Make houses cheaper: Government urged to reduce rate of VAT on new houses

The continuation of the Central Bank's restrictions on mortgage borrowing means the Government needs to reduce the rate of VAT on new houses to deliver increased supply of housing, particularly apartments, according to Property Industry Ireland (PII), the representative body for the property sector.

In a letter to the Minister for Housing Eoghan Murphy, Mark FitzGerald, a PII council member, said that "while this may have the effect of marginally increasing the return on some sites that are already viable, the societal cost of not immediately tackling the viability issues is a continued urban housing crisis".

The Government and the Oireachtas need to act to increase housing supply, according to Mr FitzGerald, the founder and now chairman of estate agents Sherry FitzGerald. He put this in the context of the continuation of the Central Bank’s macroprudential rules, which limit the level of borrowing to buy homes.

In setting the rules, the Central Bank seems to be "over-reacting to past failures," he said, adding that " our younger generation, in the area of housing, are paying the price not just of the crash but of consequent over-regulation".

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With the Central Bank rules in place, the Government and the Oireachtas must act to ensure that housing development is “viable for the housebuilder and affordable for the consumer”. As well as cutting VAT on new homes, he says the Government should retain the Help-to-Buy scheme, which offers a tax rebate to new buyers.

Planning process

Measures are also needed to reform the planning process and increase the supply of land for housing, according to Mr FitzGerald’s letter, which was sent following an appearance of PII at the Oireachtas Housing Committee. More strategic land zones – areas offering fast-track planning for housing, subject to certain conditions – are needed, together with closer planning of land use and transport links, it said. A radical plan is needed to come up with a rapid increase in serviced land with planning permission in Dublin in particular. The PII told the Oireachtas Committee that on its calculations, 35,000 new houses would need to be built every year for the next 27 years to meet demand.

Mr FitzGerald included an international report on housing affordability with his letter (the Demographic International Housing Affordability Survey 2017). It found that housing supply restrictions were a key factor in driving unaffordable markets. The report found that in 2016 Ireland was one of the more affordable of the markets surveyed, but that the exception was Dublin, which was then moving up to a point where affordability was significantly stretched. Since then prices have increased significantly faster than incomes, both in Dublin and nationwide.