Apartment Vat cut offers ‘no saving for anybody’

Sources say the Vat reduction is being recovered by the State. See Mick Clifford's analysis of the issue in print and online on Saturday, November 29. Stock picture: Larry Cummins

The Department of Housing is recovering a reduction in Vat that was granted to apartment builders in the budget to stimulate the development of new homes, according to documents seen by the 'Irish Examiner' and sources within the industry.

The reduction in Vat on the building of apartments, from 13.5% to 9%, was announced by then finance minister Paschal Donohoe in October’s budget speech, but it now appears that nobody is actually benefitting from it.

In effect, any savings arising from the Vat reduction for developers are being passed back to the State.

The Vat reduction was introduced, Mr Donohoe told the Dáil, to “help address the viability gap in apartment construction as part of a social policy to deliver more and higher-density apartments”.

Mick Clifford's analysis of the Vat reduction issue is published in the 'Irish Examiner', in print and online, on Saturday, November 29   

By reducing the cost of construction, it would stimulate greater building of apartments, Mr Donohoe said.

Yet, within a week of the announcement, the Department of Housing wrote to the Housing Agency, instructing that it “seek to obtain the benefit of the 4.5% Vat rate reduction on the cost of the apartments”.

This was to be done by asking approved housing bodies — not-for-profit organisations of which manage social housing — to renegotiate contracts on the back of the Vat reduction.

Practically all of the apartments that are currently being built are for the State in one form or another.

As a result, any savings on the Vat measure are actually being passed back to the State.

“You couldn’t make it up,” one industry source told the 'Irish Examiner'.

They bring in a cut in Vat and yet there is no savings by anybody... it’s all just smoke and mirrors. 

On Tuesday, the newly-appointed finance minister Simon Harris told the Dáil that the Vat reduction measure was expected to cost €250m in 2026.

This would equate to an investment in apartment building of €5.5bn from the private sector, up from a negligible sum this year.

A spokesperson said the department’s guidance issued to the Housing Agency related to projects which were already at an advanced stage before the new measure was introduced.

They said: “Some developers indicated that they were in a position to pass through some or all of the reduction to consumers, and this aspect was captured by the circular issued by the department.”

Conor O’Connell, director of housing at the Construction Industry Federation, said that the State and State-funded entities are currently the biggest purchasers of apartments.

Mr O’Connell said: “In the immediate term, the biggest beneficiary of the Vat reduction will be the State itself as it pays less for its apartments.”