The Government will need to start considering “punitive” tax measures to help resolve the worst of the housing crisis because current policies are not working, according to Alan McQuaid, chief economist at Merrion Capital.
Mr McQuaid said despite warnings that demand-driven incentives such as the help-to-buy scheme, announced by then finance minister Michael Noonan in the budget last October, were making matters worse.
He said hefty tax sanctions, either through introducing increased levels of property tax or by other means, should instead target investors who were hoarding houses.
Such taxes could be introduced alongside other measures, including taxing developers and vacant ready-to-build development sites they have left idle to tap rising home prices, to boost supply, said Mr McQuaid.
“The measures used to now are to boost the demand side by offering tax incentives for people to buy homes but clearly it hasn’t worked,” he said.
“The Government needs to introduce punitive tax increases for owners of several homes, if your main goal is to have a person who owns the house living in the house.”
Mr McQuaid said he acknowledges the proposals could have negative effects on some landlords.
The call comes as the latest CSO survey showed home prices were rising at a rapid rate, both in Dublin and in other parts of the country.
Overall, all types of residential property prices across the State rose by almost 12% in May from a year earlier. Prices in Dublin increased by an average 11.2%, while prices outside the capital climbed 12.8%.
“The bulk of this acceleration has come in the past six months as policy measures in the shape of the Government’s help-to-buy (HTB) scheme and an easing of the Central Bank’s loan to value limits boosted demand relative to supply,” said Austin Hughes, chief economist at KBC Bank Ireland.
Charles Gallagher, executive chairman at Abbey, the stock market-listed builder of houses in Ireland, Britain, and Czech Republic, said that abandoning the HTB scheme would not improve matters.
“It has only been in place in Ireland a few months. Getting rid of the HTB will delay the recovery by a year or two,” Mr Gallagher told the Irish Examiner.
On calls for taxes on investors and developers, he said that any such measures would be “ill-conceived”.
Mr Gallagher criticised Government actions in Ireland because “there is no one really directly setting targets”, saying he would like to see a more “assertive” action.
Providing houses in Ireland should be less of a problem than in England, he said, adding that investment in road infrastructure in recent years should make it easier to build up around towns.
We “ought to see some improvement in three years and significant progress in five”, Mr Gallagher said on the progress in tackling the housing crisis.
Dermot O’Leary, chief economist at Goodbody, said: “An intense debate has developed recently on the reasons for the recent acceleration in price growth, with a particular focus on the impact of the Government’s help-to-buy scheme.
“While HTB may be having some impact, the proportion of transactions that are eligible for this scheme is too small to explain the recent acceleration in price inflation, in our view.”
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