Wednesday 20 September 2017

Government is holding up the housing supply

House inflation is being driven by a supply shortage in Dublin.
House inflation is being driven by a supply shortage in Dublin.

Paul McNeive

With house prices and rents increasing, as well as homelessness, the lack of supply has been identified as the root cause.

But what are the real reasons behind the lack of supply? There are plenty of solvent builders, plenty of sites and new sources of finance. The reason for the shortage of houses is that there is a shortage of people who can afford to buy houses. Building homes remains unviable in most situations and the fundamental reason is that 45pc of the cost of a new house or apartment goes in taxes.

It's not all that long since the State gave first time buyers a grant of approximately €2,000 when buying a €30,000 home. In the period since that grant was abolished, the levies payable on a house have increased from €1,000 to €30,000, VAT has increased from 5pc to 13.5pc and the cost of the Part 5 (Social and Affordable Housing) levy has also been lumped on to the purchaser. If purchasers realised that 45pc of their savings and borrowings were going on taxes (to include taxes on labour) one wonders if they would bother buying at all. State taxes are preventing a normal market and buyers and renters are again being forced into long distance commuting.

Apart from the weight of taxes killing the market, the grounds on which some of these taxes are based are questionable and there are elements of "double taxation." For example is it fair that a young couple who have struggled to save a 20pc deposit from heavily taxed income should then also have to pay the cost of someone else's "social and affordable housing" on another site? Which may never even be built? On top of that, €25,000 of their money goes as a contribution to local services. They even have to pay another 13.5pc vat on that €25,000 levy. Then they are required to pay the Local Property Tax, partly to pay for the same services.

Builders also complain of "double taxation" and on one site I visited this week the developer showed me a receipt for a levy of hundreds of thousands of euro paid for connection to sewers and water supply. When he made those connections himself the local authority levied him a further substantial "connection levy." When he queried that on the grounds that he had done the work he was told it was a levy for "future maintenance of the connections." All these costs are passed on to purchasers.

The new building regulations are adding €18,000 to the cost of a new house in meeting higher energy ratings and paying for certifiers. A raft of costs and paperwork associated with recent legislation is also adding to the cost of houses. For example in order to be allowed to stop traffic on the road adjoining his site a builder must have an approved "Traffic Management Plan" and a "Mobilisation Plan" from the local authority. To open up a site a builder now also needs a "Road Opening License" at a cost of up to €5,000.

Health and safety measures are more welcome but they all cost money. Sites must have offices, stores, a "drying room" for builders clothing, canteens, fridges, microwaves and toilets. There must be "fire points" and emergency procedures and every operative coming on site must sign the Site Safety Induction Manual.

Every week the builder must hold a "Toolbox Talk" where all staff gather for a training session on an item of safety. Every driver of a machine must have a special certificate of competency.

Building site paperwork has become so onerous that most builders now employ their own Health and Safety Consultants and one builder told me that it was uneconomical to develop a site of less than 100 units because of security and other costs.

The costs of labour, materials and quality controls are fixed and the only cost which can be substantially reduced is the State's tax take. The governments task force has identified 20,000 new homes that could be built immediately but don't realise that it is the State's tax take which is blocking development. Another factor is that Irish banks are charging mortgage rates double what is being charged across Europe.

Instead of taking radical action the government this week launched a consultation process on...? You guessed it. Taxing development land!

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