looking to raise an additional £1 billion from the new development tax, in addition to the current system of planning obligation payments governed by Section 106 agreements.
Last monththe housing minister, Yvette Cooper, revealed that in 2003/04, as a condition of granting planning permission, local authorities demanded payments from developers of nearly £2 billion, to pay for items such as affordable housing, transport, school places, open green space and public art.
She also said that 60 per cent of residential schemes with more than ten units did not have section 106 agreements.
The Department for Communities and Local Government plans to publish new practice guidance on the use of planning obligations, which is expected to demonstrate how local authorities can negotiate higher section 106 payments from developers.
Ms Cooper was quoted as saying: "We need to build far more homes and that means funding the infrastructure to support them. The research shows there should be plenty of scope to increase contributions from planning gain without hindering development. The value of land can shoot up just because of planning permission.
"It is only fair that local communities should also be able to benefit from that gain through more affordable housing or infrastructure."
But Mr Gallagher pointed out: "Land owners already effectively meet the cost of section 106 agreements, as these costs are usually removed from the land price paid.
"Not only does it appear that 106 payments will increase, they will now face further costs through the panning gain supplement which will amount to least an additional £1 billion per annum."
Mr Gallagher added that the new development land tax could have a real effect on manufacturing industry in the Midlands.
"Many companies have used, or plan to use, the proceeds from the sale of their outmoded manufacturing sites to housebuilders to finance a move to new purpose built premises and to refinance their operations.
"Although land remediation costs can be high, there is still sufficient margin for them to complete a move. However, the introduction of the development land tax will in future reduce the cost-effectiveness of such moves."
Mr Gallagher believes that there is no chance that the Government will change its mind on the new tax.
"Although the proposed legislation is at present going through a consultation stage, Ministers are taking every opportunity to affirm their commitment to the plans, so the question for landowners with plans to sell is when to start the process," he said.
The answer, according to Mr Gallagher, is either now or in ten years time.
"With the increasingly complex planning system, it can take a good 12 months to achieve planning permission on a complicated site, and then up to a further six months to actually start work.
"With a likely introduction date of April 2008, this does not leave landowners long to start the process of finding a developer to work with to gain planning permission before the new tax bites. Indeed we have already started to have approaches from landowners who are keen to make quick progress."
In March this year, CALA Homes unveiled £50 million of funds to spend on acquiring brownfield sites to develop new residential and mixed use property schemes.
Known for its award-winning schemes at Brittanic, Qube, Post Box and Broadway Plaza in Birmingham, the company is presently building St Bernards Lawns, a new 63-home development off St Bernards Road in Solihull, and has just sold out a 86 home development at Fradley.
It is also marketing apartment developments in Solihull at The Grove.