A simple tweak of the tax laws could end this inertia and put homes and land on the market
WITH the Dáil resuming this week, the housing crisis in Ireland continues to present myriad well-documented issues for Housing Minister Eoghan Murphy, who has to carefully navigate between improving the property landscape for first-time buyers while protecting the interest of tenants and lowering levels of homelessness.
He announced earlier this month proposed strategies to tackle these issues, such as pledging to build an extra 800 social homes next year, bringing the total to 3,800, while promising to deliver an extra 200 emergency beds in Dublin. Other measures included broadening the remit of the Residential Tenancies Board and establishing a new inter- agency group to oversee homeless services.
Many critics have argued that such proposals are not radical enough and fall well short of what is needed to expeditiously address these chronic housing problems facing our citizens. There’s little doubt that Mr Murphy faces a mammoth task in trying to deal with such societal problems and will be expected to explore all logistical avenues.
An immediate and effective measure the Housing Minister should consider, if not already done so by his department, is the seven years’ Capital Gains Tax (CGT) exemption introduced under Section 64 of the Finance Act 2012 by former finance minister Michael Noonan in Budget 2012. CGT is a tax charged at a rate of 33pc on the capital gain (profit) made on the disposal of any asset such as property and is payable by the individual making the disposal (sale or transfer).
The capital gain is viewed as taxable income and companies are also subject to CGT, either as included in their corporate tax returns or through CGT returns, when companies make a profit from selling or transferring development land.
The relief measure adopted in 2012, as noted above, offered investors who acquired property starting from the period of December 7, 2011, and initially up to December 31, 2013 (later extended to December 31, 2014), to avail of CGT exemptions on those properties if they retained ownership for seven years. The relief was wide-ranging and included all property acquired in Ireland and throughout Europe. Those investors who retain the property for longer than seven years can still avail of the relief up to that time but will be liable for CGT on a proportional basis after.
Ireland was in the midst of austerity when this tax relief measure was initially envisaged and enacted. It was an attempt by the then government to try to encourage investment in the property sector.
The fiscal initiative did have the desired effect and contributed significantly to the increase of property sales within the much maligned sector. A direct consequence, however, has been the distortion of the market. It has merely encouraged property investors to adopt a land-hoarding mentality.
This has left a plethora of buildings and development lands throughout the country, bought during that four-year period, tied up in a
continual state of inertia until the earliest date of January 2019 (the expiration date of the seven-year term for properties purchased after 7 December 2011).
The chronic housing shortages are evident from the 2016 Census figures, which show that a mere 8,800 properties overall were added to Ireland’s housing stock over the past five years.
Brendan McDonagh, chief executive of Nama, recently told the Oireachtas finance committee that since Nama’s creation in 2009, the agency has disposed of land sites with the capacity to deliver 50,000 housing units, while only a mere 3,000 are under construction. He also lay blame with the so-called “land hoarders” for exacerbating the crisis.
It is therefore reasonable to assume that in or around January 2019, a large proportion of property as purchased in 2011 will hit the property market and invigorate same. This should make a positive contribution to making available muchneeded houses for first-time buyers and development sites for builders. This in turn will likely ease the rental market as it removes those first-time buyers from tenancy agreements and frees up rental properties.
If such positive effects could be achieved in January 2019 and onwards to January 2022, some logical thinking could be adopted by the Government to alter the seven-year requirement by simply changing it to six years. This would fast-track the direct and indirect benefits of the scheme for the housing market and help mitigate the current crisis.
The 2018 Budget has yet to be finalised, therefore ample time remains for necessary legislative changes to be made and to offer some hope to those who really need it.
Housing Minister Eoghan Murphy still has time before the Budget is finalised