Tuesday 23 January 2018

The right moves: Taxes on new homes must be cut to end housing crisis

Housing Minister Simon Coveney Picture: Conor McCabe
Housing Minister Simon Coveney Picture: Conor McCabe

Paul McNeive

Housing minister Simon Coveney risks seeing his his "comprehensive plan" to solve the housing crisis imploding if he listens to all of the waffle being thrown his way in the consultative process.

I can't remember a time when any sector of the property market was so misunderstood. The crux of the problem is that most people can't afford to pay the economic cost of building a house. We're also seeing a large cohort of people resigned to renting long term. That's fine, to an extent, but may also bring societal problems.

The "affordability" issue is simple: 30 years ago the state paid a grant to first time buyers of 10pc of the cost of a new house. Now, that grant is gone, salaries are lower than in 2008 and those in work are paying more taxes, such as USC and property tax. So, when people have less income, pay more taxes and need a higher deposit, buying power falls below the cost of production and supply stops. Which part of this does the government not understand?

As an example of the farce that the debate has become, how many people realise that there are new houses in Dublin where the water connection levy charged by the local authority is €4,000 per house? This, plus the vat on €4,000, is all passed on to the purchaser. Yet, the country has been paralysed by a row over a €100 water usage tax!

Not only that, but these days, first time buyers are also expected to solve the State's social housing problem. How can it be fair to expect a private first time buyer to pay social housing levies and property tax in the first year they buy a house? Up to one third of the cost of a new house is taken by the State in vat and levies (which the purchaser of a second hand house doesn't have to pay.) Sites all over the country have been bought and sold over the last three years but there is very little development taking place, and that's because developers can't develop profitably.

Most of the development that is taking place is being funded by Nama at low rates of interest, or by venture capitalists at very high rates of interest, and neither of these are sustainable business models for the construction industry. The key to kick starting construction is to substantially reduce the state's tax take on each house. This is a "no brainer" in that the state's overall tax take will also significantly increase, just as capital gains tax inflows trebled when rates were halved.

Another big factor affecting affordability has been the upgrading of the minimum requirements under the building control regulations. Generous minimum sizes for houses and apartments, dual aspects and gold standard energy conservation standards etc are admirable. But we can't afford them. Either the government needs to pare these back to a level people can afford, or drastically reduce the tax take.

I'm wary of government interventions but I support the Central Banks restrictions on lending and the solution to this problem is not to borrow more. The calls for increased rent subsidies are misguided as, with restricted supply, rents will quickly increase. That said, the traditional house building sector is in such a state of artificial paralysis that there is a case for bringing back the "first time buyers grant", for properties under a certain size. Whilst some will argue that the grant will be added to the price of a house, as of now, builders aren't building, and kick starting the market and creating competition is the real goal.

The "first time buyers" grant got people on to the property ladder and meant that they usually stayed as net contributors to the State. A generation of long term renters may increasingly have to rely on the State, as their families grow and costs increase. But local authorities, stripped of expertise and buried in bureaucracy and procurement processes, have been returning exchequer allocations for building houses and Dublin City Council couldn't erect 22 modular houses in six months.

Furthermore, the cost of restoring many of the 230,000 vacant houses identified by The Housing Agency, may be more than the cost of a new home.

The "golden goose" that is first time buyers has been killed and the only way to restart the market is by slaughtering taxes.

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