Early council tax leads developers to leave homes unfinished, FMB warns

The Federation of Master Builders (FMB) has cautioned that the changes to council tax charges could create ‘perverse incentives’ which discourage developers from finishing homes before selling them.

Ahead of the Budget Statement, the FMB argued that it has become common practice for local authorities to impose council tax charges on new homes before the properties are completed. The organisation has claimed that practice could result in a decline in the rate of new houses being put on the market.

Brian Berry, chief executive of the FMB, said: “Council tax is designed to fund services provided to tenants, so there is little justification for levying it on new homes months before anyone could move in. We accept that there is a case for council tax being levied on existing empty properties in order to incentivise these being brought back into use.

“However, for new homes, it creates perverse incentives for developers to hold back completing these properties until they’ve agreed sales and slows down the delivery of completed new homes onto the market.”

Berry also called for clearer guidance on what determines whether a new home is complete and when council tax is necessary.

In response to the FMB’s statement, Councillor Claire Kober, resources portfolio holder at the Local Government Association (LGA), said: “Where a home is structurally complete or where the work remaining can be expected to be completed within three months, councils can legally serve a completion notice to specify the date it is eligible for council tax.

“To ensure accuracy, council officers will often visit sites and review houses being built before making a decision. A clear and transparent appeals process is in place for developers to challenge any decision.”

Kober defended the use of council tax, maintaining ‘councils are desperate to tackle the growing housing backlog and need more powers, not less, to encourage developers to build homes more quickly.’

She added: “We are calling on the government to use the Budget to hand councils the ability to charge developers full council tax for every unbuilt development from the point the original planning permission expires.”