Our tax system has had a profound impact on the Irish landscape, and not simply in a metaphorical context.
In particular, specific tax exemptions and reliefs introduced over the last 30 years has supported and induced significant development and redevelopments.
As discussed here in previous articles, Dublin’s Templebar area was one of the first major inner city regeneration initiatives, meanwhile the overextended relief given in the Shannon Corridor region resulted in an oversupply. The power of tax policy should not be underestimated.
Interestingly the current shortfall of family homes in Dublin which is resulting in double digit price increases over the past 12 months is also rooted in tax policy, albeit misplaced tax policy.
Prior December 8, 2010, stamp duty exemptions applied on the purchase of property which had a floor area of less than 125 square metres. Indirectly this misguided tax policy incentivised a rack ‘em and stack ‘em approach with builders cramming a plethora of new estates with “starter” homes.
Now that life has moved on, many of those who purchased these modestly sized homes at less than modest prices are now literally expanding out the door leading to a hunt for the near extinct larger type family home.
Thankfully the stamp duty reliefs applicable to residences less than 125 square metres, which inadvertently led to skew in house development style, have since been abolished. However other tax changes introduced about that time are equally distorting the supply side of the property market.
The NAMA 2009 Act brought about an 80% rate of tax which applies to the disposal of rezoned land. With land-owners facing such a potentially massive tax bill from the disposal of land suitable for development, it is little wonder that there is no appetite among land owners to dispose of land banks for development.
The 80% tax rate applies to the disposal of land which was rezoned since October 30, 2009. The rezoning can of course include instances of a change from agriculture to development land but actually also applies in a wide variety circumstances including rezonings and changes of use.
There are exemptions to this rules which cater for site sales involving less than one acre and where the value is less than €250,000. At the time of its enactment, the amount of development land swapping hands was almost non-existent and the introduction of the measure was little more than a propaganda stunt.
On the supply side, this exceptional tax rate is starving the building industry of any the opportunity to access new development sites. Meanwhile many of Ireland’s largest home construction companies have disappeared following a plethora of receiverships and liquidations including McInerney Homes and Cork’s Castlelands Construction.
This points to a void in the capacity of Ireland’s construction industry to cope with any pickup in demand. Another tax policy introduced in recent years, the relief from Capital Gains Tax for properties purchased between December 7, 2011, and December 31, 2014, exempts the owner from capital gains tax where the property is held for seven years.
This scheme is set to end at the end of 2014 and is also adding to the upsurge in demand for low risk family type homes in good locations. Add a lack of appetite for banks to engage in property development into the mix and the combined effect is visible in a return of that almost forgotten term “gazumping”.
The availability of quality affordable housing would seem a fundamental societal objective. Tax policy should in theory support these objectives and the removal of this outdated tax policy would surely remove one of the barriers to development land supply.
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