Top of the housing hit list

In the run-up to the Budget, there is no shortage of suggestions abroad as to how best to boost the supply of new homes

WITH less than a month to go to Budget 2018, housing – or more specifically, the lack thereof – continues to be high on the agenda, and the flurry of pre-budget submissions that emerge from stakeholders around this time each year are full of suggestions on the topic.

Some of these ideas have been aired before; others represent newer twists on solving the housing crisis. The issues that arise repeatedly and across the board, however, include reducing the cost of construction by slashing VAT and development levies; incentivising the release of land by tackling vacant sites and reducing CGT; and making funds available to smaller builders outside the capital.

VAT

The Institute of Professional Auctioneers & Valuers (IPAV) compares the Irish VAT rate of 13.5% on housing to the UK and Northern Ireland rate – 0% -- and believes the Irish Government should aspire to the same policy. In the meantime, it is calling for the rate to be reduced to 9% in Budget 2018, with a review after two years.

The Construction Industry Federation (CIF) also wants a temporary VAT rate of 9%, as does Property Industry Ireland (PII), which ultimately wants a zero VAT rate for a trial period of two years.

The Society of Chartered Surveyors Ireland (SCSI) is slightly more specific about where VAT should be reduced. It wants the rate on new affordable housing (homes costing less than about €300,000) reduced to 0%. It suggests the inclusion of a ‘sunset’ clause in the legislation in order to set a time limit and promote early development.

Levies

The CIF suggests that local property tax be used to replace Section 48 development levies currently charged by local authorities as a condition of planning permission. IPAV, meanwhile, wants a complete review of levies and believes they should be applied as a percentage of the final value of a new property and that percentage should be capped at 3%.

Land supply

With the 3% vacant site levy not due to come into force until 2019, Chambers Ireland is calling for it to be brought forward to next year in order to disincentivise land hoarding and increase the land available for development.

The SCSI suggests the vacant site levy could constitute the ‘stick’ element of a carrot and stick approach – the carrot being a reduction of capital gains tax (CGT) from 33% to 20% for a defined period in order to release more lands to the market.

Meanwhile, both the CIF and the SCSI question the advisability of retaining the seven-year CGT exemption, which was introduced in 2012 for land or properties bought between late 2011 and late 2014 and kept by the owner for seven years.

“[The exemption] encourages the retention of property with no incentive to develop the land purchased during the relevant period,” says the CIF’s Parlon.

Small builders’ fund

IPAV says that small builders have been priced out of the market by high interest rates and is calling for the creation of a Special Builders’ Fund capped at €1bn. The fund, it suggests, could be akin to the cash flow support loan scheme for farmers, which comes with an interest rate of just 2.95%. The body reckons a similar scheme for builders could help control the price of a home, as the Government would only supply the funds if a certain house price was guaranteed.

The CIF also wants a fund to help small builders who cannot access finance.

“Traditional sources of finance such as the banks are not able to lend to these regional SMEs, often third-generation family businesses, to deliver the relatively small housing projects required to replenish the stock of towns outside the greater Dublin region,” says director-general Tom Parlon.

“How can we build a balanced regional economy if small housebuilders cannot access finance outside Dublin?”

Help-to-buy scheme

The CIF is also concerned over suggestions that the Government may scrap the help-to-buy scheme earlier than planned. Parlon says the scheme has had a supply side impact on the first-time buyer market, with housebuilders again now able to acquire funding for building traditional starter homes.

“Private residential housing output has grown by 45% over the past few years, so measures put in place in this area are making a difference,” he says.

“An early withdrawal of this scheme would have a detrimental impact on confidence and the ability of housebuilders to maintain and increase their residential building programmes.”

IPAV goes a step further; it not only wants the Government to retain the scheme, but believes there is a strong case for extending it to non-first-time buyers and second-hand homes outside of Dublin.

Third-party objections

IPAV is highly critical of the current system for handling third-party objections, blaming it for delays in getting work started. It says the average time it takes for a project to get from the initial planning application to the commencement of construction – 79 weeks – is “inordinate and perverse” and wants the Minister to immediately review third party planning objections to speed up the process.

Future proofing

Apart from specific recommendations like the above, there are also some more general warnings regarding the future of housebuilding here. The SCSI, for example, maintains that the new homes being supplied are not necessarily of the type or size in greatest demand. It says that although our population is ageing, there is a lack of supply of smaller house types, meaning older people are sometimes forced to stay put. Equally, it says, a rising demand for urban-style, apartment dwelling is not being met.

Early withdrawal of the help-to-buy scheme would have a detrimental impact