Deals stall as landowners and developers clash over 25% PGS

Landowners and housebuilders across the UK are locked in a stand-off over the price of land as developers insist on clauses to protect them against the expected introduction of the controversial planning gain supplement.

Regenerate can reveal that the price of the PGS is being estimated by developers at between 20-25%.

Lawyers have confirmed that their developer clients have instructed them to include clauses in contracts for buying land that state that on the introduction of PGS the developer will be due a sum of up to 25% of the value of that land from the landowner. As a result many deals have stalled as landowners prefer to await concrete guidance from the government as to exactly at what level the PGS will be levied.

Although there are no figures held centrally to show the volume of deals being done in recent months, experts have warned that there is enough anecdotal evidence to suggest that the supply of land for new housing could begin to dry up without government guidance.

A housebuilding source said: “On strategic sites we are now saying to landowners that we will pay ‘x’ but then that excludes any PGS or land tax. This is in all of our contracts. It effectively means that the landowner pays us back if we’ve bought that land and then PGS comes in.

“Because we don’t know what the tax will be we don’t have any choice. As a result landowners are very reluctant to do deals.”

Karen Cooksley, head of planning and regeneration at law firm Bevan Britten, said: “We are very much seeing this [clause insertion] happening for many of our clients now. The market is already taking a view on the level of PGS. 20% is the level that people are factoring in just now.

“If the government is not very careful indeed it will see the supply of land dry up as people wait to see what is going to happen. Housing completions will ultimately be the real measure of the impact of this.”

A partner at another prominent law firm said this practice was common to many of their developer and housebuilder clients. She said this was because “regeneration projects work on timescales of five to 10 years so people have to write contracts just now with it in mind”.

The moves come as developers and housebuilders continue to question the validity of PGS. At a recent off-the-record session held by the influential left-leaning think tank the Smith Institute, the panel of speakers from across the development industry were critical of the plans. They said that they recognised the need for a some value to be captured for the public good as a result of increasing land values but that there were already mechanisms in place to do this.

The “roof tax” – where developers pay a sum per home built to a local authority – being used by Milton Keynes and Ashford councils was cited as one example.

Bevan Britten’s Cooksley said that PGS had been an issue in Milton Keynes as well for her developer client: “We have had to take account of the fact that PGS might come in. As our clients don’t want to get hit twice by paying the roof tax and then the PGS, there is a clause that says the council will owe them money in the event of PGS coming through.”

The PGS was first suggested by Kate Barker in her report into housing supply in March 2004. The government has since issued several consultations on how it might work and has passed paving legislation for its implementation in the Houses of Parliament.

A spokeswoman for the DCLG said: “We are analysing the results of the PGS consultation before we make any further announcements. PGS would be levied at a modest rate, but no final decision has been made.”