Contractors are now bracing themselves for public spending restrictions, but the Government is keen to encourage more house building.
The Government wants to see 200,000 homes built per year by 2016. Housing minister Yvette Cooper said: 'The evidence is clear - if we fail to increase the number of new homes then within 20 years less than a third of 30- something couples will be able to afford to buy a home of their own.'
The announcement was in response to a review by Kate Barker of the Bank of England, commissioned by the Government, which found that current house building was inadequate.
The Government is consulting on a tax that will give councils some of the increase in land value when planning consent is granted. The Planning Gain Supplement will take over, although not completely replace, previous legislation.
Roger Humber, strategic consultant to the Housebuilders Association, said: 'Given that the introduction of such a tax will involve significant time and cost to legislate, we will be asking the treasury to examine viable alternatives in the hope that a more practical outcome can be met.'
A spokesman for the Home Builders Federation said: 'The HBF is keen to see a more efficient and more transparent system for planning obligations than the current Section 106 agreements. However, it is crucial that any form of planning gain is proportionate and workable.
'There also needs to be a wide consensus in support of any future approach if it is to work.'
Responses to the supplement are invited by the Treasury until February 27 2006.
Deputy Prime Minister John Prescott also announced the winners for four more sites in the £60,000 house competition on Tuesday. The Countryside Consortium, Westbury Homes and William Verry (for two sites) have all been selected by regeneration agency English Partnerships to build homes on the four sites. Preferred bidders for the remaining two sites are expected next month.
Construction will start next spring.
Government figures released last week show output during the first nine months of 2005 dropped by 1.3 per cent. Industry experts are now convinced construction will see its first yearly fall in total output since 1994.
Construction Products Association economics director Allan Wilen said: 'The latest data makes disappointing reading. It reveals a much sharper decline in construction activity at the start of 2005 than previously estimated by the Government. This, combined with a weak third-quarter performance, left construction output in the first nine months of this year 1.3 per cent down on a year earlier. The industry now appears certain to endure its first decline in output since 1994.'
The Department of Trade and Industry figures show that new infrastructure output has dropped by 15 per cent year on year during the first nine months of 2005.
Mr Wilen said: 'We are particularly concerned that the fall in construction activity has been led by a marked weakening in Government-related new work.'