Builders have reacted with alarm to news that the Government plans to penalise landowners who hoard vacant sites that could be used for housing from next year.
Minister for Finance Michael Noonan warned that the Government would tax speculators for sitting on empty development sites to boost their profits as property prices rise by introducing a levy on such properties in October's budget.
“People who are sitting on land as an asset will find themselves sitting on a tax liability,” the Minister said at the launch of State assets agency Nama’s annual report on Thursday.
Mr Noonan’s remarks sparked concern from builders. Michael O’Flynn, chairman of O’Flynn Capital Partners, argued that the Government should instead cut development levies, VAT and other charges that threaten sites’ viability and focus on providing services such as roads and sewerage that are needed for housing.
“A levy would be counter productive, it would be difficult to enforce and difficult to police,” he said. “There are very few people sitting on sites, are they going to go after everybody to punish a few?”
Tom Parlon, director general of the Construction Industry Federation (CIF) said that he agreed with the minister's sentiment but stressed any levy should have safeguards.
He said that it would have take into account the reasons why investors were unable to develop sites including planning difficulties, lack of infrastructure, funding and development costs.
Mr Parlon agreed that few investors were simply sitting on land but suggested that some vulture funds that have been buying property here may not consider some sites worth developing at this point.
Earlier this week, David Ehrlich, chief executive of Irish Residential Properties REIT, said many of the funds were "just sitting on sites" and were unprepared to sell.
Mr Noonan explained that the Government had yet to work out how much it would charge, as its lawyers have advised that the levy has to be proportionate to the social end that it is trying to achieve.
However, he argued that an annual charge of 1,2 or 3 per cent a year on property worth €1 million or more should be enough of an incentive for land hoarders to sell.
The Minister’s successor is likely to introduce the levy as Mr Noonan is retiring from Cabinet next week.
He was responding to Nama chief executive, Brendan McDonagh, who said that there was evidence that speculators were holding on to sites without building on them.
Nama’s annual report for 2016 shows that since 2011, the agency and its clients sold sites with the potential to hold up to 50,000 homes. The purchasers have built or started a total of 3,220 houses, just 6 per cent of the land’s capacity.
Mr McDonagh noted that it was a question of “doing the maths”. He said that if a house’s price rises to €450,000 from €300,000, the value of a site rises €180,000 from €50,000.
He said that this meant speculators had to invest very little money in order to earn a profit.
“Some people are are not buying to build and some people are buying not to build,” he added.
Mr Noonan said that the Government had considered bringing in the levy a few years ago, but the Attorney General’s office advised that it should first give notice that it was considering the measure.
The minister added that speculators had at this stage been warned and said that the levy would be part of a Government “stick and carrot approach” to tackle the problem.