A vacant property tax sounds good but it won’t make any difference

A vacant property tax falls into the category of something that sounds good, something that will play well politically, but ultimately something that will deliver next to nothing.

Don’t get me wrong, it’s galling to have so many empty homes in the midst of such chronic housing shortages. But vacancy is a complex phenomenon, one that won’t simply be magicked away by a tax.

As the Central Statistics Office (CSO) notes, many of the 183,312 homes recorded as vacant in Census 2016 were either for sale; were rental properties; had a deceased owner; or were being renovated. In the main, it's not fat cat "buy to leave" investors or foreign funds sitting on half empty apartment blocks, legitimate targets in most people's eyes.

The CSO’s figures give rise to a vacancy rate – the number of empty properties as a proportion of the total housing stock – of 9.1 per cent, which is high by international standards, the 10th highest in the world.

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Geodirectory – which adopts a narrower definition of vacancy and uses eircodes to identify empty homes – estimates there were 92,135 vacant units (4.5 per cent) in the second quarter of 2021. But even this might overstate it.

In a note to the Oireachtas housing committee, a senior official in the tax policy division of Minister for Finance Paschal Donohoe's department said a recent sample analysis, carried out on the number of vacant properties in 16 of the State's rent pressure zones, showed that the "urban areas of Cork and Dublin continued to show very low rates of vacancy".

The north inner city of Dublin showed a vacancy rate of 0.86 per cent while the rate for Clontarf was just 0.24 per cent. In the southeast of Cork city, the rate was 0.77 per cent, he said.

The CSO’s 183,312 figure contains multiple categories of vacancy. Some we might consider legitimate to tax, others less so. Drawing a line between them won’t be easy. Neither will navigating Ireland’s litigious culture. The soon-to-be-discontinued Vacant Site Levy triggered several legal cases.

Nonetheless Donohoe has indicated he intends to introduce a tax on empty homes “as early as possible”. He said information on vacancy included in the local property tax (LPT) returns would be analysed by Revenue to inform the design of the tax.

“Before introducing such a tax it is vital to have a sound understanding of the quantity, locations and characteristics of long-term vacant properties and the reasons why they are vacant,” he said during a committee stage hearing of the Finance Bill last week.

“There may be genuine and acceptable reasons for vacancy, such as refurbishment work, the temporary absence of the owner for medical reasons, or pending the granting of probate for a deceased person’s estate,” he said.

Possible LPT surcharge

Sinn Féin finance spokesman Pearse Doherty wondered if vacant homes in small Donegal villages would be hit by the same rate of tax as vacant properties in places like Dublin, where the housing need is greater. Are derelict cottages, for instance, to be taxed? This is another potential anomaly that will have to be worked through.

Given its focus on the LPT, the Government may be considering some sort of LPT surcharge on vacant properties similar to what’s been rolled out in the UK.

Such a measure would impose a higher rate – potentially 300-400 per cent higher – on houses or apartments that have been vacant for more than six or 12 months.

There is concern, however, that a blanket tax could hit property owners who might be abroad or own holiday homes, when the intended target is rich investors or those presiding over vacant apartment units. Kennedy Wilson’s 22-storey Capital Dock apartment scheme in Dublin’s south docklands was – earlier this year – reported to be half empty.

A vacancy tax if directed at foreign funds, enjoying high rental yields, will play well here – Fine Gael party leader Leo Varadkar has been pushing for one– but whether it will deliver in terms of supply – the ultimate aim – is another matter. And applying it to a wider pool of vacancy may prove controversial.

Other countries

Vancouver introduced one in 2017 amid dwindling rates of supply and on foot of a study that suggested there were more than 10,000 vacant homes in the city. However, the first report on the tax’s implementation in 2018 found the tariff only applied to 2,538 units.

This fell to 1,893 units in 2019 and in a city that is estimated to need 72,000 new homes to meet demand over the next decade.

Even so the concept of taxing empty homes – as a part solution to the housing problem – is being taken up by policymakers the world over.

Los Angeles is planning to put a vacant homes tax to the vote in 2022 amid a resurgence in homelessness there. Hong Kong, one of the priciest property markets in the world, is considering taxing apartment developers to deter them from hoarding. Barcelona has gone a step further, telling landlords to rent out their vacant homes within 30 days or risk having them repossessed for half their market value.

Governments are struggling to rein in housing costs and struggling politically as a result and taxing empty homes is the latest in a long line of solutions that unfortunately haven’t made a blind bit of difference.