Property tax hike looms as home costs rise

Homeowners are facing significant property tax hikes, particularly those living in apartments, as the recovery in the market continues.

An analysis by the Irish Examiner reveals many first-time buyers, and people living in Dublin and larger urban areas, face huge rises when their property tax bills are assessed next year.

Figures from the CSO and Eurostat, Europe’s stats office, show that since May 2013 — the date when the local tax was first assessed against property values — house prices have shot up at the fastest rate in Europe.

Average prices have risen 24.5% nationally since 2013, driven by demand in Dublin. When Dublin is taken out of the equation, the growth figure for the rest of the country is 12.7%.

In Dublin, house prices have jumped 40.2% in the period. However, apartment prices have soared 48.3% since May 2013.

Experts say that the structure of the local property tax needs major surgery before the election and will likely not survive in its present form because of the explosive and uneven rises in home prices across the country.

The new levels of property tax are due to be assessed late next year, but the analysis makes clear that bills would be unaffordable for many homeowners.

The analysis shows for the first time that people who bought modest starter homes of one- or two-bed apartments in the Dublin region face enormous rises in their property tax bills.

A Dublin apartment valued in May 2013 at €225,000 is now worth 48% more, at €333,675. The tax bill on this property is set to soar from the current standard rate of €405 to €585, if the tax is not overhauled.

A Dublin apartment worth €425,000 and assessed for a tax bill of €765 two years ago is worth €630,275. The tax bill on this property ahead of next year’s assessment has already shot up to €1,125.

Outside Dublin, tax bills are also set to rise, though less steeply than in the capital. The price a house worth €225,000 in 2013 outside Dublin, is now worth on average €253,575. The standard tax bill on this property would climb to €495 from €405.

Local authority discounts would do little to modify the bills. The 2015 discounts range from 1.5% in Louth; 3% in Limerick, Longford, Mayo and Westmeath; 7.5% in Kildare; 10% in Cork City and county; and the maximum permitted discount of 15% in Clare. Seventeen councils did not reduce their bills this year.

Discounts of up to a maximum 15% levied on property tax bills by some local authorities would do little to lessen such large hikes.

Minister for Finance Michael Noonan confirmed that policy expert Don Thornhill will report back this summer on the workings of the property tax. “It is a live issue,” a Department of Finance spokesman said.

However, analysts say the large regional price differences and pre-election promises threaten to destroy the idea of the tax altogether.

“It will be a key political battleground as we move toward the next election,” said Investec Ireland chief economist Philip O’Sullivan.

“The property tax has been imperfect from the start. A lot of issues around it need to be looked at. But the danger is that any new approach will make a mockery of the property tax,” Mr O’Sullivan said.

TCD economist Ronan Lyons said: “Unfortunately, in tweaking the tax, you start falling victim to election politics. Fixing the bills at 2013 values means you have to be brave to insist [the bills] will increase in the future.”