Friday 15 December 2017

The right moves: Government failing to understand high taxes impede housing supply

Rain batters homes as the eye of Hurricane Matthew passes Daytona Beach, Florida. The event also caused movement in stock prices of property funds. Photo: Reuters
Rain batters homes as the eye of Hurricane Matthew passes Daytona Beach, Florida. The event also caused movement in stock prices of property funds. Photo: Reuters

Paul McNeive

Today sees the publication of the first stage of The Finance Bill, implementing the measures announced in the Budget to solve Ireland's housing crisis.

Unless the Government has had an epiphany, the new strategy will be a collection of well-meaning side issues, all of which miss the main point: the supply of new homes is being killed by taxes.

The fundamental issue is the State is taking far too much money out of the development of new homes, making them unaffordable for working people in Dublin, and in other locations too.

The irony is the State, by making development unviable, is taking in very little money. Slashing taxes would re-ignite the market, help to solve the housing crisis and greatly increase overall tax revenues.

It's infuriating that the Government can't see this, and even more so that its chief solution is a 'help-to-buy' incentive for first-time buyers, with a €20,000 tax break, that will go straight on to the price of new homes. Yes, everyone likes the lure of 'something for nothing' and we will see a cohort of buyers who have been sitting on the fence moving now to make their purchase.

But surely it would be better for the consumer if the price of houses goes down, and not up?

VAT and development levies are strangling supply and it's amazing that the Government didn't replicate the success in rebooting the hotel and tourism industry by reducing VAT on new homes. (There is no VAT on new homes in Northern Ireland and the UK.)

Isn't it astonishing that a government which understands that high taxes reduce consumption of alcohol and cigarettes, can't grasp that high taxes are also killing economic activity in housing?

Development levies, all of which are passed on to the first-time buyer, remain too high and unfair, despite moves to reduce their impact. Why should first-time buyers, already stretched to the limit to save a deposit from heavily-taxed income, also be expected to pay for the State's social housing policy? Oh, and of course they'll have to pay an annual property tax too.

Buyers of secondhand homes don't have to pay these charges, which amount to double taxation. Social housing should be paid for by everyone, not just first-time buyers.

Exorbitant levies are preventing development. For example, in Carrickmines, Co. Dublin, several sites have been sold since the crash, but no-one is building. That's because a levy of €50-€75,000 per unit is part of making building unviable.

As one builder told me: "If I was to start building based on the known costs and likely sale prices, I could be prosecuted for reckless trading. It just doesn't stack up."

Across the country, levies are payable to the local parks department (whether they provide a park or not), a road levy (whether there's a new road or not) and for sewer and water connections. On top of that will often be a special levy for the past or proposed provision of public transport - for example, a Luas line or other transport schemes.

The supply of new homes will improve as the economy strengthens, but much of that would have happened anyway. Increased expenditure on infrastructure, 'rent a room' and 'living city' initiatives and competitions to encourage innovation in construction are all worthy, but they are side issues. The 'vacant site levy', more controls on landlords and the 'help to buy' scheme, will all make matters worse.

Estate agency is increasingly global

Florida was a dramatic place to be last week, dodging hurricanes.

It was interesting to learn that threatened hurricanes cause movement in the stock prices of property funds, with holdings in the State and share values moving according to the latest predictions from The Weather Channel.

I was interested to find that Roger Hobkinson, a director of Colliers International's Dublin office, is actively involved in the city of St Petersburg's 'New Pier District', a catalyst for the city's regeneration.

Hobkinson, whose speciality is 'destination consulting' is part of the Colliers International team that won the contract to advise on the content of the scheme, its branding, marketing, leasing and management.

Hobkinson told me that he is also working on schemes in Seoul and Shanghai.

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