The Gain from the Planning–Gain Supplement: A Consideration of the Proposal for a New Tax to Boost Housing Supply in the UK

Abstract

ABSTRACT This paper reviews the proposal for a new tax on the ‘windfall gains’ arising from the granting of planning permission for residential development in the UK. The theoretical foundations in the theory of economic rent are discussed and the practical problems of applying such a tax, in the form of a ‘Planning-gain Supplement’, are explored. The relationship between any new explicit taxation and implicit taxation through planning agreements is examined. The reactions to this proposal, which come from the Barker Review of Housing Supply, are considered. It is shown that much of the criticism is about implementation difficulties rather than matters of principle. The problem of measuring the site-specific value of economic rent is discussed and the resolution is seen to be in viability appraisals that determine the changes in residual value that are a consequence of planning permission. The data requirements for such an approach are set out. It is argued that a detailed taxation proposal will need to include clear relationships between other demands on the development process, especially the provision of affordable housing through planning.