North West property markets face many challenges at present: an acute lack of finance; patchy occupier demand; historically low rates of house building and investor sentiment which instinctively favours London and the South East even more in tough economic times.
So the notion of introducing a further layer of cost on developers might seem at best bad timing and at worst suicidal.
Welcome to the era of CIL- the Community Infrastructure Levy – known to many as Development Land Tax by another name. Introduced by the last Labour Government but enthusiastically embraced by the current Coalition, CIL is a new tax on property development that is on the cusp of being introduced by local authorities nationwide. So far in the North West region no councils are actually operating an approved CIL charging schedule – the price list for new development by which the tax is calculated. But most NW local authorities have plans to bring CIL into effect starting from 2013 onwards.
Broadly speaking the principle underlying CIL is that local councils are free to set their own levels of charge which are then levied on new development to pay for infrastructure in their area. The CIL charges are payable to the council by the developer when a scheme commences, with few exceptions.
CIL is supposed to be set at a level which does not render development unviable. Pitching this at the right level will be a major challenge at a time when development in many parts of the region is unviable now, even before any additional costs are imposed. Councils which are, perhaps understandably, keen to maximise a new revenue stream to help pay for infrastructure, which is very widely defined in the legislation, will have to balance this temptation with the real risk of deterring much needed new investment and regeneration of their area.
CIL levels will vary from local authority to local authority and differential rates can be applied even within a council's own administrative area. This could have a major influence on property markets and shape the landscape of development and future regeneration across the region, as developers and occupiers – who must ultimately face some of the costs being passed on – look to low tax CIL areas as more viable and thus favourable for their projects.
We have yet to see what CIL rates North West councils will seek to introduce and how these will be applied to differing types of development. But it's obvious that schemes of marginal viability have limited ability to accept an added burden, and that the risk of stifling much needed new development is very real. Developers need to be alive to these changes in 2013, and councils across the North West must take great care not to choke off any tentative green shoots that might be about to emerge in their local economies.
- Gary Halman, partner, HOW Planning