Architects seek tax tweak for apartments to help solve crisis
In the thick of a housing crisis, which has lasted through three Governments, we have at last reached the point at which almost no one from Dublin can buy an affordable new family home within the Dublin county boundaries.
It’s an achievement that the Government won’t be flagging in its big data press releases any time soon.
In fact affordable new family homes are only being built for Dubliners in other counties; tens of miles away, largely in commuter estates of low-rise, low-density semi-detached or detached houses. Buyers must cross one, if not two county boundaries to get to work and back each day. No good for the environment, nor the mental health of the buyer stuck in jams for hours while their kids linger in creches.
But Dublin is a city falling down with empty crumbling buildings, shops with empty overhead floors and infill sites which actually cannot be developed to provide affordable homes.
The local authority says you have to build high-density apartments. The builders say “not unless it’s build-to-let. Otherwise it’s not viable”. So the site sits there doing nothing while the kids who grew up around it move to Carlow.
In 2019, for the first time, there were more apartments built in Dublin than houses. Ridiculously, almost none of those apartments were offered for sale. To anybody. Most were high-density student blocks or luxury buy-to-let blocks with tiny homes inside.
Now just stop for one moment and think about how unbelievably and unfathomably stupid is all of this is?
Ireland’s largest architects group, The Royal Institute of the of Architects of Ireland (RIAI) which represents more than 5,000 professionals, has been considering how stupid it is. And the RIAI thinks it has a solution to make family apartments for sale in cities a viable option for builders. It is posting its ideas to Government this week as part of its pre-budget submission. Hopefully Government will act on it.
In essence the architects want a reassessment of how VAT is levied on housing, so that it is charged in future by site footprint and not per housing unit sold, as it is charged at present.
The RIAI asserts that:
● City buyers should be able to acquire affordable family-sized apartments or other high-density homes in their own city
● This can’t happen right now, because building apartments for sale is not viable, in part because of how VAT is charged
● To make family apartments viable we need to change how apartments are taxed
● Deploying changes with controls on end usage and price (to prevent developers swallowing up all the benefits) could bring heaps of affordable family-sized homes to where most city dwellers want to live, in the city; and at prices they can afford.
“The bottom line is that no one is building apartments for sale because they are hugely more expensive to build than houses. Our taxation system helps reinforce that,” says Claire McManus, a housing architect and housing spokesperson for RIAI.
Apartments are considerably more expensive to build even without tax. “Around 20pc of the cost of an apartment block is already accounted for by costs houses won’t have like the construction of corridors, balconies instead of gardens, provision of lifts, fire safety measures and the increased amount of concrete and materials required overall for an apartment block,” says McManus.
“For example an 83sqm apartment (two to three bed) currently costs 1.4 times more to deliver than a 100sqm house (a three-bed semi), but in 2019 the median apartment price was 1.15 times lower than the median house price. So currently, a medium density development consisting of five to sixstorey apartments attracts five times more tax than if the site was developed for houses. This needs to change.”
On a one hectare site you can build 35 houses (35 times the 13.5pc VAT charge) or you can build 150 apartments (150 times VAT). “We need to charge VAT based on the footprint of the site rather than by the unit. The benefits would be huge. “If we offered this rate only for blocks of homes sold on the open market and within an affordable price range, then the benefits wouldld bbe passedd to buyers whilst also making blocks a viable commercial prospect for builders.”
She asserts that apartments are infinitely preferable to land eating schemes of houses located further out of town and are actually cheaper when wider factors are considered. “There is an expectation generally that apartments should cost less than a house. But in fact when you tot up all the costs other than delivery costs (that is, environmental, public transport, schools, community services, shops, roads, infrastructure) in reality they do in fact cost less. Fiscal policy should reflect this.”
By making better use of land in more populated areas, McManus says lowrise city apartments could keep people where the public services are rather than (by their absence) relocating them to outlying areas where more new services like schools, will have to be provided. She argues that apartments are also a better option for city shops and businesses which benefit from increased custom.
The VAT loss to the tax payer is recouped by not having to provide new schools and services elsewhere and by savings on environmental penalties. Better again would be no VAT at all on affordable family apartment schemes to be offered individually for sale.
Unfortunately Government has long shown that it just won’t mess with VAT to help housing. But for publicans? Well...
A site used for apartments attracts five times more VAT than if it were used for houses