Sunday 8 December 2019

Martina Devlin: The great housing paradox - how to build homes without giving builders a €50m perk

Former Taoiseach Brian Cowen
Former Taoiseach Brian Cowen
Martina Devlin

Martina Devlin

I never thought it would come to this, but deep breath and here I go. I'm about to quote boom-to-bust taoiseach Brian Cowen on developers. Wait, no, I can't just introduce him off-the-cuff like that, I need to work up to it.

Michael Noonan delivered his sixth Budget yesterday. We've been through some crushing Budgets with this Finance Minister, so it was no surprise to hear another speech peppered with "prudent" and "affordable" dampeners.

That's all right - we've been borrowing €1.5bn to run the State this year, with another €2.2bn next year. Let's be prudent and consider what's affordable before opening the coffers.

So, does the first-time buyers' grant - also known as the 'help to buy' initiative - fit the value-for-money aspiration? Unfortunately, it resembles a developers' handout, rather than either a useful stimulus to construction or a helping hand to young people trying to access the property ladder.

Undeniably, there is a housing crisis. But corrective measures to drive construction, such as tax breaks directly encouraging developers to build, would seem to be a more sensible way to proceed.

Instead, we have a tax break per couple of up to €20,000 for a newly built house. The impact is unquantifiable - but the fear is it might simply drive up property prices. At least it only applies to new builds, so some limited benefit is possible. Fianna Fáil wanted it to encompass the second-hand housing market, which would have done nothing to promote house building. Nice one, Soldiers of Destiny.

Some 20pc of homes bought by first-time buyers are new ones, meaning 80pc of homes bought by this sector are second-hand - meaning the grant is of limited benefit.

I'm ready for my Brian Cowen quote now. "One of the paradoxes that we need to think about as a result of the crash is people want housing but no one wants builders. We need to get away from that," he told the 'Sunday Business Post' recently, launching developer Seán Mulryan's massive Dublin Docklands project.

And the former Taoiseach is on the money here, although he has had a lot of time on his hands to reflect on past mistakes and lessons to be drawn. Yet developers patently have the experience and expertise to build homes. So how do we make it happen?

Any inducement from the Exchequer must address the lack of supply.

Let's pause now and look around. Notice that geometric jumble of cranes on the skyline? Yes, the developers are back. But most developments are for office space and not homes. The former offers added value for developers - building houses is more punitive in terms of development levies and VAT.

Noonan could have addressed that anomaly with reduced levies for constructing homes. Or he could have introduced a 'use it or lose it levy' - a charge on withholding land from development, a situation contributing to the current housing shortage.

If a levy is regarded as an invasive action against property rights, he could have brought in a tax break making it more attractive to either develop or offload sites. Various voices have suggested a temporary 10pc capital gains tax rate on the profits from sites sold where planning permission is in place already.

This measure - offered for a finite period - would encourage landowners to sell. Current capital gains tax rates of 33pc act as a deterrent.

There is no cost to owning vacant development space, unlike owning property, which is taxed whether occupied or not - no disincentive against hunkering down on that land bank to watch prices climb. Even as families are crying out for a roof over their heads.

It is counter-intuitive for land to be left lying idle when the national interest requires zoned land to be used.

But building must take place around cities and large towns where the population growth requires it, rather than in rural areas - we don't want any more ghost estates.

Those holding tracts of land in or near urban areas should be the focus of our attention - not farmers with the odd field here and there.

And while Noonan was addressing land banks being stockpiled, he could have acknowledged that speculators aren't the only ones at fault.

Large areas of land are held in public ownership, too. Are councils delaying in the hopes of industrial development?

The 'help to buy' scheme cost is estimated at €50m, and if it truly helped to address the housing crisis it would be cash well spent.

Unfortunately, it smacks of a builders' perk rather than the stimulation to development that's needed.

Irish Independent

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