Saudi Arabia’s cabinet has said it will impose an annual 2.5 per cent fee on undeveloped urban land designated for residential or commercial use.

The tax will be imposed as a percentage of the land’s value, in line with earlier recommendations from the kingdom’s advisory Shura Council. Full regulations will be published within 180 days.

The money will be collected in an account at the central bank and used to fund housing projects and other public services, according to the Saudi Press Agency (SPA).

The housing ministry says the policy targets unused, privately owned land across the country that can be better used to solve the housing problem. The government has been looking to take several measures to encourage housing developments. In September The Jeddah Muncipality released 3 million square metres of land from illegal occupants in the south of the city

According to government statistics, there are currently 750,000 families eligible for public housing. Despite a $67bn plan in 2011 to build 500,000 homes over several years, Saudi Arabia’s poorer citizens have suffered from rising rental prices in cities such as Riyadh and Jeddah.