New Bacon report likely to recommend tax on speculators

The forthcoming Bacon report into house prices is likely to target speculators through new tax measures in an effort to dampen down the market. Once endorsed by Cabinet, a Bill is expected to be introduced in the autumn.

The report, by economist Mr Peter Bacon, is expected to go to Cabinet on June 13th and should be published later that week.

The report has already been seen by the Minister of State, Mr Bobby Molloy and the Minister for the Environment, Mr Noel Dempsey, as well as several other Cabinet members. However, the recommendations which will be put forward by the Government have not yet been finalised. Economist Mr Peter Bacon has found evidence of speculative activity in the housing market, in marked contrast to the finding of his first report in 1998.

At that time UCD economist Mr Anthony Murphy, who did most of the detailed work on the report, found that the vast bulk of house price rises could be accounted for by fundamental factors. About half the rises were due to demographics and immigration and the other half to rising incomes.

However, there is now a sizeable amount of recent rises which cannot be accounted for by these factors, and the report is understood to attribute them to speculators. This is despite incomes, employment and immigration growing at a faster rate than was projected in the first report.

There are a number of measures which may form part of the final proposals to go to Cabinet. One key issue is the amount of zoned and serviced land which is currently not being used. The Government may be keen to target the small number of developers who are sitting on the bulk of such land in the Dublin region.

One option could be to tax this land at a higher rate than is currently the case. However, developers are likely to find ways around this proposal. The compulsory purchase of such lands if not developed, is also a possibility. This would be popular with the electorate but could be tied up in constitutional challenges. Suggestions of a higher rate of capital gains tax are unlikely to find favour with the Minister for Finance, Mr McCreevy.

Further measures to tackle the supply side are also likely to be introduced. The increases in supply envisaged by the first report are beginning to show through but not to an extent which is sufficient to slow the market substantially.

Allocating a considerable increase in staffing resources to planning departments could also help speed up planning applications for housing schemes. One option could be to reintroduce a local housing tax which would provide incentives for local authorities to grant planning permission for more homes but this is unlikely to be brought in for political reasons. A more likely option may be to set down guidelines on planning contributions from developers which are currently negotiated individually.

One problem for Mr Bacon is that the recommendations he has made in his two previous reports have not been fully effective to date. The measures to restrict investors in the private rented sector partly resulted in large increases in rents, making life difficult for returning immigrants and many others who rely on the rental market for housing. Last year's proposal to ensure that developers set aside part of their land for social housing are also not operational yet. There is a possibility that many builders are actually sitting on such land hoping that this will either be overturned in the courts or that political lobbyists will succeed in watering the measure down.

When contacted, Mr Bacon said he could make no comment on the new report's contents, prior to its publication.