Filling the housing divide through tax-funded improvements

Filling the housing divide through tax-funded improvements

In a bid to address the ongoing challenge of delivering more affordable homes, experts have proposed the use of development taxes as a viable funding solution. This recommendation comes from a recently published research paper titled 'Development taxes and levies: lessons from the past, ideas for the future'.

Miles Gibson, a former No 10 advisor and co-author of the report, believes that previous repealed development taxes could serve as a rich source of reform ideas. According to the research, these taxes can play a crucial role in funding the infrastructure needed to create affordable living spaces by generating revenue from new development projects that is then reinvested into community infrastructure and affordable housing initiatives.

The current system of developer contributions often falls short, failing to capture sufficient funds to both unlock affordable homes and pay for the necessary infrastructure that makes these communities healthy and livable. Development taxes, when properly structured and enforced, can provide a dedicated financial source to support affordable housing construction, infrastructure upgrades, and social infrastructure that enhances community well-being and supports lower-income residents.

These taxes can be levied as fees or charges on developers, calibrated based on the scale or type of new construction, thereby internalizing part of the cost of community impacts and ensuring developers contribute to creating sustainable neighborhoods. Integrated policies, such as expanding low-income housing tax credits and leveraging public land and grants, complement development taxes by providing targeted financial incentives to produce affordable housing at scale.

However, the implementation of these taxes has been less than ideal. Only 33% of major developments have a Section 106 agreement attached, and only 22% pay the Community Infrastructure Levy (CIL), according to the research. Fiona Howie, the Town and Country Planning Association's Chief Executive, has expressed a need for change in the current development system to meet the government's aspirations for housing and growth. She suggests capturing more value from more developments to address the lack of contribution.

The Labour party's 2024 manifesto outlines plans to strengthen planning obligations to ensure new developments provide more affordable homes. Despite the government's ambition, it's no secret they're struggling to deliver on this priority.

In practical terms, the use of development taxes could involve applying them to a wider range of developments to fund public goods, including vital infrastructure. Housing 21, for instance, has invested over £700,000 in extra care schemes, but no further details about the specific schemes are provided.

This approach represents a vital funding mechanism to align development with social equity goals and community needs. By ensuring that a portion of development proceeds is allocated toward subsidizing affordable units or related subsidies, infrastructure upgrades, and social infrastructure that enhances community well-being and supports lower-income residents, development taxes can help bridge the funding gap for infrastructure improvements that are essential to supporting new affordable housing developments.

1. Development taxes, when effectively implemented and enforced, can serve as a dedicated financial source for funding affordable housing construction, infrastructure upgrades, and social infrastructure that benefits lower-income communities.
2. Integrating development taxes with policies such as expanding low-income housing tax credits and leveraging public land and grants can provide targeted financial incentives to produce affordable housing at scale, thereby contributing to sustainable neighborhoods.
3. The use of development taxes can extend beyond funding affordable homes, as they can also be applied to a broader range of developments, generating revenue for vital infrastructure that is essential to supporting new affordable housing developments.

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