Local authorities thwart housebuilding with ‘manifestly unfair’ council tax raid on developers

Cash-strapped local authorities across Britain are thwarting efforts to increase housebuilding by hitting property developers with steep council tax bills as soon as their homes are listed as complete, an influential industry body has warned.

In a paper shared with City AM, the boss of the Home Builders Federation (HBF) accused local councils of slapping council tax on new homes unfairly and inconsistently across the UK, weighing on developers at a time when they are already facing “huge increases” in taxes and policy costs.

Councils have the power to levy the property tax on newly built homes as soon as they deem them “structurally complete”, meaning many developers face large tax bills on schemes even if the homes do not have fundamental features like connected utilities or basic furnishings.

Some authorities offer housebuilders a discounted rate while they find a buyer for the new home. But according to government data obtained by the HBF, some 45 per cent levy the full rate of council tax on firms immediately, which the industry body’s boss Neil Jefferson said was forcing developers to abort schemes they would otherwise have built.

A 154 per cent spike in council tax appeals

“Charging council tax on incomplete new build homes before they are sold, occupied or, in some cases, fully ready to live in places further pressure on cash flow and can make the difference between a site being viable or not,” he told City AM.

“These properties are not long-term empty homes, second homes or homes deliberately withheld from occupation. They are new homes being brought to market in challenging circumstances, often by the smaller businesses that government has repeatedly said it wants to support.”

The inconsistent landscape has sparked a 154 per cent rise in council tax appeals over the past two years, the same study found via a freedom of information request, delaying home sales and further deterring new starts.

The findings will add to fears that government policy is stifling housebuilding despite the Labour party’s pre-election pledge to build over 1.5m new homes by the end of the parliament.

Last week City AM revealed that on top of council tax, developers are also poised to have to foot the government’s new mansion tax if they fail to offload a new home after 12 months. According to plans included in a government consultation, housebuilders will be liable to pay the levy in full after a year, before which they also need to shoulder a discounted bill.

Property firms have also been sounding the alarm on the wave of other taxes and red tape besetting the industry, including a new landfill tax and building safety levy due to be introduced in October.

Building costs £76,000 more than in 2020

In all, the HBF estimates that it costs £76,000 more to build a home now than it did in 2020, more than half of which the lobby group says stems from policy choices by ministers of successive governments. Just £37,000 of the added costs were the result of higher building and labour costs.

Writing in the HBF’s new paper, Licence to Bill, Jefferson said the measures were “no doubt well intentioned”, but argued that together they were “manifestly unfair” for developers trying to boost housing supply in the UK.

“Unsold and unoccupied new homes do not place any meaningful burden on local council tax services, raising questions as to why developers should be liable for these charges,” he added.

The previous Conservative government bolstered authorities’ ability to slap a higher council tax rate on homes that are empty or unfurnished, halving the qualifying period to one year. It also gave councils powers to tax second homes more freely.

Jefferson said new homes’ liability to both levies was “inconsistent with both the purpose and the spirit of these measures”.

A spokesperson for the Ministry of Housing, Communities and Local Government said: “It is for councils to decide whether they give developers council tax discounts for unsold new-build homes.

“We’re supporting developers through investing in housebuilding, and streamlining planning policy – ensuring they’re well placed to build the homes this country needs.”