Birmingham City Council’s proposals to introduce a swingeing new “roof tax” could sound the death knell for much of the city’s development pipeline.
Experts at property consultancy CBRE claim that Community Infrastructure Levy (CIL) charges being mooted by the council are far higher than those of other comparable (by value) authorities, and this could force investment and regeneration beyond the city’s boundary.
Birmingham’s proposed charges have just been released and will add, for example, more than £2 million in CIL payments to the cost of building a typical supermarket and £50,000 – £100,000 per acre for new homes, with on-site affordable housing to be provided on top.
By comparison, Bristol City Council’s CIL charges have now been approved and are 40 per cent lower than Birmingham’s for top-tier residential development, and 70 per cent lower for retail development.
Wolverhampton has announced it will not be introducing CIL at all, as the local authority wishes to encourage development and investment in the Black Country.
The CIL is a new levy that local authorities can opt to charge on any new development in their area. It is typically being applied to housing (but excluding affordable housing), offices, retail, hotel and student accommodation. Industrial buildings, schools and hospitals are generally exempt, but as in the case of Oxford City Council, industrial and multi-tenanted houses are also included in their draft Charging Schedule.
Ultimately, it is down to each local authority to decide which types of development will attract CIL, and consequently an inconsistent pattern of charges is beginning to emerge as CIL is rolled out.
The revenues raised will fund transport infrastructure, and community facilities such as schools and libraries, and public art.
Property developers already contribute to these, through the existing Section 106 regime. This will be scaled back, and confined to matters necessary to make the development acceptable in planning terms, including affordable housing. Other ‘off site’ matters will fall under the new CIL regime.
Unlike Section106 contributions, however, CIL is non-negotiable. It is a ‘roof tax’ paid per square metre of development. The argument that there is ‘certainty’ under the CIL regime is flawed; it makes no allowance for negotiating special circumstances that affect the costs of undertaking development on any one site, such as challenging ground conditions.
According to Adrian Willet, a director in the development team at the Birmingham office of CBRE, the introduction of CIL is not mandatory, but for many cash-strapped local authorities it will be seen, at first glance, as a lifeline.
He said: “It’s no secret that Birmingham City Council has revenue pressures, and it could be that they see CIL as a way of plugging holes in their income.
“However, I believe it could well have the opposite effect and stifle much needed development and regeneration, especially in the city centre.
“The decline of land values, the lack of funding and depressed demand mean that much of the city’s development pipeline is on the edge of viability as it is. The tax comes at a time when the development community needs concessions, not additional financial impositions.”
Mr Willet believes the levy will particularly hit the office, hotel and leisure markets. The student housing market – one of the few active development areas during the recession – could also be knocked off course, along with the emerging Private Rented Sector initiative
He said: “Under the proposed charges, student housing will be charged at around £3,000 per bedroom. In some parts of the city, land values are only £10,000 – 12,000 per bedroom. It will simply kill this market off.”
Since 2010, Birmingham city centre has seen just one new office development start on site – the re-start of Two Snowhill.
Ashley Hancox, a director in CBRE’s office agency team, said: “The economic downturn, low business confidence levels across Europe and the prospect of void business rates have all conspired against developers to stymie development. The CIL will be another excuse for them to down shovels, or worse still, invest elsewhere.
“With existing Grade A stock depleting, it won’t be long before the city is unable to accommodate its existing growing businesses, let alone footloose inward investors.
“This is already proving a challenge for occupiers with significant lease expiries on the horizon such as PWC, DAC Beachcroft and some of the high street banks with large back office functions.”
Based on current proposals the non-negotiable CIL charge would be close to £600,000 for a typical city centre office building with 100,000 sq ft of usable space.
Local authorities wishing to implement CIL must do so by April 2014, otherwise the current 106 regime remains in place
Draft charges (see table below) have already been approved by Birmingham City Council’s Cabinet. There will be two consultation periods before the charges are formally adopted, with the first round of consultation expiring on 14 January 2013.
Mr Willet said: “I think the introduction of CIL in Birmingham is inevitable, but there is a narrow window of opportunity for the development community to pull together and challenge the proposed levies, which in many cases are a deterrent to future development in the city centre as well as the city suburbs. Without prompt action by developers and landowners, the moment to challenge the draft CIL rates will be lost.
“We cannot afford for Birmingham to be black listed by property developers and inward investors. This is the very real danger if the CIL levels are maintained at their current unrealistic rates.
“I urge the property community to engage with Birmingham City Council now. There will be no opportunity to broker discounts once the charges have been set.”
