The Federation of Master Builders (FMB) said this practice is hindering SME developers as it would make them inclined to hold back completing projects until they have agreed sales.
Overall, this would then slow down the delivery of completed new homes for the market.
Brian Berry, Chief Executive of the FMB, said it is up to Central Government to address the issue of unfair Council Tax charges on house builders.
"Reports from FMB members suggest it has become relatively commonplace for new homes to be deemed complete for the purposes of Council Tax long before they are actually inhabitable," he said.
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"This is sometimes the case before even basic work has been completed, such as the walls have been plastered or the floors have been concreted.
"Council Tax is designed to fund services provided to tenants, so there is little justification for levying it on new homes months before anyone could move in. There is a growing concern that Council Tax is being unfairly levied as just another development tax.
"We accept that there is a case for Council Tax being levied on existing empty properties in order to incentivise these being brought back into use. However, for new homes, it creates perverse incentives for developers to hold back completing these properties until they've agreed sales and slows down the delivery of completed new homes onto the market."
Mr Berry added: "What is urgently needed is an agreed definition of when a new home is complete for the purposes of charging Council Tax, and one which ties this point much more closely to the point of inhabitability. This will help ensure against current poor practice in some areas and will also serve to speed up the delivery of new homes.
"For this reason, we're also urging Government to review whether the removal of the automatic six month exemption for ‘unoccupied and substantially unfurnished' dwellings should have been applied to new dwellings, as we fear this is having the unintended effect of further slowing down house building."
(LM/MH)
