London luxury homebuilders seen paying less affordable home tax

[LONDON] London's Westminster borough council expects a drop in levies paid by luxury-home developers to fund affordable housing after the UK government introduced a break for companies converting disused offices into apartments.

Under the new policy announced in November, companies that redevelop the empty buildings only need to pay levies for affordable homes if they expand the existing space. Previously they paid the charge on all of the conversions.

"Affordable housing contributions from these types of development will significantly decrease," the council said in a filing on its website ahead of a meeting on the policy change today.

"The implications of these proposals are being examined as they stand with colleagues in other authorities in order to form a unified response."

Luxury homebuilders in the Westminster and Kensington & Chelsea boroughs have been converting vacant office buildings into apartments because residential space is much more valuable. A new apartment in the Knightsbridge neighborhood is valued at least 3,500 pounds (US$5,300) a square foot, more than double the cost of office space, broker Jones Lang LaSalle said Jan 16.

Developers have converted or plan to convert 5.6 per cent of the office space in Westminster into homes, according to a November report by the Westminster Property Association. The borough includes Victoria, Mayfair and St James's.

"It's crazy to tax empty buildings being brought into productive use," housing and planning minister Brandon Lewis said by e-mail.

"Such tariffs hinder regeneration and lead to the blight of empty, boarded properties. By getting rid of these charges, we can provide more homes."

The levies, which can exceed 20 million pounds or the equivalent value in new homes, can raise substantial sums for boroughs in London. When an affiliate of Lodha Group won approval to demolish most of an office building on Grosvenor Square and construct 41 apartments, it offered to pay 22 million pounds to the borough's affordable housing fund.

BLOOMBERG