Tax debate won't derail momentum in market
The debate about property tax seems unlikely to derail the improved momentum in key segments of the property market at least for this year.
This momentum is reflected in buyer activity not alone in Dublin but in a number of sought after areas especially in cities such as Cork, Galway, Limerick and Kilkenny.
CSO reports show that prices increased in Dublin. Furthermore, agents in other urban areas indicate that a combination of sharp price reductions and the deadline for buyers mortgage interest relief has begun to generate competitive bidding for the more desirable family houses and this in turn has seen some such houses selling for above the asking prices.
Far from dampening such increased activity, the debate about property tax may actually assist those home buyers seeking to buy houses before the deadline ends at the end of this year.
Indeed such debate may encourage those owners of houses which exceed their needs to put them on the market in coming weeks at a time when the mortgage relief still acts as a stimulus to buyer demand.
The controversy may also encourage investors to cash in their chips before they get hit with more taxes on top of the series of levies imposed on them in recent years.
It may seem surprising to welcome such extra supply at a time when the national market is suffering from over supply. Undoubtedly there are indeed many areas where such over supply exists and these include most, if not all, of the Dublin apartment market.
But there are also concerns that some segments of the market are showing signs of a lack of choice. These are mainly family houses in mature areas which are well serviced by public transport, schools and shops and where employment has not been hit too severely.
After years when buyers have been encouraged by the carrot of tax incentives to buy and develop properties, it's understandable that a property tax will come as a shock to owners. After all it effectively could serve as a stick for such owners. However the Government needs to be conscious as to how they wield such a stick. If they use it too severely then it may have catastrophic effects on the market. A tax based on the market value of property looks to be too severe as it is widely recognised as acting as a disincentive to owners to improve the properties and also exacerbate the pace of dereliction in traditional town centres.
In contrast a site value tax would appear to offer a stick which would act as an incentive to make for more efficient use of property. In particular it would encourage those owners who are not making the most efficient use of property including owners of sites and commercial property to either piss or get off the pot.
Furthermore it could encourage pensioners living in large houses to sell thus freeing up stock for growing families. It might also encourage some of those pensioners to move to apartments which can provide a range of services better suited to their needs. At a time when many pension funds are in trouble such moves would also help pensioners to release equity to help them to fund their lifestyle.
The prospect of a property tax may be just the stick which would encourage all types of owners, including farmers, to bite the bullet. In the latter case, this could have further benefits as more efficient use of farm land could provide materials for further job creation in food processing.
Furthermore a report by economist Ronan Lyons has warned that imposing a property tax on the market value of properties rather than on the value of the site they are built on will delay economic recovery.
He said such a 'value-based' property tax would mean people would have no incentive to renovate or insulate their homes.
But a site-value tax would aid economic recovery, the Oxford-based economist said. "The fairest form of property tax is a site value tax."
Either way the property tax controversy cannot be allowed to develop into a running sore which would exacerbate the market's difficulties after the mortgage interest relief comes to an end.
For that reason the Government needs to clarify as soon as possible both the basis for assessing the tax as well as the means by which it will be collected.