Economist calls to scrap levies on all new homes permanently

A temporary waiver credited with rise in housing starts is due to expire next week, adding around €12,500 in costs

Local authority levies on new homes and water connection bills for new builds should be scrapped permanently, one of the country’s leading property economists has said.

A temporary waiver on the levies, which add around €12,500 to the cost of an average new home, is due to expire on April 24 after being credited with significantly boosting construction activity in recent months.

BNP Paribas Real Estate chief economist John McCartney said levies are a drag on new supply.

“The levies should be scrapped altogether, it is bad economics. The loss to the Government could be funded by scrapping Help-to-Buy” he said.

While levies increase costs, subsidies for buyers drive up demand without increasing supply, he added.

The latest BNP Paribas Real Estate’s purchasing managers’ index (PMI) shows momentum in the construction sector improving. The PMI is a monthly tracker of activity that shows growth as a reading above 50 and contraction as a reading under that.

In March, the index posted 51.6, from 47.4 in February.

The March expansion was broadly based but powered in particular by residential construction, where a surge in commencements has led to a pick-up in early-stage home-building activity.

Mr McCartney does not think housing delivery will reach the Government’s target for 2024, but the earlystage work this year on houses and apartments will increase output next year.

The rise in work on residential projects was the first in a year and a half and most pronounced since May 2022.

Commercial activity also rose solidly, ending a four-month sequence of decline, the PMI shows.

Strong construction sector employment data within the overall results suggests builders are finding the workers needed for projects, even with relatively muted wage growth.

That is despite widespread concerns that skills and labour shortages could threaten efforts to increase housing output. The ESRI has estimated that around 90,000 extra construction workers are needed per year to meet Ireland’s targets.

The BNP Paribas PMI data for recent months suggests workers are being found ahead of activity levels increasing. The rate of construction sector job creation in March was at a 13-month high.

Meanwhile, local authority levies due to kick back in later this month should go, Mr McCartney argues.

Last April, the Department of Housing announced a one-year waiver on levies payable to local councils for new residential developments, and launched a refund scheme for Uisce Éireann water connection charges.

This means builders do not have to pay local authority development contributions for any residential projects started between April 25 last year and April 24 this year. The projects must be completed by December 31, 2025, in order to qualify. Central government has picked up the tab for local authorities’ lost income.

The incentive appears to have worked to stimulate activity on sites, although in at least some cases that is likely to include instances where timing of schemes that were in train anyway was pulled forward to qualify for the tax break.

Goodbody estimates there has been a surge of activity this year, with commencements increasing by 67pc year on year, including a 107pc increase in apartment construction.