John McLellan: SNP’s infrastructure levy would put up house prices

Should housebuilders pay an infrastructure levy to help fund schools and roads? (Picture: Lisa Ferguson)
Should housebuilders pay an infrastructure levy to help fund schools and roads? (Picture: Lisa Ferguson)
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A new power to sting developers with an infrastructure levy was the populist centrepiece of the Scottish Government’s new Planning Bill unveiled this week, designed to prise cash for schools and roads from housebuilders.

In principle this might seem reasonable, but the levy is not so much on the builder but on the customers because private companies are not going to accept lower profits just because there is another bill to pay.

The cost will simply be passed on in sale prices or higher rents and so whatever the levy might be will simply contribute to property inflation.

But an innovative new funding mechanism is currently being developed in Edinburgh which could separate the cost of the services from the price of the home by parcelling off all the roads, drains, schools and health centre costs into a separate fund tied to long-term investments like pensions which do not look for an instant return.

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Known as a Common Good Funding Model, the idea is that the home-buyer pays the asking price for the building as normal, but there is a separate loan for all the services, similar to the management fee which is often charged in blocks of flats or new estates.

In effect, the average purchaser would take out two loans, one the normal mortgage for the house to pay the builder and the other for all the services to repay the Common Good Fund. The idea is currently being considered by the Scottish Government and Edinburgh council.

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How an infrastructure levy would be charged if a Common Good model was adopted is hard to say, not least because the new Bill is light on detail, but because under this scheme the house-builder is not responsible for the infrastructure. But why impose a levy on something designed to slash the cost of infrastructure?

Cracking the infrastructure problem is a priority for Government, but a levy seems an unsophisticated way to go about it.