Mark Drakeford, Cabinet Secretary for Finance said, “Housing is a priority for the Welsh Government. A tax on vacant land could prevent the practice of land banking and land not being developed within the expected timescales.”
Local authorities would draw up a list of vacant land that has permissions associated or is within the local development plan but not being developed. The Welsh Government has made reference to a model used by the Republic of Ireland where a levy of 3% of the market value of vacant sites would be charged if the land is vacant after one year, rising to 7% after two years. However there is no clarity yet as to how they see this working in Wales.
Housebuilders have said that the proposal is creating uncertainty in the industry and could discourage larger developers from investing in Wales.
Michael Lawley, Chairman of Cooke & Arkwright comments:
“It is good to see Welsh Government exploring the scope of its tax raising powers, which it has held for some years but not yet implemented. However, whilst politically attractive, the imposition of a vacant land tax could prove to be a high risk strategy. There have been many such efforts by various governments over the last 50 years to target what are viewed as profiteering development companies, speculators and land owners. But any tax legislation on development land has inevitably proved to have unintended consequences - a reduction in available land and an insignificant tax take compared to administration costs.
“In recent years the development land regime has been both balanced and appropriate. A large amount of development land value has filtered into the public purse via Section 106 Agreements, the Community Infrastructure Levy and Capital Gains Tax. Private land owners still have reasonable motivation to release land when it is ripe for development and that process does deliver substantial public benefits.
“A greater problem, especially in urban areas, is actually with public land ownership. The commercial imperatives to release land are not generally the same, even though organisations from central government to local authorities, health authorities and other agencies do have significant land holdings. Whether such organisations will be subject to this tax remains to be seen.
“If the Welsh Government is frustrated that land is not being built on at the desired rate, a more effective way of stimulating development would be to ease the cost burden affecting development and introduce tax breaks in more marginal areas. This would be a bold step, which could have positive outcomes.”