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Tariffs, Development and Real Estate Taxation

Interesting discussion on funding housing at the RICS this morning together with a discussion of their interesting new paper on how the Government might most effectively introduce their proposed system of tariffs to replace the Community Infrastructure Levy.

There is loads of good work going on in the RICS at the moment including an in depth review of the UK tax system as it relates to real estate and also some interesting analysis of development economics within the planning system.

Tariffs clearly need flexibility to react to different market values within a local authority area (particularly in deprived areas), to site specific infrastructure costs and to changes in residual land values over time. The balance to be struck between these needs and the benefits of simplicity will be an interesting judgement for politicians.

There is limited understanding amongst non-valuers of the limitations of planning obligations. Few planning permissions release significant land value uplifts on previously developed land (which makes up the bulk of development activity). This has been disguised over the last 15 years of boom as the market driven increases in land value during the planning process have been partly siphoned off into s106 payments. Those days are over for now.

The Government’s proposal to differentiate between s106 (which will limited to those items necessary for the development which the project needs to pay for but the planning authority needs to deliver) and tariffs seems sensible. In a world where Government is trying to stimulate development, a further refinement would be to limit tariffs to projects requiring a change in planning policy. This would allow development to be brought forward as soon as it becomes viable. 

And as the early RICS work on the tax system suggests, there is much more tax raised from the real estate cycle than from planning obligations. In current conditions it looks like gettng development going is a higher priority than implementing the tariff system.


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