Budget promises lots for property sector, but will it deliver?
With less than a fortnight to go before Budget 2016 is announced there has been much commentary on how finance minister Michael Noonan will address what is now being referred to by many as Ireland's housing crisis.
In his last Budget speech Mr Noonan acknowledged that the private and social housing market was not meeting the needs of Irish people. In this speech he outlined some actions points to support the private, social housing and rental sectors which were to form part of the Construction 2020 strategy.
He also announced a public consultation period designed to examine the potential of tax measures to encourage development of zoned and serviced land. This consultation period ended in May 2015 affording the minister several months to consider the views received from various stakeholders.
One other notable comment from his previous Budget speech, which is relevant in the context of the likely policy changes that Minister Noonan may be considering for Budget 2016, was that "The State alone cannot meet the private and social housing needs of all our citizens. Nor can the State use taxpayer's money to subsidise private building and construction companies ". This for some may have been seen as a clear statement of intent that the current Government does not intend to revisit the property incentives of the past two decades.
Given this backdrop and the more recent soundbytes from Government, it is likely that Budget 2016 will contain a combination of tax and non-tax measures designed to address the housing issue.
Such tax measures may include a reduced VAT rate, the extension of the Home Renovation Incentive, and a renewal of the Living City Initiative
Against a challenging economic backdrop the Government announced a reduced 9pc VAT rate for tourism related goods and services in May 2011 which has continued in force since then. Construction industry spokespersons have long sought a similar support for their industry and more recently, they have specifically lobbied for a 9pc VAT rate on residential property for a fixed period aimed at closing the gap between supply and demand without increases in house prices. Given the associated cost it is difficult to see such a measure being introduced.
This incentive, originally introduced in October 2013, was extended to landlords in last year's Budget and will continue to be available to homeowners and landlords until 31 December 2015. This incentive is generally regarded as being successful in improving the quality of homes and very beneficial to the construction industry. Consequently, it would not be surprising if the incentive was extended by the Minister as part of Budget 2016.
The Living City Initiative, introduced in Finance Act 2013, finally came into operation during 2015 following EU approval. This initiative is expected to boost construction activity in the particular designated areas. It is unlikely that significant amendments will be made to this initiative in this Budget. The minister is likely to adopt a wait and see approach this year, and follow on with any required amendments next year once the scheme has been in operation for a reasonable period of time.
Some of the non-tax measures have been well flagged by Government in the past few weeks and these include the future role of Nama, as well as changes to development contributions and possible amendments to the now infamous Central Bank mortgage rules.
Mr Noonan signalled his intentions in relation to Nama at a recent Fine Gael Parliamentary meeting. This move may see Nama being given more scope to support the development of residential property using its capital resources, land banks and familiarity with the construction sector.
On development contributions, the construction industry has sought reductions in developer contributions over the past decade and particularly in areas of greater Leinster where they are still perceived by some as representing peak level levies.
With the local property tax now well established and the high level of compliance associated with it many will hope that local authorities are now in a position where they can revisit the levels of development contributions.
The Central Bank mortgage rules appear to have caused a significant political problem for Mr Noonan.
It has been reported in recent weeks that Mr Noonan has met with officials from the Central Bank to discuss the appropriateness of recently introduced mortgage deposit rules.
It is expected that such a review will not be completed in advance of Budget 2016 therefore the realistic expectation is that the Minister will acknowledge such a review in his upcoming Budget speech.
As we look to Budget 2016, the overriding question is whether tax policy has done its part to create a functioning housing market and is fit for purpose. I think at a minimum there is acknowledgement that further measures, both tax and non-tax, are required to provide affordable housing to our growing population. We await Budget 2016 with keen interest.