The Government should scrap VAT on houses to boost the supply of new homes, even it means higher profits for developers, according to Charles Gallagher, executive chairman of high-profile builder Abbey.
Speaking after the Dublin-listed company's annual general meeting in Malahide, Mr Gallagher called the 13.5 per cent VAT charge on house sales a massive tax that made it uneconomical to build houses for speculative sale.
“If they reduce VAT on houses, it will in time lead to higher output,” he said. “It will also lead in broad terms to higher profits for speculative builders.”
His remarks come just days before the budget, when the Government will be under pressure to take steps to tackle the housing crisis, which sparked a mass demonstration in Dublin this week.
Mr Gallagher argued that higher profits for developers was one of the trade-offs the Government would have to accept as it sought to tackle the shortage.
He pointed out that there were a lot of factors, such as planning and other controls, that drove up costs and limited the number of houses built in the Republic.
“There is a need to reduce those costs and there are going to be trade-offs,” he said.
However, he said the Government should not eliminate VAT all at once but instead reduce it to zero over several years.
VAT is not charged on houses the UK, where Abbey does most of its business. Mr Gallagher noted that the company had seen the VAT impact "work in reverse" in the Czech Republic, where it is also active. The government there increased the rate to 15 per cent from 5 per cent and "shut down the market" for several years as a result, Mr Gallagher said.
Groups such as the Construction Industry Federation have also called for VAT on houses and other levies to be reduced or axed to stimulate house building.
Mr Gallagher agreed that such organisations repeated the same calls in the run-up to the budget every year, but pointed out that they were raising real issues for the industry.
Abbey owns enough land to build 600-700 new homes in the Republic and hopes to begin work on 120 houses on sites in the greater Dublin area in coming months. Mr Gallagher explained that planning had lapsed or zoning had changed on several locations where Abbey had been unable to build following the crash.
The company intends to reapply for permission on these sites, mainly in counties Laois and Kildare, in coming months. It is also seeking to buy development land.
Britain accounts for around 80 per cent of it business. The group has sites for more than 3,000 new homes in all, but Mr Gallagher said he wanted to see more balance in its activity.
Abbey earned €58.63 million profit before tax in the 12 months to April 30th, 7 per cent less than the €63.5 million it reported in 2017. Shareholders passed all resolutions at the agm.